Even experts can easily be caught by this effect.
A few weeks ago Rory Cellan-Jones (@ruskin147) auctioned a phone on Twitter to raise money for charity.
I needed a new phone, so I put in a speculative bid for £50 to see if I might win it. It was a new Google Android phone (the HTC Hero) so I thought it would be a decent handset, and probably worth more than £50 to me. I would be eligible for a new phone anyway by renewing my contract, so I would be buying flexibility of contract rather than the features of the phone as such. Even if it turned out not to bring me £50 of benefit, it was a good cause.
After I placed my first bid, a quick Google search showed me the retail price of the phone: around £380! Much more than I'd expected.
Suddenly I decided it would make sense to place a higher bid. My estimated value of the phone to me was strongly influenced by seeing the retail price. I bid £105, and then as the auction continued, my bids reached the dizzy heights of £245 before someone else won it for £280.
This for a phone I was originally willing to pay £50 for!
I hadn't learned anything new about the features of the phone, or reconsidered how useful it would be to me. I'd simply found out that some random shop charges a high price for it, and suddenly my willingness-to-pay jumped up accordingly.
And I'm supposed to know how this stuff works. If I can be influenced into behaving like this, what hope does a random shopper have?
Not much, if they are buying a bottle of wine. Most people don't have a clear idea of what any specific bottle of wine is going to taste like before they buy it. Instead, they treat the price of the wine as a signal for its quality.
This means that retailers can, to a large extent, set their own profit margins. It's easy to demonstrate how.
Show your friend a nice bottle of wine. Ask them to write down which day of the month they were born - a number from 1 to 31 - and put a £ sign in front of it, turning it into an amount of money. Now ask them to write down whether they would pay that amount for the wine.
As soon as they make the decision - whether the answer is yes or no - the damage is done. They have anchored themselves to that price.
Now ask them how much they would pay for the wine in a shop. If their birthday is at the end of the month - so they are anchored to a price £20 or above - they will, on average, be willing to pay significantly more for the wine than someone who was born on the 5th, and is anchored to the £5 price.
On average, people who were born in the second half of the month will pay 25% more for the same bottle of wine than those born in the first half. If you want to save some money, change your birthday.
The second part of this chapter will outline the cognitive theory behind how anchoring works. And after that, a guide for salespeople on how to apply anchoring in your own business.