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Need to find a subtenant for you apartment? You may want to reconsider the asking price you posted…

We have all seen vendors pricing their goods at such prices as $9.99 instead $10.Most people think, “Hah, you can’t fool me with those 99 cents!” Well, it turns out that in most cases, consumers are, in fact deceived. The trick is not simply making the price appear smaller, but rather, it is in altering the consumer’s perception by using the asking price as a mental anchor. This tactic is particularly useful for vendors involved in auctions or those selling goods at negotiable prices (e.g. via sites like EBay and Craigslist).

When a consumer sees a price, their immediate reaction is to evaluate whether or not the given item is actually worth that price. This evaluation is obviously subjective to that person’s individual attitude towards both monetary and societal ideals. However, based on the research University of Florida marketing professors Chris Janiszewski and Dan Uy, there is a common factor that stems directly from fundamental human psychology – the mental anchor, as mentioned above. If given a round-numbered price of some item, a person will automatically use round-numbered approximations when calculating their unique valuation of this item. Similarly, if given a more precise price, a person will then evaluate the worth in more precise measurements as well.

For example, say person X is looking to buy a car and person Y is selling a car. X will almost always valuate the worth of the car lower than the asking price that X initially sees. If Y initialized the price at $10,000, then X will evaluate the worth to be significantly lower (say $9,000 or $8,000). However, if Y were to price the car at a more specific price, like $9,750, then X would decrement this value by lesser numbers and end up with a resulting valuation of $9,500, for example. In both scenarios, X guesses the value to be less than the price given by Y, but in the latter case the “mental measuring stick”, as Janiszewski and Uy call it, which X creates in his mind has smaller increments than the one he creates in the first case.

Contrary to what may seem more intuitive, it is typically more beneficial to ask for a specific price when selling something rather than rounding the price up to a cleaner number. Sure, your customer will want to negotiate with you either way, but with this new-found knowledge you’ll effectively fool them into finagling right down to a price you really want. Everyone leaves happy! Though, maybe in the case of the costumer, ignorance is bliss.) When dealing with auctions, this can be extremely useful in calculating the appropriate starting price as such events are specifically geared towards bargaining and since costumers are even more willing to settle on a price faster if they are dealing with competition. Using this information can be especially handy in an open descending-bid auction as it can help condition the bidders to being more comfortable paying a steeper price than they would otherwise.

What’s more is that this logic does not only apply to markets. It actually corresponds to chance-related events as well. Humans are naturally inclined to look for ways to increase their benefit in any given situation. So if somebody is applying for a job position and is told that they have a good chance of getting it, this person is likely to warp that thinking into “I bet if they said ‘good chance’, then it could even be made into “great” chance”. Whereas if the person were told that they were in the 70th percentile of the candidates, they might not be quite as optimistic. In many examples, applying this theory seems to be quite trivial, but when dealing with instances that have higher stakes – say at a hospital or in court – vague assumptions can have much higher costs.

So all you college kids posting adds on Craigslist as the housing scramble begins, consider playing with your peers’ minds just a little bit and take that asking price down a (tiny and precise) bit. You might be happily surprised at the outcome.

http://www.nature.com/scientificamericanmind/journal/v19/n2/full/scientificamericanmind0408-80.html

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