We're so irrational: Yet another amazing example
As absurd as it sounds, our willingness to pay for an object changes drastically after we’re asked whether it’s worth a random price. If the random price is high (low), our willingness to pay rises (falls) dramatically:
A group of students were shown a series of products. There were a couple of bottles of wines, a couple of computer components, and a couple of unrelated products. Each student was given a sheet with the products listed on it. They were asked to write the last two digits of their social security number at the top of the page. Mine are 43 so I would have written “43” at the top of the page. Then they were asked to write that number in the form of dollars (e.g. $43) next to each product listed. Then they were asked to write whether they would pay that amount (e.g $43) for each product by writing yes or no next to each product. Finally they were asked write the maximum amount they would pay for each product. In this case they were actually bidding on the products and the top bidder would actually win the auction.
Now here is the wacky part of all this. The fact that the students contemplated a decision at a completely arbitrary price, the last two digits of their social security number, very heavily influenced what they were willing to pay for the product. The students denied that the anchor influenced them, but the data shows something totally different. Correlations ranged from 0.33 to 0.52. Those are extremely significant.
The students with social security numbers in the top 20% (80-99) placed bids from 216% to 346% higher than those with social security numbers in the bottom 20% (01-20). As an example, the top 20% bid an average of $56 for a cordless keyboard while the bottom 20% bid an average of $16!
One implication (of many): If you’re shopping in an expensive store, you may feel great about buying a product that appears cheap relative to other products in that store… even if that product is wildly overpriced relative to what you could buy it for elsewhere.
Posted by James on Friday, October 23, 2009