MBA students at MIT’s Sloan School of Management are an analytical group—expert in pricing theory—and should be paragons of economic rationality. But when researchers asked two groups of students to bid on the same goods (chocolate and wine) they were able to get one group to bid 60 to 120 percent more than the other.
How?
Blame it on their social security numbers. Professor Dan Ariely asked MBA students to write down the last two digits of their social security numbers before submitting bids. Those with higher digits submitted higher bids.
This is known as anchoring. The social security numbers provided students with an unconscious starting point—either a high or a low anchor—which they then adjusted, but never fully overcame, when evaluating the products themselves.
Of course, marketing professionals would never dream of exploiting anchoring to make us overpay for goods. Consider: “How much would you pay for this set of knives? Three hundred dollars? Two hundred dollars? Well today, it’s available to you for the one-time price of thirty-nine ninety-five!” Because we’re anchored to $300, $39.95 sounds like a steal.
Or consider the iPhone, initially priced at $599. That’s steep for a cell phone. The Washington Post quotes aforementioned econ guru Dan Ariely saying of the phone’s initial price, “It establishes a reference price of $600, and now when it comes down … we compare it to the higher price. I don’t know if Steve Jobs planned this or not, but if he manipulated based on anchoring, he did a very nice trick.” And not only does the $599 anchor make a still-steep $399 iPhone look like a steal, but the high price signals its value.