11 March 2013

The Fall of the Western Roman Empire and Marketing Communications “Classics” - Anchoring and Adjustment

Probably the most known empire in history is the Roman Empire (at least for cultures with European roots). The legacy of the Roman Empire is vivid even today and covers buildings, languages, principles of law and state institutions such as the senate.

Now let’s go to a significantly less important aspect, namely my phone number. The middle digits of my (Romanian) phone number are “668”.

OK. You might not find a connection between the Roman Empire and the “668” digits, but please answer the following questions:

“Did the Western Roman Empire fall before or after the year 668? What is the best approximation you can give (without googleing it) on the year in which the Western Roman Empire fell?”

Come on, make an effort and think. Was it before or after the year 668?

If it was before 668 AD, was it closer to the year 200 or closer to the year 600?

If it was after 668 AD, was it closer to the year 700 or to the year 1000?

Did you come up with an answer?

If you did, I have two things to tell you. First, if you believe it was before 668AD, I guess that your estimation was closer to the year 600 than 200AD. If you think it was after 668AD, then your estimate is closer to the year 700 than the year 1000. I’ll tell you soon how I reached this conclusion, keep on reading.

Second, what does my phone number has to do the fell of the Western Roman Empire? Regardless of your estimate on the date, you (most likely) took “668” as a reference and then adjusted if it was before or after this year, but I told you that “668” are the middle digits of my phone number. What has my phone number to do with history?

Let me tell you how I guessed that any estimation would be close to 600 AD or to 700 AD. As I said, you most likely took 668 as a reference or anchor. If you believed that the Western Roman Empire fell before 668 AD, then you subtracted some years from 668, but not that many to get close to the year 200. Similarly if you believed that the Western Roman Empire fell after 668 AD, you added some years, but not that many to get close to the year 1000.

Before explaining a bit more on how this works, I have to disclose the correct answer. The Western Roman Empire fell in 476 AD. That is the official date and the empire was in decay for about 100 years before this date. The Eastern Roman Empire managed to survive for about 1000 years more, but that’s another story.

Going back to how the middle digits of my phone number influenced your estimation, it is called “Anchoring and adjustment” and it has been introduced by Kahneman and Tversky as a heuristic in their classic paper "Judgment under Uncertainty: Heuristics and Biases".

The mechanism of this heuristic goes like this. Whenever a person is asked to make an estimate and there is a reference (anchor) available, that person will use the reference and adjust in accordance with her beliefs about the issue to be estimated. The anchor can be related to the topic, but the same mechanism works even if the anchor is completely unrelated.

In the Roman Empire example, you were provided with an unrelated anchor – the middle digits of my phone number. Things would have gone similarly if you would have been told that the Roman Empire reached its peak of expansion around 200 AD. You would have known that the fall was after the peak, but how long after, you would still have to estimate and your estimation would be influenced by the “200” anchor.

The main shortcoming of anchoring is that its effect is so powerful that we fail to adjust sufficiently to reach a reasonable estimate.

The skeptics among you will say that this is not that relevant for our daily lives. After all who cares when the Western Roman Empire fell?

OK! I accept that the exact year in which the Western Roman Empire fell is not relevant for life in the XXI-st century. However, here are two classics of marketing communication based on the anchoring and adjustment principle.

“Prices starting from X00 Euros”

This type of information, especially formulated with “starting from” is encountered in virtually advertising environment.

We as consumers are not stupid, so we know that what we want to buy will cost more than X00 Euros. The “trick” is in our estimation of “how much more”.

Imagine that you want to buy a computer and an add says that a certain shop sells computers starting from 500 Euros. Of course you don’t want the basic option computer that costs 500 Euros, but how much is the computer you want is going to cost? Your estimate will be influenced by the 500 Euros anchor. In other words, your estimate on the price of the computer you want to buy will be closer to 500 Euros than to 1500 Euros.

Another “classic” in marketing communication is the “Up to X …”. For sure you encountered the “Discounts up to 70%” or “Bandwidth up to 10 Mbs/s”. The pure rational informational content of such ads is “For sure you will not get more than …”, but our mind perceives the information significantly differently. We know that the discounts for the products we want to buy will most likely be smaller than 70%, but how smaller is influenced by the 70% anchor. In other words, we will believe that the discounts for what we want to buy will be much closer to 70% than to 10%.

Anchoring and adjustments plays a role in negotiation, namely the starting positions in a negotiation function as anchors. For example if you are negotiating your salary and the employer makes an initial offer of X0.000 Euros per year, that value will function as an anchor.

Although anchoring and adjustment is not a heuristic in its proper definition of substituting one attribute with another, it is highly important in understanding how people make judgments.       

Like it?  Spice Up  Your Business

This post is documented from:
Tversky, Amos, and Daniel Kahneman (1974), "Judgment under Uncertainty: Heuristics and Biases," Science, 185, 1124-31.

No comments: