arbitrary coherence

Thank you for participating in my survey.

This survey was part of my irrationalbehaviour course conducted by Prof Dan Ariely of Duke University.

I was trying to get a first hand experience of what Prof Dan calls as anchor price and arbitrary coherence.

Now for those who did not participate in my survey, here is a brief.

I asked the participants to write down the last 03 digits of their phone numbers. I then told them to think of that number in money denomination. (032 becomes Rs 32.00). I then floated 4-5 random items and asked them to bid for it, the maximum bid wins the item.

Question?? Do you think the last 03 digits of your phone number in any way influenced your decision. I hope not you say!!

Interesting synopsis of my experiment was that there was not much difference in bidding for the people with numbers between 100-780. It was all random and probably based on their perception of the intrinsic value of the product.

But what was interesting to note was the difference of bidding between the extremes. On average people with last 03 digits of more than 800 bid 60% more than people with last 03 digits below 100.

Even an arbitrary number like last 03 digits of your phone number can become an anchor for you to judge the price of a totally unrelated item(s).

disclaimer: had to delete the entries by Nitin who bid 0 for everything and my wife Shalini who went bizerk bidding Rs 3000 for a damn ball. (she says quality was awesome)

The basic idea of arbitrary coherence is this: although initial prices are “arbitrary,” once those prices are established in our minds they will shape not only present prices but also future prices (this makes them “coherent”). So, would thinking about last 03 digits of our phone number be enough to create an anchor?

Human beings are irrational beings, everything is relative, no absolutes. We don't know what we want, our wants are decided on relative basis. It doesn't matter if the basis is arbitrary or not.

A woman gets treated badly, she looks around sees that it is no big deal to be treated badly, that becomes her status quo. A slap becomes a great outcome in a world where they are burnt alive.

A contrast bias sets in as well. You go to Thomas cook shop and buy a swanky 2 lakh package to Bermuda, they upsell you the currency. You know their currency charges are a rip-off but paying a 5k extra doesn't pinch much after shelling 2 lakhs. All relative.

We don't realize that we get influenced by the environment around us in so many ways and it influences our decisions. Our decisions are not OURS. We are what Robert Cialdini calls, 'the patsies'.

Behaviour economics is an amazing field. Daniel Kahn man and Twersky have unfolded with their experiments and empirical evidence that we don't know shit, we are irrational and our decisions are biased and flawed. A very humbling experience to be honest.