Social psychologists like to do experiments to figure out how people act and reason. Sometimes this is annoying (“did these researchers have to receive €300.000,- in subsidies in order to scientifically discover that people associate the color black with negativity?!”). At other times they lead to Nobel prizes. In this, and future articles I will describe famous and lesser known experiments that tell us something about how people respond to the people and information around them. Marketers have always liked applying this kind of information but you can use it in many other areas of life (e.g., job interviewing, improving your spending patterns, avoiding having to do the dishes after dinner).

Irrationality

One of the favourite pastimes of psychological researchers is to discover the many ways in which people are not quite as rational as they think they are. We all make rational errors by the truckload: under- and overestimating, drawing premature conclusions, ignoring relevant information. We do all this while we think we are making well-reasoned choices. This is not necessarily a problem. It enables us to think quickly and get it right 90% of the time. On top of that, when we really put an effort into thinking we are perfectly capable of sound reasoning. It does mean that we cannot simply assume that people make rational choices all the time.

The Wheel of Fortune Experiment

Scientists Amos Tversky and Daniel Kahneman (both Nobel laureates) must have had a lot of fun when they prepared an experiment in which they rigged a wheel of fortune so that it would only stop at either the number 10 or the number 65. They let each of their participants turn the wheel until it stopped and then asked them the following two questions:

1. Is the number of African nations in the UN larger or smaller than the number at which the wheel stopped?
2. What is the number of African nations in the UN?

The answer to this question is not something people tend to know from memory. It is also completely unrelated to the seemingly random number at which the wheel of fortune stopped (participants thought it was a normal wheel of fortune that could stop anywhere). However, the results of the experiment were that participants who had the wheel stop at 10 estimated the number of African nations in the UN to be 25 on average, while the participants for whom the wheel stopped at 65 estimated this number at 45 on average. Apparently the number at which the wheel stopped influenced how many African nations people thought were in the UN!

This finding, that people stay close to a number they have seen previously when they estimate a completely unrelated number, has been found in many, many experiments after the wheel of fortune. It is one of the most reliable effects in the world of psychological research and is called the anchoring effect¹.

How to apply this to marketing

The anchoring effect has important implications for human judgment. The most obvious marketing application is pricing: when asked to determine how much they should be paying for a house, people will stay close to the asking price. This does not just go for houses: ask people to tell you what they think the price of an item should be, and they will stay close to any price you mentioned before. This effect is so strong that it happens even when people are trying not to be influenced by the previously mentioned price!

When you agree on a price with someone, or any other thing you can quantify with a number (for example, how many days of recreation leave a new employee gets in her contract) always make sure to mention a number first that is a bit more than what you would like that someone to say. There is a good chance that they will stay close to this number.

If you already do this, now you know why it is a good idea!

¹Judgment under Uncertainty: Heuristics and Biases
Amos Tversky; Daniel Kahneman
Science, New Series, Vol. 185, No. 4157. (Sep. 27, 1974), pp. 1124-1131.

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