Dollars and Sense

An anchor price can be any figure, no matter how random, so long as we associate it with a decision. That decision gains power and influences our future decisions moving forward. Anchoring shows the importance of early decisions about pricing, that they establish a value in our heads and affect our own value calculations going forward

once we move on from our first decision in a category, we stop thinking about our initial anchor. Instead, we make the second decision relative to the first one.

Don’t believe everything you think.

we overvalue the things that we own.

Basic economic strategy teaches us to try to buy low and sell high.

One reason for this overvaluation effect is that ownership gets us to focus more on the positive aspects of what we own.

One of the ways we get an extra feeling of ownership is by investing effort.

After we invest effort in almost anything, we feel extra love toward that thing we had a part in creating.

people who held a coffee mug in their hands for more than thirty seconds were willing to pay more to buy that mug than were those who

people who held a coffee mug in their hands for more than thirty seconds were

people who held a coffee mug in their hands for more than thirty seconds were willing to pay more to buy that mug than were those who held it for fewer than ten seconds or not at all.5 Think about that: Thirty seconds is all it takes to establish a sense of higher ownership, strong enough to distort our valuation of an item.

We feel the pain of losses more strongly than we do the same magnitude of pleasure. And it’s not just a small difference—it’s about twice as much.

sunk cost is through a game in which participants bid to purchase a $100 bill. Rule #1: Bidding starts at $5. Rule #2: Bids can only increase by $5 at a time. Rule #3: The winner pays the amount of his or her final bid and gets the $100. The last rule is that the second-highest bidder also pays what he or she has bid, but gets nothing.

The trick to this type of market competition (and the key to Dan’s game) is either never to play in the first place or, if we play, to learn quickly when things are not going our way and cut our losses.

“Imagine that right now you were not married to this person, and you knew about her everything you now know, but you’ve just been friends for the last ten years. Would you now propose to her?” The friend said there was zero percent chance he would propose. At that point, Dan asked, “What does this tell you about your decision?”

“Imagine that right now you were not married to this person, and you knew about her everything you now know, but you’ve just been friends for the last ten years. Would you now propose to her?” The friend said there was zero percent chance he would propose. At that point, Dan asked, “What does this tell you about your decision?” How much of his conflict came from thinking about the past, from overvaluing the time and energy he’d already sunk into his marriage, rather than looking forward, to the time and energy he’d use in the future, regardless of the previous investment?

Sometimes looking just at the future is the right thing to do.

We should think about where we are now and what will happen going forward, not where we came from. This is, of course, much easier said than done, especially when we tend to put so much emotion, time, and money into our lives and into our possessions—our homes, our investments, and our relationships.

the amount we’re willing to pay for things often depends, to a large degree, on how fair the price appears to be.

By the basic laws of supply and demand, umbrellas should cost more in the rain (more demand) and Uber rides should cost more in a snowstorm (lower supply and more demand) and we should be perfectly okay paying these higher prices.