Anchoring: According to the principles of anchoring, our brains tend to latch on the first piece of information we receive and then use this as a benchmark to measure everything else against.
Even when you know about anchoring, it’s still very difficult to avoid its effects. Some studies have shown that even arbitrary numbers and completely unrelated numbers can have a huge effect on our judgements. The prime example being Dan Ariely’s study where has asked his audience to write down the last two digits of their social security number and then separately they were asked to bid on a number of items the value of which was unknown. What the study found was that people with higher digits would submit bids that were 60-120 % higher than those with low numbered digits.
In negotiations, whatever is mentioned as the first figure, is the anchor and the negotiators will unconsciously measure every other number in comparison to this. You’ll often hear people say that in a negotiation whoever speaks first loses, but to take advantage of the anchoring effect make sure YOU set the anchor. If you want to sell a product for £200, don’t mention £300 as your starting price, say £400. If you then bring the price down to £200, while intellectually we probably understand what’s going on, our brains can’t really ignore that first figure and you’ll see the new price as a bargain.
It’s also the reason sales work so well, Was £500, Now £150 – wow. Compared to £500, what is £150? The majority of the time, that £150 is what the retailer was planning on charging anyway and the higher Was price is just there to provide an anchor.