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anchoring behavioral economics

Why or why not? This module discusses the common behavioral biases experienced by individuals. Analyze and explain how retailers of goods and services use anchors to sway our purchasing decisions. For example “Is your budget more or less than $100,000” seems like a simple question, but it definitely sets the anchor. This information becomes a reference point for all subsequent decisions that we make. That’s a form of anchoring bias. Show the students slide 2.11. Tell the students that they will be participating in a trading game. A higher price becomes a point of reference but is quickly forgotten as consumers shop around. When shopping for the good, did you research the cost of the good at one retailer? A potentially biasing number is present in the environment at the time of judgment, one that is not informative in any meaningful way with respect to the judgment at hand. Write the compelling question on the board. While the areas of where the concept of Incidental Environmental Anchor can be harnessed are numerous – sports, product and service branding, UX design (influencing choice), model no., disease management; I have chosen three specific examples where the effect can be implemented. A review of the behavioral economics concept of anchoring and adjustment Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. Tell the students they may or may not have put a lot of thought into what they were purchasing. Tell students that at the end of the lesson they will write a response to the question based on what they learned from the lesson. Tell the students the market is closed after five minutes and have them return to their seats. In such instances, investors tend to anchor on the recent ‘high’ of the stock price and wrongly believe that the recent drop provides them an opportunity to buy the stock at a discount. In an ideal world, defaults, frames, and price anchors would not have any bearing on consumer choices. Explain and discuss the information on the slides with the students: Ask the students if they remember a time when they overpaid for a good or service. What is anchoring in behavioral economics? We’re starting with a price today, and we’re building our sense of value based on that anchor. Reviewing slides 2.6, 2.7, and 2.11, ask for two students that identified as Econs in using what they have learned to explain their approach to why they chose to purchase the product and approached it like an Econ. All icons have been sourced from ‘The Noun Project’ under the Creative Commons license, 1. The anchoring bias describes the common human tendency to […] Theresa Fischer, © 2018 EconEdLink. However, often the adjustment away from the … In reality, the price that a person is willing to pay does depend on the asking price; this is known as the anchoring effect. Tested whether model numbers might also bias judgments about the product that are unrelated to the dimensions of quality or novelty. Understanding Anchoring . Ask the students why they paid that price. In doing so, people tend to start off with an initial value, and then adjust away from it. I work with applying behavioral economics to B2B sales organizations. Humans also use costs and benefits but can be influenced by other factors when making choices. Our decisions would be the result of a careful weighing of costs and benefits and informed by existing preferences. Ask the students to think about a purchase or purchases that they have made in the past. Explain in one paragraph what the relativity trap is. With a show of hands, ask the students who made their decision more like an Econ (most checkmarks under that column) and then who made their decision like a human (most checkmarks under that column). By looking beyond user goals and into their thought processes, you can become a “choice architect.” We tend to rely quite heavily on the first piece of information to which we are exposed. This information is the fourth bullet point on their instruction form. Anchoring can lead to bad investment decisions in finance. Anchoring and Priming This is a cognitive bias that describes the human tendency to “anchor oneself” (or focus) on part of the information received when in a decision process. Instruct the students to draw two columns on a sheet of paper and label one “Econ” and the other “Human.” A checkmark will be placed on either column if the behavior described is that of an Econ or Human. What is being saved in cost might not be as relevant as what is being spent. This information becomes a reference point for all subsequent decisions that we make. The wheel was a random number generator that provided something concrete to work from. 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