Running head: DECISION MAKING
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How Anchoring Effects Decision Making
by
Austin Nixon & Jason Thorpe
201103095, 201102759
A laboratory Report
Presented to R. McInnis
In Cognitive Psychology 220
Department of Psychology
St. Francis Xavier
April 4th, 2014
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Abstract
The present study examined whether subjects would express anchoring effects when
purchasing items. Two variations for item purchasing were used; five for a set price and
quantity limitation in contrast to a control group. A total of 36 male and female
undergraduate cognitive psychology students at St. Francis Xavier University were used
as participants for this study. Participants completed the study by writing down their
answers to shopping decision questions administered by the instructor. The means for the
5 for a set price was 3.02, while the mean for quantity limitation was 2.22 Results are
discussed in relation to the decisions made by shoppers, and buying items more often
when they are advertised as a five for a set price and quantity limitation.
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Introduction
This study takes a look at anchoring in decision-making. During decision-making,
anchoring occurs when individuals use an initial piece of information to create a final
decision. In the present study participants were required to answer questions related to
shopping decisions. The experiment contained two parts; the first part presented an item
and asked subjects how much they would pay for that particular item. The second part
presented subjects with 12 items, and each particular item provided a price, a quantity for
a fixed amount or a limit on the quantity purchased. Subjects had to determine how much
of each item they would purchase if they were grocery shopping. From this study we
determined if the subject is inclined to purchase more when there is a quantity for a fixed
amount, or a limit on the quantity purchased.
Wansink, et al. (1998) stated in their article that a simple anchoring and
adjustment model describes how consumers make purchase quantity decisions and
suggests how point-of-purchase promotions can increase sales. In the article, Wansink et
al. focused directly on how current users of brands decide how much to purchase. They
believe that manufactures hold the logic that the more units sold; the less likely it is for a
consumer to run out of stock and purchase a competing product (Wansink, et al., 1998).
Therefore, the belief is that when a purchased quantity is increased, it can increase the
amount of quantities purchased by the consumer. They found that a multiple-unit
promotion pricing led to a 32% increase in sales compared with single-unit pricing.
Additionally, implementing a suggestive selling anchor (e.g. “Buy 18 for your freezer”)
can influence intended purchase quantities even without a discount (Wansink, et al.,
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1998). This relates directly back to the present study, as the items that were advertised in
part 2 for a quantity with a fixed amount are meant to entice you to buy more.
In Ariely et al.’s (2003) experiment, they state that the presence of prior cues or
“anchors” is often rationalized by appealing to consumers’ lack of information about the
options at stake and the weak incentives operating in the experimental setting. This can
explain some rationale to the results from the present study, as subjects were likely
quicker to purchase more of an item when they see it is advertised as a deal (ex. 5 for
$5.00). They also remark that anchoring corrupts subjective judgement, and relate back to
Tversky & Kahneman’s 1974 study. Where subject’s answers were significantly related
to the random number spun on the wheel, that the subject was assigned (Arierly et al.,
2003). This falls back on the first part of the experiment, where subjects were asked to
give a price that they believe a set of headphones were worth. It was believed that the
final two digits of participant’s student number would influence their answer.
The present study that was explored through this report, takes an in depth look at
how anchors can affect consumer’s decisions, and in this case, shopping decisions. This
experiment is based off of Tversky & Kahneman’s (1974) original study, and they outline
all the possible reasons for why anchoring affects consumer’s decisions. This leads to the
research question, which will ask how much the anchors in this study will affect the
participant’s response to their shopping decisions.
To undergo the experiment, subjects will answer questions, directed by the lab
instructor, on shopping decisions. The anchors in the experiment include the final two
digits in the subject’s student number, items that are 5 for a fixed price, and items that are
quantity limited. The hypothesis of the present study states that subjects with higher
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student ID numbers would perceive a higher cost for the headphones, while subjects with
lower student ID numbers would do the opposite. Additionally, it is believed that subjects
would purchase more items when a deal with a fixed price and a quantity limitation, in
comparison to individual pricing of that item.
Method
Participants
The participants in this study consisted of 36 male and female undergraduate
students at St. Francis Xavier University, enrolled in Cognitive Psychology. The students
completed the experiment as a requirement for the laboratory portion of the course.
Apparatus
In the present study subjects were required to write down their answers to
questions that were asked by the lab instructor. The questions were concerned with
shopping decisions; there were two parts to the questions. In part one participant’s were
asked how much they would pay for a particular item. In part two subjects were asked to
indicate how much of each item they would purchase if they were shopping, a price of
the item was included. Majority of the questions in part two either gave a limit on the
amount of the product you could purchase, or gave a price for a certain quantity.
Procedure
Participants were seated at Macintosh desktop computers in the computer lab. The
lab instructor asked participants to take out a pen and a new sheet of loose-leaf, and write
the last two numbers of their student number on the top right hand corner of the paper.
Participants were notified the experiment about to take place had to deal with questions
about shopping decisions, and contained two parts. Subjects were requested to record
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their answers to questions displayed on the projector screen on the piece of paper in front
of them. Part 1 of the experiment consisted of one question; how much would subjects
pay for a particular item (headphones). Part 2 of the experiment consisted of 12
questions, and asked participants to indicate how much of each grocery store item they
would likely purchase if they were shopping. Three of the questions in part 2 gave the
quantity of 5 for a product with a fixed price (quantity for a fixed amount). Another 3
questions in part 2, limited subjects to purchasing more than 5 of one product (limit on a
quantity purchased). The remaining 6 questions in the experiment simply listed the price
of the item, and subjects answered how many of each they would buy with no limit or
quantity for a fixed amount.
Results
The results are divided into two separate subsections. Subsection one determined
if the last two digits of subject’s student ID would initiate an anchoring effect on how
much the subject would spend on a pair of head phones. The average amount of money
spent for subjects with ID <40 was $34.17 in comparison to those with ID > 60 spending
a mean amount of $47.50. The t-test constructed t(20) = .699, p > .49 demonstrates an
insufficient difference.
In sub section two, we see deals such as 5 for a set price and limitations on the
number of items available for purchase compared to a control group. When offered 5 for
a set price versus the controlled group, the results show on average 3.02 items were
purchased when sold in bulk in comparison to 2.22 items bought in the control group.
The dependent t-test describing the probability of the event is t(35) = 3.72, p < .001.
When a limitation was placed on the number of items allowed for purchase subjects
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purchased 2.31 items while the control group purchased 1.55 items. The t-test
representing this portion is t(35) = 1.72, p < .095. In the end, the average number of
goods purchased when a deal occurred was 2.62 items while 1.93 items were purchased
when a limit was imposed.
Table 1: Identification number size effects perceived cost of head phones
Group
Mean Head Phone Cost
ID<40 (n=6)
$34.17
ID>60 (n=16)
$47.50
Table 2: 5 for set price Vs. Control and the number of items purchased
Group
Quantity Purchased
5 for Set Price
3.02
Control
2.22
Table 3: Limitation Vs. Control and the number of items purchased
Group
Quantity Purchased
Limitation
2.31
Control
1.55
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Table 4: 5 for set price Vs. Limitation quantities mean purchase
Group
Quantity Mean
5 for Set Price Mean
2.62
Limitation Mean
1.93
Figure 1: Identification Number Vs perceived cost of headphones.
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Figure 2: Quantity purchased Vs. 5 for set price Purchase Condition
Figure 3: Quantity purchased Vs limitation purchase condition
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Figure 4: Quantity Mean Vs Purchase Condition
Discussion
The initial belief was the higher the subject’s student ID the more they would be
willing to spend on the set of headphones. The results found display that an anchoring
effect may have occurred from writing down their ID. To determine if anchoring
occurred or if the results come from chance a t-test was conducted in the results section.
The t-test demonstrates there is no difference therefore luck was in play. Our initial
hypothesis that subjects with higher ID numbers would spend more money was
determined to be false. When analyzing if subjects would purchase a greater quantity of
goods compared to control groups our hypothesis was proven correct. In both instances
subjects decided to purchase a greater quantity of items when a limitation or deal was
available. The anchoring of the 5 for a dollar or max purchase of 5 items drew subjects to
purchase more of that item then when displayed with its cost individually. The last
hypothesis to be determined was whether subjects would purchase more items displayed
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5 for a set price in comparison to a limitation. Our initial belief was that subjects would
want to stock up on the product. In the end, the results show that subjects purchased more
goods when displayed 5 for a set price in comparison to a limitation. By doing so our
final hypothesis was falsified.
Possible limitations we are interested to undermine are if students were influenced
when writing down their ID numbers. Was the time taken to write down their ID number
enough to provide an anchoring effect? To provide us with an answer Wilson et al
determined that it is not quite clear how much attention people must pay to a value for it
to cause an anchoring effect. They did find that anchoring occurred at a greater rate
among unknowledgeable people. We believe that after spending a year at an institution
remembering your ID becomes second nature. Therefore subjects may have spent less
than five seconds writing down their numerical name and may not realize they were
doing so. Other limitations that we believe impeded the study were a small sample size
and a sample where some students still lived on campus. If students still lived on campus
they lack the shopping skills seniors gain when one cannot depend on meal hall to feed
them. The last limitation that we will discuss is the belief that students simply may have
not liked the food choices. Instead of simply judging what they would do based on the
price they took a personal perspective by making their choice on wither they liked the
food or not.
The benefit of having knowledge on anchoring is that it will help you be a better
shopper. Are deals really deals? To no surprise large companies use these strategies to get
their products off the shelves. When you see that large price tag 3 for 5 or max purchase
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of 7 one may want to take their time and consider they may be falling into a trap. For
large companies that have to get rid of product this strategy is like striking gold. If there
is one way to take advantage of a shopper anchoring is it.
An area of interested being Human Kinetic students is to determine what type of
foods anchoring is being used on in our grocery stores. It is no surprise that individuals
are struggling with their health and obesity is on the rise in today’s society. If deals such
as 5 for a set price or limitations were eliminated on junk food we believe people may
begin to shop healthier when looking at food choices.
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References
Ariely, D., Loewenstein, G., & Prelec, D. (2003). “Coherent arbitrariness”: Stable
demand curves without stable preferences. The Quarterly
Journal of
Economics, 118, 73-106.
Wansink, B., Kent, R. J., & Hoch, S. J. (1998). An anchoring and adjustment model of
purchase quantity decisions. Journal of
Marketing Research, 35(1).
Wilson, T. D., Houston, T.D., Etling, K.M., and Brekke, N. (1996). A new look
at
anchoring effects: Basic anchoring and its antecedents. Journal of Experimental
Psychology: General, 125, 387-402