Behavioral Economics · 3 min read
The first number you hear quietly sets the price for everything that follows. Your brain calls it a starting point. Your wallet calls it expensive.
The crossed-out price is doing the work.
You walk into a store and see a jacket. The tag reads $899, crossed out. Below it, the actual price: $499. You feel like you're getting a deal. You might even buy it.
You almost certainly are not getting a deal. The jacket was never really $899. The crossed-out price was placed there for one reason: to be the first number your brain encountered, so that every other price felt reasonable in comparison.
This is anchoring. It is the well-documented tendency for the first number we encounter to disproportionately influence every judgment we make afterward — even when that first number has no basis in reality.
In one famous study, Kahneman and Tversky asked participants to spin a wheel rigged to land on either 10 or 65. They then asked: what percentage of African countries are in the United Nations? The participants who saw 10 guessed around 25%. The participants who saw 65 guessed around 45%. The spinning wheel had nothing to do with the question. The anchor still moved the answer by 20 percentage points.
In business, anchoring is everywhere. It is why menus list a $90 steak you will never order — to make the $35 steak feel reasonable. It is why software pricing pages put the "Enterprise" tier first, at $499 per month, so that the "Pro" tier at $99 feels like a small commitment. It is why luxury watches sit in glass cases next to even more expensive watches, so that a $5,000 piece reads as the affordable option.
Anchoring also shapes negotiation. The party who makes the first offer almost always sets the range. Whoever says a number first defines the territory the conversation will live in. This is why salary negotiation advice almost universally tells you to let the other side go first — and why the other side is trying just as hard to make you go first.
The fix is not to ignore anchors. The brain cannot help noticing them. The fix is to recognize when one is being placed in front of you, name it silently, and ask the better question: what is this thing actually worth to me, independent of the number I just saw?
Why it matters
Anchoring is one of the most powerful tools in pricing, negotiation, and marketing. Understanding it lets you set anchors deliberately when you are selling, and recognize anchors quickly when someone is selling to you.
See also