THINKER'S ALMANAC - October 24

When asking for a raise or buying a house, why should you always try to be the first one to offer up a number?

Subject:  Anchoring effect - Kahneman and Tversky’s Wheel of Fortune

Event:  Founding of the United Nations, 1945

[The anchoring effect] occurs when people consider a particular value for an unknown quantity before estimating that quantity.  What happens is one of the most reliable and robust results of experimental psychology:  the estimates stay close to the number that people considered -- hence the image of an anchor. -Daniel Kahneman

On this day in 1945, the United Nations was officially opened.  

The most famous of all international organizations was put together at the end of World War II in hopes of preventing the kinds of death and destruction that nations suffered both during World War I and World War II.  Representatives from 50 countries met first in San Francisco in April 1945 and spent two months drafting the UN Charter.

                                                        Image by Miguel Á. Padriñán from Pixabay 

In 1974, nearly 30 years after its founding, psychologists Amos Tversky and Daniel Kahneman created an experiment using data on the number of member nations in the U.N.  They first created a rigged wheel of fortune.  Although the wheel featured numbers from 1 to 100, the only numbers any spinner could possibly land on were 10 or 65.  After spinning the wheel, subjects were asked to guess the percentage of African nations in the U.N. and whether the number that they had spun was higher or lower than the percentage they predicted.

The results revealed that the subjects who spun 65 guessed on average 45 percent; subjects who spun 10 guessed on average 25 percent.  Even though the seemingly random number spun on the wheel had no relationship to the actual number, the number nevertheless appeared to influence the subjects’ guesses.  

(Note:  the actual percentage of African nations in the UN in 1974 was 36 percent.)

Kahneman and Tversky’s experiment documented what is known as the anchoring effect, a cognitive bias that influences our decision making.  When making decisions or predictions, humans search for reference points, even arbitrary or irrelevant ones such as the number generated by the wheel of fortune.  We become “anchored” to the initial data we are offered, and even though we are not consciously aware of it, we allow it to influence our decision.

The anchoring effect is well known to retailers.  Often you see two prices, for example, on a piece of clothing you are considering for purchase.  The first and higher number is the “recommended retail price”; this number is the anchor.  Its purpose is to create the impression that you are getting a good deal since the actual selling price, the second number, is always considerably smaller.  A $40 shirt with a “recommended retail price” of $60 feels like a better deal than a shirt that is being sold for $40 without a “recommended retail price” (1).

In his book Thinking Fast and Slow gives another example of how the anchoring effect is used in real estate:

If you consider how much you should pay for a house, you will be influenced by the asking price.  The same house will appear more valuable if its listing price is high than if it is low, even if you are determined to resist the influence of this number . . . . (2).

When making purchasing decisions, be on the watch for anchors.  If you are talking to your boss about a raise, be aware that the first number mentioned will become the anchor; therefore, try to be the first one to drop the anchor.

In his book The Stoic Challenge, philosopher William B. Irvine explains a fascinating application of the anchoring effect.  Rather than using anchoring to sell shirts or real estate, Irvine explains how ancient Stoic philosophers employed anchoring “to have a more fulfilling life.”  This approach begins with the use of the imagination, specifically imagining ways in which your life could be worse.  Rather than an exercise in dwelling on the negative, the purpose of this negative visualization is to sink an anchor into your subconscious, allowing you to compare the negative scenario to your current one.  This is a better alternative than dwelling on some potentially superior situation because if you imagine a negative one, you are more likely to see your current situation as not so bad in comparison.  The act of negative visualization was not intended by the Stoics to be a frequent exercise in dwelling on the negative; however, it was recommended a meditation to use periodically in order to understand how things could be worse and to embrace the positive things we have in the present and not take them for granted (1).

Recall, Retrieve, Recite, Ruminate, Reflect, Reason:  What is the anchoring effect, and how can it be employed to deceive consumers?

Challenge - Anchors Away: Write a public service announcement (PSA) that explains the anchoring effect to consumers.  Try to clearly explain the effect with examples of how it is used to get them to buy.

ALSO ON THIS DAY:

-October 24, 1901:  Annie Edson Taylor, a 63-year-old teacher, plunges 167 feet down Niagara Falls in a barrel and becomes the first person to live to talk about it (3).

-October 24, 1957:  On this date in 1957, movie executive Sam Frey sent director Alfred Hitchcock a list of suggested alternative titles to the film that Hitchcock was shooting.  The director has been in a continual battle with his studio, Paramount, over the movie’s title.  Hitchcock was determined to go with the one-word title Vertigo; the studio, however, rejected the director’s choice.  The list of 47 alternative titles was the studio’s last attempt to sway Hitchcock.  It included the following suggested alternative titles:

 

Afraid To Love

Checkmate

The Face

Malice

The Mask and the Face

Shadow on the Stairs Shock

Two Kinds of Women

 

Hitchcock stood firm with his choice, and when the film opened on May 8, 1958, the movie marquee read Vertigo.  The film starring James Stewart is based on a French novel entitled D’entre les morts (“from among the dead”).  Today it is recognized as one of the greatest psychological thrillers in Hollywood history (4).

Sources:  

1-Irvine, William B.  The Stoic Challenge: A Philosopher’s Guide to Becoming Tougher, Calmer, and More Resilient.  New York:  W.W. Norton & Company, 2019.

2-Kahneman, Daniel.  Thinking Fast and Slow. New York:  Farrar, Straus and Giroux, 2011.

3-http://www.infoniagara.com/niagaradaredevils/annietaylor.aspx

4-Usher, Shaun.  Lists of Note:  An Eclectic Collection Deserving of a Wider Audience.  San Francisco:  Chronicle Books, 2015: 242.