My Very First Anchoring Effect Implementation
Before I start, I would like to give some brief information about myself. I was born in Turkey in 1981, and was raised in a highly academic environment, in which the neo-classical economic model was much in vogue.
In 1990, my parents decided to sell their house in Ankara. During those years, you didn’t have the chance to take photos with your smartphone and upload them to a website, then share the link with your friends on a WhatsApp group. It was a ‘hard-core analogue’ world.
They advertised the house in a newspaper. (It was a very common practice then.) Nonetheless, one of our family friends is a professor of advertising. I don’t want to give his name here, but he’s a prominent Turkish academic.
He advised my parents to use the word ‘bargain’ to create a direct response. He was right, insofar as this is a great tactic when everything operates rationally. There was one tiny thing everyone missed, however: people love to negotiate. This in turn means one thing: the advertised price will not be the final price. That will be a lower price.
This is explained by the anchoring effect. Anchoring is a particular form of priming effect whereby initial exposure to a number serves as a reference point and influences subsequent judgments about value.
At the age of nine, I didn’t have any knowledge of economics, behavioural economics or psychology. Still, I knew one thing, which was that my parents had to advertise a price higher than their expected price. When the buyer concluded a negotiation, my parents would get the money they wanted and the buyer would be happy because it was a discount! The deal would be cheaper than the buyer’s reference price.
Sadly, no one took my views seriously and they even said this scenario was not ethical or rational. Actually, it was both highly ethical and irrational. Everyone would be happy – and without taking a loss! Fortunately, in the meantime, Dan Ariely and Daniel Kahneman were working on developing behavioural economics and soon my suggestion would be scientifically proven.
Did I ever use an anchoring effect myself? Yes, I did. When I needed to sell my Ford Focus in 2008, before moving to the UK, I advertised my car with an anchoring price. I was absolutely sure that people would negotiate and we would agree on a lower price.
It did happen! The buyer was extremely happy, as they were expecting an anchoring price and they ended up with a cheaper one! I was happy, because I sold my car in less than five days. Thanks to behavioural economics, everyone was happy and the deal was successful.
To make a long story short, if a nine-year-old suggests an irrational idea, before you ignore it, just Google it!