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Price Anchoring, Or Why a $499 iPad Seems Inexpensive

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Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#41

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

Because most people want to look reasonable at a job interview. However, one thing people miss is that the anchoring can be to any number whatsoever, so you don't even need to talk about what you want per hour. I remember a paper that asked participants to note down the last two digits of their social security, and subjects anchored themselves to that (statistically significantly- one of the authors was Dan Ariely).…

I remember a paper that asked participants to note down the last two digits of their social security, and subjects anchored themselves to that (statistically significantly- one of the authors was Dan Ariely).

Do you have a link? I am very skeptical that merely tossing out large-sounding numbers during an interview would have any influence on your likely salary range. In situations like that, your potential employer usually has a preconceived idea of what a "reasonable" salary for the position is; intuitively, you'd need to make a fairly strong suggestion to get them to anchor on a different figure (rather than, say, the salary they are already paying to other employees in a similar job function).

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#42

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

The reason for this advice is that the employer and the employee often have a number in mind when they enter the room. If the employee starts with a number below what the employer had in mind, the employer accepts it. If it is too high, the employer will suggest something lower, and the employee at least can’t go higher, and will likely end up lower than the number he gave.

So you could say a better advice is to say your number first, but make it 150% of your actual number.

On a related topic, a lot of tech guys I know undersell themselves. I have two employees and I asked both of them to go first, for the first one, I gave him more than he asked for :)

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#43
post #26

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

I read on here few months ago that naming your own price first is better. Now I believe it! Recently we hired a sales person on PT basis. At the interview, she gave her expected salary to be about 2.5 times what I had thought about paying her. Now, I know about this notion of anchoring and yet I felt kind of embarrassed to make my initial offer. I fought off the urge to buy into her frame and ultimately made a decent…

It feels so hilariously appropriate that you were hiring a sales person, and they did a spectacular job of, as they say, "selling themselves."

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#44

Dan Ariely gives a related TED talk: "Are we in control of our own decisions?" http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_o... Look around 11:30 for a few examples of how comparing options affects us more than looking at each individually. On a side note, it also seems inexpensive because it's $499 and not $500! Psychological pricing is one of my larger pet peeves...

On a side note, it also seems inexpensive because it's $499 and not $500! Psychological pricing is one of my larger pet peeves... Ditto. That's why I round up when somebody asks me how much something costs. The mathematical error resulting from using $500 instead of $499 is much less than the psychological error induced by the smaller first digit.

It really drives me crazy when I'm discussing products with a salesperson and they consistently "correct" me every time I mention the rounded-up price. It goes like this:

Sales: So it looks like the $299 point-and-shoot might match the features you're looking for, moreso than this $399 video camera.

Me: OK. I'm really leaning towards the $300 one.

Sales: $299.

Me: Yeah, sure. Because I don't know if I'm really going to get my money's worth, paying an extra hundred for the $400 one.

Sales: $399.

Me: (uppercuts salesperson into the stratosphere)

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#45

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

Because most people want to look reasonable at a job interview. However, one thing people miss is that the anchoring can be to any number whatsoever, so you don't even need to talk about what you want per hour. I remember a paper that asked participants to note down the last two digits of their social security, and subjects anchored themselves to that (statistically significantly- one of the authors was Dan Ariely).…

It wasn't just naming a large number: It was taking a random number (last 2 social security digits), writing it down with a $ in front, compare it as price to certain products, and THEN bidding on them. Not just naming a big number. It's in one of his 2 TED talks, which both are great to watch.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#46
post #26

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

I read on here few months ago that naming your own price first is better. Now I believe it! Recently we hired a sales person on PT basis. At the interview, she gave her expected salary to be about 2.5 times what I had thought about paying her. Now, I know about this notion of anchoring and yet I felt kind of embarrassed to make my initial offer. I fought off the urge to buy into her frame and ultimately made a decent…

I agree with you that it seems like there should be an upper limit. But if this article is correct about there not being a rebounding effect, then asking for an extravagant amount seems like your best move. Although I'm guessing that things are a bit different if they haven't indicated whether they plan to hire you or not, i.e. if this is something discussed in a screening interview, asking for an exorbitant salary will likely prevent you from moving forward. I'd also guess that in a trial, the plaintiff has no continued relationship with the jury, while in a job you probably don't want to have the reputation for being the person with completely deranged views of reality.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#47
post #29

Earlier quoted context omitted.

This is going to be a killer with the iPad. I managed to avoid pre-ordering one, but as the app library grows and the iPad's potential use cases multiply, that $499 will start to look like an increasingly better deal.

Though the apps are at $9.99+ on iPad. With the "anchoring" of the iPhone apps at $0.99 and $2.99 (and free), Apple and other companies are having to fight a slightly different battle of re-anchoring everyone higher.

Is the answer here then for Apple to release two versions of iWork for the iPad then? For example, have one version of iWork that only lets you read documents for $13.99, and then for $14.99 have version that lets you read + write documents?

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#48
post #45

Earlier quoted context omitted.

Because most people want to look reasonable at a job interview. However, one thing people miss is that the anchoring can be to any number whatsoever, so you don't even need to talk about what you want per hour. I remember a paper that asked participants to note down the last two digits of their social security, and subjects anchored themselves to that (statistically significantly- one of the authors was Dan Ariely).…

It wasn't just naming a large number: It was taking a random number (last 2 social security digits), writing it down with a $ in front, compare it as price to certain products, and THEN bidding on them. Not just naming a big number. It's in one of his 2 TED talks, which both are great to watch.

Which Ted talks are you referring to?

edit - (Just realized you were referring to Dan Ariely)

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#49

It's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?

While I hope to never be negotiating for a salary again, here's what I'd say when asked about a salary in a hypothetical job interview (to have my cake and eat it too): "What kind of salary do I want? That's a hard question, especially in light of the fact that working with you guys is the most interesting opportunity I'm evaluating. I'd expect offers around [insert aggressive number], but again- let me stress that I…

I don't know if you'd want to make it extremely clear that the employer is your first choice and you would like to negotiate your salary to a lower point. It seems like you'd want the exact opposite of that.
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