NY Times: Sometimes, We Want Prices to Fool Us, 2013-Apr-14, by Stephanie Clifford and Catherine Rampell
So how can we make anchors work for us as decision-makers?
Consumers infer that they get a great deal based on the reference point provided by the higher, presale price. Social scientists refer to this idea as anchoring, and it applies to all sorts of consumer behavior and expectations. Without that anchor, consumers have trouble determining whether the store is actually giving them a good price.
- Watch for them. They may come from a seller or they may come from your memory, but they work as a 'suggested answer.' You'll tend to stay irrationally close to them in your final answer.
- To be the anchor, the suggestion has to be irrelevant--it's information you ought to ignore. Sometimes it's hard to tell, but the more risk you face, the more your radar ought to be on the lookout for anchors.
- When presented with an outrageous asking price, do NOT counter. Insist that the seller come up with a new anchor first. Be prepared to walk away.
- Attack the anchor. If you have to decide and you can't make it go away, do everything you can to discredit it. That means: do your research and find real information to help you make the right choice.
Read more about anchors: http://www.pon.harvard.edu/daily/negotiation-skills-daily/the-enduring-power-of-anchors/
NY Times: Who Says New York is Not Affordable, 2013-Apr-13, by Catherine Rampell
Professional-class workers who like to moan about the cost of living in New York — and I’m including myself in this group — don’t realize how spoiled we are by both variety and competitive pricing. Truthfully, things seem more expensive here because there’s just way more high-end stuff around to tempt us, and we don’t do the mental accounting to adjust sticker prices for the higher quality. We see a sensible shoe with a $480 price tag or an oatmeal cookie for $4 and sometimes don’t register that these are luxury versions of normal items available from Payless or Entenmann’s.
The problem, in part, is that people tend to anchor their own expectations for what they should buy based on what their neighbors are buying, not what some abstract, median American buys. It’s a phenomenon known by some as affluenza, and it partly explains the overborrowing by the lower and middle classes during the bubble years, when their incomes were flat but their high-income neighbors’ incomes were growing phenomenally.