Anchoring Effect (Psychology)

This is a pretty interesting article about the "anchoring effect".

Anchoring Effect Example:

A simple example is when you see let's say a pair of designer label jeans for a price of $300+, but it's on sale for only $99. The "anchor" is the fact that it's designer jeans (you expect it to be expensive) and its original price tag of $300+. Now $99 seems like a great deal and you buy it. But, realistically are those jeans any better than a "regular" $50 pair of jeans? Probably not. Here's an excerpt from the guy's experience (I've only just discovered his blog and he has some interesting psychology articles).

You walk into a clothing store and see what is probably the most bad ass leather jacket you’ve ever seen.

You try it on, look in the mirror and decide you must have it. While wearing this item, you imagine onlookers will clutch their chests and gasp every time you walk into a room or cross a street. You lift the sleeve to check the price – $1,000.

Well, that’s that, you think. You start to head back to the hanger when a salesperson stops you.

“You like it?”

“I love it, but it’s just too much.”

“No, that jacket is on sale right now for $400.”

It’s expensive, and you don’t need it really, but $600 off the price seems like a great deal for a coat which will increase your cool by a factor of 11.

You put it on the card, unaware you’ve been tricked by the oldest retail con in the business.

Anchoring Effect

The price you are paying is the one that matters, not the price that it used to be. It's the same if you are trying to sell a house, the price you paid should have no impact on the price you sell it for. The market doesn't care how much you paid...Only how much it is worth now.

Update: I'd like to add that I've taken some negotiation courses, and anchoring as you might expect plays a role during negotiations.

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