Dollars and Sense
by Ariely, Dan · 223 highlights
ANCHORING occurs when we are drawn to a conclusion by something that should not have any relevance to our decision.
ANCHORING occurs when we are drawn to a conclusion by something that should not have any relevance to our decision. It is when we let irrelevant information pollute the decision-making process.
According to the law of supply and demand, when we set our reservation price we should consider only what the item is worth to us, and our other spending options.
when we don’t know the value of something—how many dollars for a house, how many CD changers for a sunroof, how many African nations in the UN—we’re especially susceptible to suggestion, be it from random numbers, intentional manipulation, or the foolishness of our own minds.
Is it easy to admit being wrong?
Is it easy to admit being wrong? Noooooo. It’s one of the hardest things in the world.
can’t just be wrong, either, because we’re brilliant. We certainly never willingly admit that we’re wrong, to ourselves or anyone. Ask anyone who’s been in any kind of relationship: Is it easy to admit being wrong? Noooooo. It’s one of the hardest things in the world.
We certainly never willingly admit that we’re wrong, to ourselves or anyone. Ask anyone who’s been in any kind of relationship: Is it easy to admit being wrong? Noooooo. It’s one of the hardest things in the world.
Self-herding is the same fundamental idea as herding, except that we base our decisions not on those of other people, but on similar decisions we ourselves have made in the past.
Self-herding is the same fundamental idea as herding, except that we base our decisions not on those of other people, but on similar decisions we ourselves have made in the past. We assume something has high value because we valued it highly before.
because we trust ourselves with our own behaviors. We remember that we’ve made a specific value decision over and over, so, without spending the time and energy to evaluate that decision over and over, we assume it was a good one.
Herding is the idea that we will go with the crowd, that we assume something is good or bad based upon other people’s behavior
We remember that we’ve made a specific value decision over and over, so, without spending the time and energy to evaluate that decision over and over, we assume it was a good one.
Confirmation bias pops its head up when we interpret new information in a way that confirms our own preconceptions and expectations.
When we’ve made a particular financial decision in the past, we tend to assume that we made the best decision possible. We look for data that supports our opinion, feeling even better about the quality of our decision.
They say we only get one chance to make a first impression. This may be just as true with our financial decisions as with relationships.
Think about sitting at a fancy restaurant looking at a well-designed menu. What do we see first? The luxurious lobster and truffle-encrusted, grass-fed, hand-massaged Kobe beef delight for $125. That’s not what we want, or what we get, but it serves to anchor our perspective on the value of other items on the menu, and to make everything else seem affordable by comparison.
When Steve Jobs introduced the iPad, no one had ever seen such a thing. He put the figure “$999” on the screen and told everyone that all the experts had said it should cost $999. He talked for a while longer, keeping that price up there, then finally revealed an iPad price of . . . $499! Woo-hoo! What a great value! Heads exploding! Children weeping with joy! Electronic pandemonium!
When considering something like smelling shoes, we don’t know the market price. So we have to start with our own preferences. These are very different for different people, and they’re often difficult to figure out.
We must dig deep, consider what we like, what we don’t like, what we’re willing to spend, how much we’d enjoy it, what we’re willing to give up (the opportunity cost), and much more.