Sunday, March 02, 2008

Sunday dollars+sense: Are we really that suggestible?

Try this if you dare. Get out a piece of paper, take out your driver's licence, and write down the last two digits of its number at the top of the page.

Then make a guess about the value of a particular bottle of very good red wine. Its label says it was created for the 2000 Olympics bid – it might be a collectors item.

Write your valuation – anything between 00 dollars and 99 dollars - at the bottom of the bottom of the page.

Then compare the two figures - the two digits at the end of your drivers' licence number and your estimate of the value of the bottle of wine. Are they are in any way related? If you think they are not you are just like me when I took part in the experiment in a lecture hall in the University of NSW in 2003.

Conducting the lecture was Daniel Kahneman, who had just won the Nobel Prize for economics.

He then asked each of us to compare our pages with those of our neighbours...

And sure enough, those of us with licences whose last two digits made up a low number thought the wine was cheap. Those us with high numbers at the end of our licences had thought the wine was expensive.

Daniel Kahneman's collaborator, Dan Ariely from the Massachusetts Institute of Technology has just published a book about this line of research entitled Predictably Irrational: The Hidden Forces That Shape Our Decisions.

His point is not just that human beings are often irrational. We know that, but it is an insight that does not give us much useful information. His point is that “our irrational behaviours are neither random nor senseless – they are systematic.”

He has performed the anchoring experiment dozens of times on his own students and he says he sees it in Starbucks.

The prices written on the board are supposed to have been determined by the supply and demand of Double Chocolate Frappuccinos and so on. But what if the numbers on the board are really there to influence your view of what is a reasonable amount to pay for a long black?

Have you ever noticed how the expensive flat screen televisions that you don't want are displayed right next to the modest ones you are thinking of buying. It might be not in order to get you to buy the more expensive models but in order to “anchor” your estimate of what the mid-priced TV should be worth.

Dan has more to say as well. You can buy the book, or wait until next week.



2 comments:

Anonymous said...

The link to "Predictably Irrational: The Hidden Forces That Shape Our Decisions" isn't working for me.

On another note this blog is consistently interesting.

Peter said...

Thanks. And thanks. Fixed it.

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