Is it cheap or expensive?

Imagine product price isn’t displayed on a website before signing in as it is on the GoPractice website. Users visit it for the first time, explore a product, and pose an approximate price they are willing to pay.

This price is based on various factors — person’s income, similar product’s value, product descriptions, etc. Let’s say the average user is ready to pay $200.

What if a price would be displayed? For example, $1000. Will it change the price people are ready to pay? Will the average product rating be higher (in this case) or lower (if the displayed price had been $100)?

It turns out that this is most likely to happen. Kahnneman calls this process the anchoring effect — it is when, before evaluating an unknown value, we are faced with an arbitrary number or ‘an anchor’. For example, a woman may be more likely to purchase a dress if it is placed alongside other more expensive models (an anchor). This is a cognitive bias, and it will happen to us even if we know nothing about it.

It doesn’t mean, that from now on, all users are willing to pay $1,000. However, the average product value will grow significantly from the original $200.

Here is an example from the realm of charity.

Visitors to The Exploratorium (a museum of science, technology, and arts in San Francisco) were told about the harm of oil on the environment. They also were asked if they were willing to donate money annually to save 50,000 seabirds until there is a way to prevent the negative impact of oil or make the oil tanker companies pay for it.

Some visitors were first asked a question with an anchor (“Would you agree to pay $5?”). If the visitors were asked a question without anchor, then they agreed to pay on average $64. If an anchor was set at $5, then the average amount raised to $20. If an anchor was increased to $400, the average increased to $143.

Surprisingly, even experts (to a lesser extent than ordinary people), for example, real estate agents, are susceptible to this effect. There were experiments, in which real estate agents were shown different house prices (higher / lower) and asked to give their estimate based on its characteristics. Agents were proud of their ability to ignore the stated price… And at the same time (oops!), without realizing it, they strongly tied their estimate to the stated one.

What is more surprising is that the number itself may not be directly related to the price. The anchoring effect works even when random numbers are specified.