When people attempt to make a decision, they use perceptions called anchors as points of comparison. Once an individual has built a mental image for point of comparison, that anchor tends to remain in place. This process of operating bias is appropriately called anchoring, and retail businesses can’t wait to use it on an unaware consumer. The human brain will fall back on it if countermeasures aren’t prepared in advance. A little bit of knowledge won’t make one immune, but it will help in places like a used car lot.
An anchor in the car aisles
Here’s how anchoring works: Say Marcy makes her way onto a used car lot, completely unaware of the concept of psychological anchoring. She has a car that runs, but she wants something new and shiny. Soon she sees a beautiful hybrid hatchback. Marcy kicks the tires, gives it a good look and begins to fall for this car. But the sticker price shakes her. That used hybrid vehicle costs a whopping $24,998.
Cue the used car salesman with the mustache and the plastered smile. He asks Marcy what she thinks, and our heroine’s words – “It’s out of my price range” – plummet like lead balloons. Clearly she loves how she feels in that collection of metal, plastic, glass and leather, but the price is horrifying. Then the salesman comes at Marcy with the hook.
‘No worries. That car’s on sale for $ 14,000!’
Ding dong. She jumps at the chance to buy with such a discount. She has taken the bait for a top retail scam, writes You Are Not So Smart. As Marcy didn’t know what the car was really worth, the salesman could easily use anchoring to play with her expectations. The sale price seemed like a huge markdown, but little did she know that the actual value of the car was less than $10,000. The markup was out of control. That anchor was a killer, and the salesman didn’t have to do much. It was a bad deal for Marcy and a spectacular profit for the dealer.
Haggle to make it real
What we’re willing to pay is typically a number not grounded in specific cash value. The MSRP or a dealer’s so-called markdown can fool us. The dealer works with two prices in an anchoring exercise designed to ensnare the buyer.
Allow a dealer that kind of room to play games, and your money will turn to vapor. That’s why it is advisable to haggle. Control the game, rather than allowing yourself to be controlled by anchoring. Be prepared with research before you buy a car and haggle for a lower price at every opportunity. Experienced dealers will play ball with a smart customer.
Citations
Wikipedia http://en.wikipedia.org/wiki/Anchoring”>Wikipedia
You Are Not So Smart http://youarenotsosmart.com/2010/07/27/anchoring-effect/
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