Why the First Price You See Decides What You Pay
Anchoring is real, it is one of the best replicated findings in psychology, and the researchers who study it do not agree about how far it stretches. Here is the theory, the dissent, and what we think you should do at the shelf.
Key takeaways
- The first number you meet sets the scale you judge later numbers against. Tversky and Kahneman showed it in 1974 with a rigged wheel of fortune, and estimates moved from twenty-five per cent to forty-five depending on where the wheel stopped.
- It survives expertise. Englich, Mussweiler and Strack had experienced legal professionals throw dice before sentencing, and higher rolls produced longer sentences.
- The famous version, in which any number at all moves what you pay, is disputed. Fudenberg, Levine and Maniadis could not reproduce it on market goods and found nothing on lotteries.
- Sugden, Zheng and Zizzo found the condition that matters: the number moves you when it is framed as a plausible price for the thing being valued.
- Knowing what things cost protects you better than knowing about the bias, and arguing deliberately that the number is wrong is the one defence with direct evidence behind it.
The bottle at the top of the wine list is not there to be drunk. It is there so that the house red at thirty-four pounds reads as sensible, and it works on people who would never consider spending ninety. The same job is done by the price struck through on a tag, by the phone at sixteen hundred standing beside the phone at seven ninety-nine, and by the enterprise tier on a pricing page that almost nobody buys.
Psychologists call it anchoring. The first number you meet sets the scale you judge every later number against, and once the scale is set you do not feel yourself using it. You just feel that thirty-four is reasonable.
## Where the idea comes from
Amos Tversky and Daniel Kahneman put it on the record in 1974, in a paper that is still one of the most cited in psychology. They spun a wheel of fortune in front of students at the University of Oregon. The wheel was rigged to stop at ten or at sixty-five. Then they asked the students what percentage of the countries in the United Nations were African.
The ones who saw ten answered twenty-five per cent on average. The ones who saw sixty-five answered forty-five.
Everybody had watched the number come off a wheel. It made no difference.
The effect turns up wherever someone has to produce a figure they cannot look up. Birte Englich, Thomas Mussweiler and Fritz Strack took it into a courtroom, where experienced legal professionals read a case file and, in one version of the study, threw dice themselves to generate a prosecution demand before passing sentence. High rolls produced longer sentences. The authors report that expertise and experience did not reduce the effect, which is the part that should worry anybody who thinks their own judgment is trained.
Gregory Northcraft and Margaret Neale ran the property version. Estate agents were given a house to value along with a listing price, and their valuations followed the listing. Kahneman puts their anchoring index near forty-one per cent against forty-eight for students doing the same task, so experience helped and came nowhere near rescuing them. That figure is from his book rather than the paper, which we have not read, so treat it as an indication of scale.
## Not everyone agrees about how far it goes
Here is where the popular version and the research part company, and it is worth knowing before you pay anyone for advice about it.
The story that spread outside psychology is that any number works. The demonstration behind that story comes from Dan Ariely, George Loewenstein and Drazen Prelec, who had people write down the last two digits of their social security number, consider whether they would pay that many dollars for wine or chocolates, and then bid for real. High digits produced much higher bids. It is a wonderful result, and it is the one on every pricing slide.