Wednesday, November 20, 2013

The Anchoring Effect

I've found myself very busy the last couple months. However, while working on a homework assignment I was reminded of this old blog post describing the anchoring effect http://youarenotsosmart.com/2010/07/27/anchoring-effect/.

My interpretation of this concept is that "value" has a lot less to do with what an object is worth to you, and a lot more to do with what your alternatives. If you lived in an alternate reality where toilet paper cost twice as much, how would that change your behavior? What about a world where it cost half as much?

This does not mean that everything is without value, but you have to create your own metric if you want to make rational decisions. As a kid, my brother and I played the card game Magic the Gathering, and there was a store we could get (common) cards from for $0.05 each. We could then translate prices of other things into magic cards. Is it worth getting this toy? Well, is it worth 200 magic cards?

As an adult (who is reasonably privileged) making consistent decisions is a lot harder. There are a lot more things I could conceivably purchase, but which ones are "worth it" is harder to determine. Is a vacation trip to Alaska worth working a month longer before retirement? It's harder to compare.

The article itself has a somewhat different take on the subject, but I highly recommend giving it a read.