27/05/2008

If Kahnemann Got the Nobel, Why Shouldn't I?

Yay! I might have discovered a new cognitive bias. I'll call it Standard Price Bias. Here's my evidence (n=1):

I bought my DVDs of The Shining and Casablanca on the same day. Since then I think I've seen The Shining three times and Casablanca, oh, maybe fifteen times. (Yeah, I know I should get a life.)

I bought The Shining spontaneously: It was only five Euros, what a bargain! I had pre-planned buying Casablanca. It was eight Euros - pretty cheap, too - but if it would have been fifteen, I wouldn't have taken it home. That would have felt like I'm making a bad deal, and who wants to do that? (I wouldn't even have bought it if I had known that it's fifteen Euros everywhere.)

But given the number of times that I've watched them, I would have made a better deal paying fifteen Euros for Casablanca than five Euros for The Shining. Note in this respect that I knew both films beforehand so that there wasn't a lot of uncertainty involved.

Come to think of it, retailers figured out something similar long ago: "Used to be 40 Euros, now reduced to 20" exploits the same mechanism in reverse. The difference to my example is that there is a standard price for DVDs (ten Euros in this country), while for most products there isn't, so by claiming that it used to be 40 Euros, you can set an anchor. (This suggests that "price reduction schemes" will be less common for products for which there is a pretty standard price.)

But this isn't simply the standard version of anchoring, which is a purely cognitive process (according to the literature I've seen). The difference is that there are emotions involved: feeling like one's being cheated; feeling that one's making a bargain.

How common is this bias? Has it ever been formally documented?

Added: A previous version of this post read "40 Eros" where it should have said "40 Euros". I wonder what Freud would have made of that.

2 comments:

Troy Camplin said...

I don't know if this has been studied properly, but it seems to me that it would be tapping into our inherent sense of "fairness." If you think you are getting an advantage, you will take it. If you feel like someone is not being fair, you will even take a small amount of punishment if you think they are going to get a larger amount of punishment.

LemmusLemmus said...

Yes, I agree. That's basically what I was trying to get at in the paragraph (last but two) on emotions. Maybe I didn't express myself properly.

As you probably know, the punishment thing is studied using the "ultimatum game". Social scientists have found huge differences between societies, but in none of them people behave like home oeconomicus - everywhere, they will sacrifice something to punish someone whose offer they feel is too low.