Nudge Wiki

Concept

Anchoring & Contrast Effect

Also known as: Contrast Effect

anchoring pricing judgment

How we judge an offer, price, or candidate is heavily shaped by whatever we were exposed to immediately beforehand, not by the offer's absolute merits. Steve Martin gives the classic pricing version: a £15 bottle of wine looks like better value shown after a £25 bottle, and worse value shown after a £10 bottle — the £15 bottle itself never changes.

Martin extends the same mechanism beyond pricing to ordering effects in competitive situations: going first in a job interview or a pitch process is a disadvantage, because early candidates are compared against an imagined "ideal" candidate (an anchor that doesn't really exist) rather than the real field, and evaluators tend to score early entrants more conservatively to leave room in case someone better shows up later.

Anchoring pairs frequently with Scarcity: a stated purchase cap ("maximum 12 per customer") or a suggested spending benchmark ("a month's salary") both function as anchors even when framed as a limit rather than a target. De Beers' engagement-ring campaigns are among the most commercially successful applications on record — suggested spending benchmarks of one, then two, months' salary each pulled real average spending substantially toward the suggested figure without reaching it (see De Beers Diamond Ring Anchoring Campaign).

Anchoring also works with completely arbitrary numbers unrelated to the decision at hand: priming MIT students with their own social security number digits before an auction shifted their bids substantially, even though every participant insisted beforehand that the number should have no effect (see Ariely SSN Anchoring Champagne Bidding Study). See also Heuristics.

The show's year-end recap revisits both examples above with sharper figures — diamond ring purchases rose from about 10% of 1930s weddings to about 90% by the early 2000s off the back of De Beers' anchor — and adds a new one: Steve Jobs revealed the original iPad's $499 price only after dwelling on a $1,000 figure onscreen, making the actual price feel like a bargain to a crowd that had itself argued days earlier the device shouldn't cost more than $300 (see Steve Jobs iPad Price-Reveal Anchoring). A related, unquantified example from MIT's Keith Coulter: the further apart a discounted price is displayed from the original price on a promotion, the bigger the discount is perceived to be — physical distance functions as its own kind of contrast cue.

A rewritten HubSpot website line — "powerful alone, but better together" — gave prospects a comparison anchor to reason from, contributing to a near-doubling of site-wide conversions (see HubSpot Website Rewrite). In Decoded, Phil Barden gives two more examples of anchoring shifting real purchase behavior: an ad for Snickers ice cream stating "buy 18 bars for your freezer" — an implausibly high number — still pulled average purchases up from 1.4 to 2.6 bars (see Snickers Ice Cream Anchor Study); and NYC taxis offering riders preset 20/25/30% tip buttons more than doubled average tips from roughly 10% to 22%, worth an estimated $144 million a year across the city's cabs (see NYC Taxi Tip Anchor Study).

Two further applications: HubSpot's own pricing page deliberately displays its $2,500/month enterprise price alongside its $42/month starter package — rather than hiding the expensive tier behind a "contact sales" gate as most competitors do — using the enterprise price as a stark anchor that makes the cheaper tiers look inexpensive by comparison (see Georgiana Laudi). Leigh Caldwell's own live demonstration finds the same mechanism with a genuinely arbitrary number: audiences primed with their own birthday digit (a proxy for a random high or low number) bid 25% more for an identical bottle of wine when the digit was higher, directly replicating Dan Ariely's SSN-anchoring result (see Leigh Caldwell Birthday-Digit Wine Anchoring Study).

In hiring, the same contrast mechanism distorts candidate evaluation: Kate Glazebrook's company Applied found candidates scored immediately after an unusually strong candidate were rated systematically lower than they otherwise would be, and candidates scored after a weak one were rated systematically higher — an ordering bias corrected only by fully randomizing review order (see Successive-Contrast Candidate-Ordering Effect).

Richard Thaler's classic beer-on-the-beach study shows the same mechanism applied to venue rather than a displayed price: asked their top price for an identical beer, executives named $1.50 when it would come from a run-down corner shop, but $2.65 when told it would come from a fancy resort hotel — the venue itself functioned as a reference-price anchor (see Thaler Beer-on-the-Beach Willingness-to-Pay Study).

Anchoring shows up in official communications too, sometimes accidentally against the communicator's own intent. Rory Sutherland argues a French McDonald's-commissioned health report recommending customers visit "no more than once a week" quietly set a new anchor for a population that mostly visited less than once a month — potentially increasing, not decreasing, visit frequency (see French Mcdonalds Once-a-Week Report Case). UK online gambling sites are required to let users set a daily deposit limit as a safety measure, but Elisabeth Costa found the highest selectable figure on most sites is £100,000 — more than three times the average UK household's annual income — pulling users' actual chosen limits upward; lowering that top anchor nearly halved the average limit people chose (see Online Gambling Deposit-Limit Anchor Case).

The founding demonstrations, finally cited by name (Episode 253). Philip Graves cites Kahneman and Tversky's original 1974 anchoring studies directly: participants estimating the product of "1×2×3×4×5×6×7×8" guessed far lower than participants shown the same sequence reversed, and participants asked whether the number of African countries in the UN was higher or lower than an arbitrary starting number anchored their final guess strongly on that number, however random. Graves cites both as fully reliable, unlike some weaker "parlor game" priming studies (see Kahneman Tversky Founding Anchoring Studies).

Menu and list ordering is an anchoring lever most businesses leave unused. An eight-week field experiment in a US bar found that listing 13 beers in descending price order, with the $10 beer at the top, raised average spend from $5.78 to $6.02 — a statistically significant 4% increase — versus the same list in ascending order. A follow-up with 219 participants choosing pens priced 15c to 90c found a larger gap: 63 cents average in descending order versus 53 cents ascending (see Lichtenstein Beer-Menu Price-Order Study). Combining an expensive anchor with first placement compounds the effect with the Serial Position Effect, and works alongside adding a super-premium decoy tier (see Tversky Camera Extremeness-Aversion Study).

A charitable-giving anchor (Episode 178): telling San Francisco donors that "someone has already offered to donate $400" more than doubled average donations, from $64 to $143, via Blindsight (see San Francisco Donation Anchor Study).

JFK's budget anchor (Episode 183): Kennedy's 1962 Rice University speech framed the eye-watering $5.4 billion annual Apollo budget as "somewhat less than we pay for cigarettes and cigars every year," making the true figure feel small by comparison (see JFK Moon Speech Case).

Snickers' implausible-quantity anchor, re-cited (Episode 188): asking shoppers to "buy 18 Snickers for your freezer" raised average purchases from 1.4 to 2.6 bars — restated in this episode as an "80% more sales" headline figure, consistent with the original absolute numbers (see Snickers Ice Cream Anchor Study).

Steve Jobs's own favorite lever, applied throughout his career (Episode 217). Jobs used anchoring to negotiate a paid trip abroad out of Atari, to win Wozniak over to co-founding Apple, and to secure Disney's backing for Toy Story by leveraging animator John Lasseter as an anchor; in keynotes, he anchored the iPod's price against cost-per-song rather than unit price, its size against a deck of cards and a pencil, and the iPad's $499 price against a crossed-out $999 (re-citing and adding detail to Steve Jobs iPad Price-Reveal Anchoring: the on-stage animation specifically crossed out "$999," not a plain "$1,000" figure) — see Steve Jobs Anchoring Tactics Cases.

Two service-design applications from the world's #1 restaurant (Episode 284). Will Guidara redesigned Eleven Madison Park's arrival experience to greet every guest by name at the door with no reservation podium, arguing the first moment of contact anchors perception of the entire meal (see EMP Name-Greeting Anchoring Case); a hand-signal system let water arrive at a table before the greeting server had even left, removing a felt delay at the specific moments (meal start/end) guests are most sensitive to timing (see EMP Sign-Language Water-Service Case).

Six further pricing-specific anchoring demonstrations (Episode 287). Markus Husemann-Kopetzky cites a real-world field study in which a nearby, entirely unrelated $80 vs. $20 T-shirt price shifted willingness to pay for an unrelated CD sold at an adjacent booth (see Nunes Boatwright Incidental Price-Anchor Study); a bar menu listing its most expensive beer first, rather than alphabetically, raised revenue 4% (see Suk Lee Lichtenstein Bar-Menu Price-Order Study); real-estate studies found precise asking prices anchor negotiation more tightly than round ones, even for professional brokers (see Precise vs Round Real-Estate Anchor Studies); and a soft-drink promotion framed as a six-can bundle price rather than a per-can price raised sales 32%, the bundle quantity itself anchoring how many units shoppers bought (see Wansink Kent Hoch Multi-Unit Pricing Study).

Narrative juxtaposition as a distinct contrast-effect application (Episode 114). Phill Agnew identifies a "juxtaposition" pattern in MrBeast's persona — an ordinary-looking young man in a t-shirt doing extraordinarily lavish things — tracing the same device to Rosser Reeves's 1950s "it is springtime and I am blind" sign rewrite (see Rosser Reeves 'Springtime' Blind-Beggar Sign Case) and testing it himself with a story blurb where changing "a man" to "a 12-year-old boy" raised stated reading interest 24% (see Nudge Podcast Juxtaposition Story-Engagement Test).

Discussed in

  • Episode 2 — 2- Five highly effective negotiation tactics
  • Episode 8 — 8- The power of scarcity and why less is more
  • Episode 15 — 15- What VR reveals about a consumer-s mind
  • Episode 18 — 18- 8 nudges you need in 2020
  • Episode 27 — 27- Understanding customers during times of uncertainty
  • Episode 29 — 29- Why first impressions matter
  • Episode 31 — 31- SaaS Startups- 8 Hacks To Grow Your Brand (HubSpot pricing page)
  • Episode 32 — 32- 6 discriminatory mistakes most hiring managers make (successive-contrast hiring bias)
  • Episode 178 — 178-6-scientifically-proven-persuasion-techniques (San Francisco donation anchor)
  • Episode 183 — 183-the-speech-that-put-a-man-on-the-moon (JFK budget anchor)
  • Episode 188 — 188-how-adverts-use-psychology-to-win-you-over (Snickers re-cited)
  • Episode 33 — 33- The Psychology of Price - Part One
  • Episode 42 — 42- Common pricing mistakes most businesses make (beer-on-the-beach reference-price study)
  • Episode 44 — 44- Do Nudges Really Work (Big Texan steak challenge)
  • Episode 114 — MrBeast- How to capture the attention of billions (Rosser Reeves blind-beggar sign; Nudge juxtaposition story test)
  • Episode 63 — 63- Rory Sutherland - Why counter-intuitive thinking wins (French McDonald's report)
  • Episode 66 — 66- The dark nudges behind digital manipulation (online gambling deposit limits)
  • Episode 138 — 138-listen-to-exactly-17-minutes-and-42-seconds-of-this-episode
  • Episode 217 — 217-every-trick-steve-jobs-used-to-persuade-in-68-minutes (Atari, Apple co-founding, Disney/Toy Story, iPod, Nespresso, NeXT, iPad re-cited)
  • Episode 227 — 227-tiny-nudges-that-can-drastically-improve-your-life (charity donation ask-order effect)
  • Episode 253 — 253-did-i-get-it-wrong-revisiting-priming (Kahneman/Tversky founding multiplication and Africa-countries studies)
  • Episode 284 — 284-will-guidara-here-s-how-i-built-the-world-s-1-restaurant (EMP name-greeting and water-service redesigns)
  • Episode 287 — 287-learn-psychological-pricing-in-24-minutes (incidental T-shirt price, bar-menu order, real-estate precision, multi-unit bundle pricing)

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