Where are we anchored?

Daniel Kahneman and Amos Tversky did some memorable work on decision making and judgment.  Tversky died in 1996 but Kahneman went on to win the Nobel prize in economics.  I read about some of their work in the mid 60's researching my dissertation on decision theory.  There is a phenomenon in statistics called "regression toward the mean", which boils down to the fact that when you have a very good day or a very bad day, the day following will usually be more typical.  That happens just because it takes extra good luck, among other things, to have a very good day and extra bad to have an exceptionally bad one.
 

Kahneman and Tversky discussed the training methods being used with pilot instructors who used them.  The instructors emphasized that they made sure to bawl a student pilot out after a bad performance and they noted that the next time that student was in the air, the performance was better.  The investigators explained the idea of regression toward the mean to the instructors.

Kahneman has a book called "Thinking: Fast and Slow" in which he describes what might be called our human knee-jerk response in which we choose and complete an action instantly, too quickly to be analytic about the action, as opposed to slow, deliberate consideration of what to do and the implications of each possibility.  He notes that our unconscious quick system transmits basic assumptions to the slow analyzer part of our head without our noticing the transfer.  

Kahneman and Tversky did quite a lot of research on "anchors", usually numbers or representations of quantity that anchor our thinking quickly and subtly.  One example is the auctioneer who starts the bidding at a given number.  "Who will give me $200 for this fine painting?" sets up our thinking based on $200, so that number is the anchor.  I am asking $50 for my hat and I tell you that.  You offer $25 and I accept.  Wow!  You got a $50 hat for half price!  But only because of the anchor I used.  I am happy to sell it for $20.

Kahneman writes:

Anchoring effects explain why, for example, arbitrary rationing is an effective marketing ploy. A few years ago, supermarket shoppers in Sioux City, Iowa, encountered a sales promotion for Campbell's soup at about 10% off the regular price. On some days, a sign on the shelf said limit of 12 per person. On other days, the sign said no limit per person. Shoppers purchased an average of 7 cans when the limit was in force, twice as many as they bought when the limit was removed. Anchoring is not the sole explanation. Rationing also implies that the goods are flying off the shelves, and shoppers should feel some urgency about stocking up. But we also know that the mention of 12 cans as a possible purchase would produce anchoring even if the number were produced by a roulette wheel.

Kahneman, Daniel (2011-10-25). Thinking, Fast and Slow (p. 126). Macmillan. Kindle Edition.

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Bill
Main blog: Fear, Fun and Filoz
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