The first time that we come across something new, such as the price of a product that’s new to us, or a new experience, we tend not to have a precise frame of reference for that new thing. Consequently, what is initially presented to us, and how we interpret that, has a disproportionately greater influence upon us. We tend to be more alert in such situations, some factors are uncertain and decisions have to be made about how to interpret events and how to proceed. Decision-making, involving the assessment of a multitude of options and variables and attempting to discern the most favorable combination, is generally considered a difficult task. We tend to be risk averse and so once we have made a decision that gives a favorable result (not necessarily the most optimum outcome, but more likely one that doesn’t disappoint, create disadvantages or peril), then we will be much more likely to repeat the same decision the next time similar circumstances arise. New events thus become formative events. They create imprints and those initial conditions will anchor us to a point of reference from which we will assess subsequent similar products or events.

Sometimes, with pricing, the initial imprinting doesn’t even have to come from a directly related reference. In much the same way that you influence people to act calmly or aggressively, honestly or dishonestly, by asking them to do exercises with words related to those states, you can do the same thing with influencing what people will be willing to pay for products that they are unfamiliar with. If you take two groups of people and ask one half to consider a low number and the other half a high number, then, when you afterwards ask them to state what they would pay for an unfamiliar product at auction, the low number group will bid relatively low and high number group will bid relatively high. I haven’t tried this, but presumably, if you were selling something on Ebay that was worth somewhere between $10 and $20, then if you listed the item on two separate occasions, once with a description saying “10-reasons why you should buy this product” and once with a description saying “20-reasons why you should buy this product” then the first time it would probably sell at around $10 and the second time at around $20. (I don’t do any trading on Ebay, but if any readers do and are inspired enough to carry out this experiment, then I’d love to know the result)

Knowing the power of this effect, we can take more informed responses to new situations and we can also reinterpret old imprints and anchors. We can use this to our advantage when buying goods. Instead of remaining anchored to the previous price that we paid for something, we can focus more on the utility of an object. Most of the time, we use 20% of the features of a product 80% of the time, so, for example, if you previously bought a mobile phone for $50, this can anchor you to spending the same amount next time, for which you might get a phone with a surplus of new, but marginally useful, features. Instead of making a buying-decision mostly based upon what you paid previously, you can assess the vital few features that you use with your existing phone almost all of the time and search for a phone that delivers that utility. The chances are, that with the continuous advances in technology and reduction in prices, you can get a phone of equal utility for a lot less money. If you value utility per unit cost higher than features per unit cost, then this enables you to make a decision to your advantage.

If we can afford the items that we want and we can make decisions that don’t drive us into calamity, then we can easily get by without ever knowing about or noticing the effect of imprinting and anchoring upon our perceptions. However, in some areas, this effect might create an unperceived disadvantage. For example, your peers, the careers that they follow and the salary that they earn, is highly likely to have an imprint upon you as to what career you will follow and upon the salary that will prove acceptable to you. You will probably adjust your perceptions, and your lifestyle, to the limitations that these initial conditions create. This might be causing you to live an impoverished life in both qualitative and quantitative aspects relative to your potential worth. Rather than accept these limitations, you can instead search for ways in which you can earn more money or gain more benefits but essentially do the same role as before. In this way, you can use an understanding of this effect to leverage a better return for yourself based purely upon perception - not your perception of value but upon the perception of the market and the purchasers within it. A lot of value is merely perceived as having value rather than absolutely having value (A carefully painted reproduction of a Van Gogh is largely identical in terms of its components and its result upon the senses. The value that resides in the uniqueness of owning a Van Gogh original is an abstract perception of value).

Life isn’t fair; it never has been and never will be. What we can each of us do though, is to seek out advantages and look for leverage so that get a good return for the efforts that we make. Now that you are aware of this concept of imprinting and anchoring and how it limits your perceptions of value, how could you now make different decisions and take different course of action that increase the return on your efforts expended?

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[Photo by david.nikonvscanon]