How many times do you say, “Wow, that is expensive! I know it costs a lot less at the other store”? Or “Wow! Check out this steep discount!” The importance of a good deal is on many consumers’ minds when they purchase goods and services. How do consumers decide if something is a good deal?
Whether online or in a physical store, shopping around for a good or service usually involves constant reference to the prices. However, it’s the initial price a consumer is exposed to that becomes a consistent reference point when shopping around. The tendency for a person to rely heavily on the first piece of information they receive when making decisions is known as the anchoring effect.2 The anchoring effect is a type of cognitive bias—a systematic error in thinking that affects people’s judgment and decisionmaking. Anchoring plays a role in decisions that involve numerical values such as prices.3 Read more…..
Chart of the Day
Apr.01 — Bob Prince, co-chief investment officer at Bridgewater Associates, discusses the evolution of U.S. economic policy, the outlook for inflation, and plans for returning employees to the firm’s offices on “Bloomberg Markets.”