Why can’t we just negotiate with real numbers. Why do car sales cause us to feel like we have to be pumped up before we go into the dealership to buy a car. What does the car sticker price mean to us. Or some deep energetic voice on a car commercial who is screaming at us that the price is LOWER THAN THE MANUFACTURER’S PRICE. HURRY IN!
The principal of price anchoring was proven in a 2005 study by psychologists at MIT. (Inc.com) Or as the psychologists proved, “Your first perception lingers in your mind, affecting later perceptions and decisions”.
Here is what that means based on their experiment:
The researchers were selling a wide range of items that included French wine, chocolate truffles and even a cordless keyboard. It was an auction that came with a twist for the MIT students that were bidding on the items.
Before the students could bid, they were asked to write down the last two digits of their social security numbers. Then, they were asked to base their auction bidding on whether they were willing to pay more or less than that unrelated two digits. For instance, if their last two digits was 38, they had to decide whether they would pay $38 for the keyboard or bottle of wine. Finally, the students were then asked to write down the maximum amount (like an eBay auction) that they were willing to pay for that item.
In reality, those two digit social security numbers should have had no relevance on the amount that the students were willing to pay for an item. However, the researchers determined that on average, students with higher numbers were willing to pay 3% more for the items because of those meaningless social security numbers. A totally unrelated price anchor.
The psychologists determined that meaningless anchor numbers can have a strong impact on financial decisions. Despite an item being priced too high, when the inevitable discount is offered, the frontal cortex of our brains are convinced of the bargain.
Now imagine how that applies to jury verdicts. It makes it difficult as a lawyer to know the amount to ask for in a jury trial. As a lawyer, I may be asking the jury for an amount that is truly the amount that my client is seeking. However, our brains are conditioned to be anchored by an amount… and then expect a discount.
And for our pic o’ day… here’s an amazing deal right here: