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UUCF Summer RE 2011


UUCF Summer RE 2011 Brain Glitches Session 6: Anchoring Bias And the Decoy Effect Do you put the sweater on? If it s a new sweater? How about if it s his ... – PowerPoint PPT presentation

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Title: UUCF Summer RE 2011

UUCF Summer RE 2011
  • Brain Glitches
  • Session 6 Anchoring Bias
  • And the Decoy Effect

  • Do not look any of the answers up or ask for
    help. This is about your best guesses.
  • 1. a) Please write down the last two digits of
    your telephone number here _________.00
  • b) How much would you be willing to pay for a
    download of the hottest new computer game?
  • 2. a) Do you think the population of Venezuela
    is more or less than 75 million people?
  • (check one)
    _________ more __________ less
  • b) Please give your best estimate of the
    population of Venezuela _________ million
  • Suppose you were interested in subscribing to a
    magazine on one of your favorite activities.
  • Assuming you could afford either one, which one
    of these choices would you pick?
  • _____ a) online edition 49.00 per year
  • _____ b) print edition 129.00 per year
  • _____ c) special deal both print and online
    versions for only 129.00 per year!

Anchoring Bias
  • Suppose you see a really fabulous leather coat in
    a store. Maybe like one of these.

  • You try it on. Its the best coat youve ever
    seen. It fits like a dream. It feels wonderful.
    You WANT this coat! So you check the price
  • YEOWCH!!!!

  • But the friendly salesperson is right there to
    help you.
  • Its usually 1000, but we are having a really
    big sale. Today only, its 400.
  • Wow. Its a bargain, right?
  • Really?

  • Would you normally have walked into a store, paid
    400 for a coat, and walked out thinking you got
    a bargain? No?
  • Whats going on here? Its something called the
    Anchoring effect.

  • Lets look at the quiz I handed out at the
    beginning of class, and at the question about the
    population of Venezuela.
  • What was your answer?

  • Most people, when asked questions of this sort
    are likely to give an answer somewhere around the
    number given, in this case 75 million. That
    number has no relation to the correct answer.
  • The population of Venezuela is around 28 million.
  • How did you do?

Whats going on here?
  • When your brain is asked to assign a numerical
    value to something, and you really have no idea
    what that value really should be, your brain
    looks around for a comparison.
  • And once you have that comparison number in your
    head, it affects what you are thinking, even when
    its an irrelevant number.

  • Lets look at another example. How much did you
    say the computer game was worth? The number you
    wrote down just above it was random, with no
    relation to what the price should be.
  • Should it have had an effect on you?
  • Did it?

  • A research study in 2006 tested this idea with a
    mock auction.
  • The researchers would hold up a bottle of wine,
    or a textbook, or a cordless trackball and then
    describe in detail how awesome it was.
  • Then, each student had to write down the last two
    digits of their social security number as if it
    was the price of the item. If the last two digits
    were 11, then the bottle of wine was priced at
    11. If the two numbers were 88, the cordless
    trackball was 88.
  • After they wrote down the pretend price, they

  • Sure enough, the anchoring effect scrambled their
    ability to judge the value of the items.
  • People with high social security numbers paid up
    to 346 percent more than those with low numbers.
  • People with numbers from 80 to 99 paid on average
    26 for the trackball, while those with 00 to 19
    paid around 9.

  • One more example Black pearls.
  • Pretty, right?
  • Are they worth more or less than regular pearls?

  • In the 1970s, when these pearls were first
    introduced, people had no idea whether these
    should be more or less expensive than regular
    white pearls.
  • But jewelers know about the anchoring effect.
  • Harry Winston Jewelers (of Hope Diamond fame) put
    the pearls in expensive settings and put them on
    display next to other fabulous pieces of jewelry.
  • Like this

  • Now Tahitian black pearls are an expensive luxury
    item. Not because they really have more value
    than other pearls, but because jewelers have
    gotten us to think they do.
  • Do marketers use this on us? All the time!
  • 19.95 sounds cheap
  • RIGHT?

Just 3 Easy Payments of 19.95! (plus sh)
  • (OK, 19.95 is about 20. So thats really about
    60 total, plus about 10 shipping, so were
    talking 70 here.)

Well throw in this!
  • And this thing!
  • And a bunch of these!
  • (Just pay separate shipping and handling for

  • By the time they are done throwing in free junk,
    with all the shipping and tax, you are paying
    maybe 100 for a pile of stuff you dont need.
    But they got you to anchor on a number (19.95)
    that sounds like a sweet deal, and never
    mentioned another dollar figure. They just keep
    repeating 19.95 over and over again.
  • Does this only apply to money?

  • In a 1975 study researchers asked a group
    of students to volunteer as camp counselors two
    hours per week for two years.
  • They all said no.
  • The researchers followed up by asking if they
    would volunteer to supervise a single two-hour
  • Half said yes.
  • Without first asking for the two-year commitment,
    only 17 percent agreed.

  • Marketing people know about this effect, and they
    will use it against you.
  • But it can work for or against you in other ways,
  • Try this. You are applying for a job, and
    negotiating a salary.
  • Suppose you let your employer suggest a salary,
    and he says 30,000 is about right. You think
    thats low.

  • Can you do better? you say
  • Well, since youre well qualified, I can
    increase that by 10
  • And you get offered a salary of 33,000.
  • Now say you take the lead instead.
  • I think 40,000 is an appropriate salary for
    this job you say.
  • Thats a little high. I can do it if we take
    10 off of that figure

  • So you get a job offer for 36,000. Either way,
    the boss would only move 10 off the number in
    his head, but when you put a number in there
    before he could fix on one of his own, you came
    out 3,000 better.
  • If you are aware of the anchoring effect, you can
    use it in your favor, and catch when people are
    using it on you!

Decoy Effect
  • When bread machines first came out, they looked
    really cool. One store was having trouble
    selling them, though.
  • They had a good machine
  • for a moderate price.
  • What was wrong?

  • They asked a marketer what to do.
  • The marketer said get a few really nice
    expensive machines and put them on display too.

  • The new expensive machines didnt sell at all.
  • But the lower priced ones started to sell!
    Because now people had a point of comparison, a
    place to start from in figuring out whether
    something was priced fairly.

We Rely on Comparisons
  • Now back to our quiz
  • online edition 49.00 per year
  • print edition 129.00 per year
  • both print and online editions 129.00 per year!
  • Whats up with this? Do they really expect
    people to buy the print only edition?

  • No, of course they dont!
  • But researcher Dan Ariely saw this and tried an
    experiment. He gave one group the choice we had
  • He gave a second group this choice
  • online edition 49.00 per year
  • print and online versions 129.00 per year
  • How do you think this experiment came out?

  • Nobody bought the expensive print only edition.
    But when there were only two choices offered,
    fewer people took the more expensive choice.
    Adding the decoy option got more people to choose
    the more expensive one.
  • Watch for this, it gets used
  • all the time. Nobody actually
  • takes the decoy, but it changes
  • the choices people make.

Decoys dont have to be just money!
  • Heres another study.
  • Face A and Face B are
  • about the same
  • attractiveness.
  • Face A is Face A
  • Photoshopped to look
  • uglier. Same deal on Face -B

  • Women were shown one
  • column of faces only, and
  • asked who would you rather
  • go out with?
  • When presented with
  • A, -A and B, more women
  • chose A.
  • When shown A, -B and B
  • more women chose B.
  • Nobody chose the ugly faces.

  • When presented with a hard choice between equally
    good things, we look for a comparison. And when
    the comparison is similar, but not as good as,
    one of our other choices, it makes that choice
    look better.
  • Even when it isnt.
  • 500,000 490,000 500,000
  • needs repairs

Related Ideas
  • We put more value on things that belong to us
    than on other similar things. Even if those
    objects are pretty much identical.
  • How much would you pay for a used Nintendo DS?
  • How much would someone have to pay you for your
    DS for you to sell it?
  • Are these two numbers different? Why?

Significant Objects
  • We attach significance to objects that has
    nothing to do with their actual value.
  • Supposing you are cold, and a friend offers you a

  • Do you put the sweater on?
  • If its a new sweater?
  • How about if its his
  • favorite sweater?

  • Do you put the sweater on?
  • If its from a thrift store?
  • How about if it belonged
  • To his uncle who died
  • last week?

  • Do you put the sweater on?
  • If its George Clooneys sweater?
  • Hitlers sweater?
  • Its just as warm.
  • Do you put it on?

  • In each case the sweater will keep you just as
    warm. Its the same sweater.
  • But how we feel about objects gets mixed up with
    how valuable or useful they are.
  • Sometimes we cling to things we shouldnt or
    avoid things that would be really useful because
    of this.

Loss Aversion
  • And we really dont like losing things. We call
    this loss aversion.
  • Getting 100 is great. But losing 100 sucks.
    Really sucks. Weve found out from research that
    people think losing 100 sucks way worse than not
    getting 100 in the first place.
  • So people often pass up opportunities for getting
    something good, because they dont want to let go
    of what they have. Even if what they have isnt
    really that great to begin with. (This goes back
    to the sunk cost fallacy from last week.)

One last example
  • Suppose you are headed to the movies and a ticket
    costs 10.00.

  • Scenario A
  • You get to the theater and realize that you lost
    a 10.00 bill on the way. Do you still buy a
    ticket and see the movie?
  • Scenario B
  • You buy your ticket in advance, but when you get
    to the theater youve lost it. Do you buy
    another ticket and see the movie anyway?
  • Are your answers different?

Watch out!
  • Watch out for these things that might cause you
    to make bad decisions
  • Anchoring
  • Decoys
  • Mine!
  • Loss Aversion
  • Remember, to debug your brain, you need to know
    about the glitches in the system!
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