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Have you heard of anchoring? Anchoring is a phenomenon that’s been mentioned in several of the books I’ve read lately, including Predictably Irrational.

Basically, anchoring is a tendency to evaluate one thing based on our perceptions about another thing (the “anchor”). This anchor can be completely unrelated to the item being evaluated, but we still unconsciously take it into consideration when making a decision about or evaluating the price we’re willing to pay for an item.

In Predictably Irrational, the author describes a study where participants wrote down part of their social security numbers, and then were asked questions about how much they were willing to pay for an item.

The amount they were willing to pay correlated with having a higher or lower social security number. So the participants were using a completely unrelated number to determine the monetary value of an item.

Unfortunately, we do this all the time, often without realizing it.

It’s as if the need to compare is built into our brains, and we find something to compare with whether it makes sense or not.

Companies often use this phenomenon to their advantage when pricing products. For example, we’re probably more likely to think an item is a good value if it has a crossed out higher price listed as well.

You almost never see things for sale at  MSRP (manufacturer’s suggested retail price), but rather you see the MSRP listed and then the actual price. The is especially common in car sales — and we determine how good of a “deal” we got based on how much “under sticker” we paid, instead of evaluating our purchase based on things like what we can afford, how reliable the car is likely to be, etc.

It’s also a common way to encourage someone to purchase in the first place. Being aware of our natural human tendency to use anchoring can help us make more logical purchasing decisions.

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