Price anchoring

What It Means

Price anchoring is the pull a first number has on how you judge the prices that come after it. A tag that says "was $449, now $299" makes $299 feel like a deal, and a $2,000 sofa placed beside a $1,200 one makes the second look reasonable. It rests on what psychologists call anchoring and adjustment: an estimate starts from the first number on offer and gets adjusted from there, so it tends to stay close to that starting point.

How It Sounds at Home

• "It was forty percent off, so I kind of had to."
• "Next to the other one, this one seemed cheap."
• "They opened high, so we knew they'd come down."

The Breakdown

A short example. Rosa goes shopping for a stand mixer she'd guessed would cost about $250. The first one she sees is marked down to $299 from a "was" price of $449. After the $449 tag, $299 feels like a win, and she buys it, spending $49 more than she'd planned.

Where it goes wrong. The $449 tag did the deciding, since Rosa compared the mixer with its own old price instead of with her $250 budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more or with what other stores charged. If that "was" price had never really been charged, the saving didn't exist at all.

What to watch for.

• "Was" and "compare at" prices, and crossed-out numbers.
• A very expensive option shown first, or placed beside the one the seller wants you to pick.
• A high opening quote in a negotiation, such as a car or a home repair.
• Your own number: write down what you'd pay before you look at any tags.

Where It Comes From

Psychologists Amos Tversky and Daniel Kahneman described anchoring and adjustment in their 1974 paper "Judgment Under Uncertainty: Heuristics and Biases," as one of three mental shortcuts people use when estimating under uncertainty, alongside representativeness and availability, according to Britannica.

Good to Know

The FTC's Guides Against Deceptive Pricing (16 CFR 233.1) treat a "was" price as a fair basis for a comparison when it's the actual price the item was openly offered at, regularly and for a reasonably substantial period. A price inflated only so a later "reduction" looks big makes the bargain false, and the sale price is then probably just the regular price. The same guides also cover comparisons with other stores' prices and with a manufacturer's suggested retail price. When a discount looks huge, check what the item sells for elsewhere before you count the saving.

Related Terms and Categories

• Impulse spending

  Buying something on the spur of the moment, without planning for it or checking it against your budget.

• Price matching

  A store policy of lowering its price to match a lower price for the identical item, found at a competitor or at the store itself.

• Needs vs wants

  The split between costs you must pay to live, work and protect what you have (needs) and extras that would be nice to have (wants).

Household money and budgeting