There is an old sales trick where you go into the electrical store looking for a new tv. The salesman gets an idea of the size and type of tv you are looking for and shows you the most expensive model they have. He knows that most people will baulk at the price but that’s ok, he’s not trying to sell you that tv. He’s trying to sell you the next one that he shows you. Now you have seen the really expensive one, that price is in your head and the lower one looks reasonable, afterall it has almost all the same features that the first one had. So you buy it. This is called anchoring and impacts on our spending every day.
Where you grew up is likely to have an impact on how much you spend on housing, cars, clothes. If you live in an affluent area, the houses are bigger and more expensive and the cars are newer and bigger (cars are the easiest way to give the impression of wealth). This is going to impact on how much your life costs. The starting point on how much things cost in life are based around what you have grown up with, even if you can’t afford it yourself.
It works the other way too. I was on Inis Mór recently and there were a group of local mothers picking up their kids from the lifeguarding class they were doing on the pier. They were all driving bangers. No one drives new cars there so it doesn’t influence people’s decisions to buy an expensive car.
Think again. A number of years ago in MIT, a class were asked to take the last 2 digits on their social security number and write it down and then convert it to dollars. They were then shown a number of items and asked if they would buy these each of these items for the amount they had written down. They were then asked to bid on each item and the winner of each item went up and collected their item.
When the bids were analysed, they saw that those with the last two digits ending 80 – 99 placed bids that were 216% – 346% higher than those with the last two digits ending 01 – 20. Even though the students knew that the anchor amount was arbitrary, it still influenced how much they bid on the items.
Steven Barrett
26 July 2021