“Biases make our judgments irrational!” Or so says the yourbias.is website. Is that really a bad thing? The thinking is that if a bias hurts you, it would be better to get rid of it. If a bias helps you then keep it. If it doesn`t hurt or help, then who cares?
For example, suppose you were in a nice french restaurant. The snooty waiter hands you the wine menu. You have no idea which wine is good. You don`t even normally buy wine. How are you going to decide?
Which Wine Goes First?
You scan the menu. The first item is a $100 bottle of wine. You think “OMG. That is way more than the meal!” You look at the other bottles that go from $100 to $20. You pick what you feel is reasonable. It`s a red wine for $50. It tastes good and you’re happy.
What if the first wine was the $20 one? You would look are the other wines with the price going up and up. Would you go for the $50 dollar wine? I`d bet you would go for the $20 bottle. It would OK, but it didn`t taste that great.
What as that a good experience?
In the first case, the owner deliberately put the most expensive bottle on top. You would see that first and judge the rest of the prices based on that. This is called anchoring.
Anchoring occurs when the first thing you judge influences your judgment of all that follows.from yourbias.is
If you are aware of this then you can use it to your own advantage as well. When you are trying setting prices. Make sure that you mention the most expensive item first.
The typical example is the one I just showed you. You have three basic products. One is a very expensive VIP product. The next two are the normal product and the economic plan. In most cases, people choose the middle.
How Much Is That First Webinar?
Another case of anchoring can be seen on many webinars called the price marinade. Those done by Jason Fladlien, Russel Brunson, etc. start by mentioning a very high price and let it simmer in your mind. For example, one could say the product costs $214,569. Your mind gets anchored to that price. You wonder “How am I going to afford that?”
The good ones will build value upon value. Such that even at that price it looks like you would get a good return on your money.
But, towards the end of the webinar, the price gets slashed once or twice. It is only $1,999 with all the bonuses. The final price seems such a bargain compared to the original price. You buy it.
If the person started out saying it was $1,999 at the very beginning. Would you have bought it? No way! You would have thought it was too expensive. That you didn`t have the money to pay for it, etc. That is our natural response for almost any initial price, by the way.
This just shows what you can do with anchoring when it comes to prices in webinars. But anchoring pops up in other places.
First, Go For Broke
For example, you can run into the same situation in business negotiations. In business negotiations, you think about what you want. Then you ask for way more than that.
If you want a raise, think of the high range of what you want. Also, think of the evidence for that high range. You may have to look around the Internet or ask colleges in the same profession but at different companies.
BTW, it is often more costly for a company to hire and train a new person than to keep an effective employee. The only general exception to this rule tends to be older programmers vs younger ones. In that case, if the older programmers do not keep up with the technology they are old, expensive, and not that effective. So, make sure you can clearly make the case for your effectiveness.
If it all goes well, you will find yourself giving up some ground. But, you will probably get more than what you wanted at the beginning. The trick here is getting both sides to anchor against your initial proposal.
Those are just two cases where anchoring can be used to help you in business. But suppose, you want to avoid it`s effects. What should you do?
How Do You Prevent Anchoring Bias?
That is a rather difficult question. The sad thing is that 1996 there was a study in the Journal of Experimental Psychology. It said that even if the test subjects knew that there was anchoring, they still fell for it. A 2010 study even showed that people were given money to avoid it they still fell for it.
This just shows that you should give yourself time to sleep on it. Put the decision off to the side and come back to it later. There is a possibility that you can reduce the effect that way. It is better to fact check and compares other products before making a decision.
Salesmen will push time limits and other scarcity tricks. Give yourself time to slow down. Think about the price. Then decide it is right for you.
Remember anchoring by itself is neither good nor bad. Anchoring is just a bias. This bias can cause you to pay more than you should for something. It can also help you get more revenue. What is important is that you are aware of it and its uses.
If you need more help with business presentations please, let me know. I help people effectively use logic, psychology, and rhetoric to build powerful presentations. A good presentation can make or break a business. Just contact me on Twitter, Facebook, or the contact form here, if you need help.