This is a post from staff writer April Dykman.

My favorite places to shop are sites like and Last Call Neiman Marcus. I like the idea of buying a $400 dress for $80 because I get better quality for a good price. Even though I’m spending money, it’s a little less painful when I can look at how much I “saved.”

That’s a common sentiment — it’s nice to reassure yourself that you got a great value for your money. But it turns out that my satisfaction isn’t just because I bought a better quality item for $80, it’s also because I factored the original price of $400 into my decision-making process.

The anchoring effect
An article in Psychology Today discusses this effect of related numbers, called “anchoring” by psychologists Amos Tversky and Daniel Kahneman, who discovered it in the 1970s. According to the article, “Whenever we try to estimate a numerical value, we are unconsciously influenced by related numbers just seen or thought about.” Numerous studies have backed up their findings that pricing comparisons have an effect on a consumer’s decision-making process.

What’s more, the anchoring effect isn’t just limited to sales prices. The article explains how anchoring applies to the $69 hot dog at popular New York eatery Serendipity 3:

In this case, the diner in a touristy Manhattan restaurant is trying to decide how much he or she can afford to spend. The prices the diner is used to spending at home don’t apply; it’s a whole new world. That diner isn’t about to order a $69 hot dog, but might happily opt for an $17.95 cheeseburger. The hot dog makes the cheeseburger appear reasonable in comparison (even though $17.95 would be a ridiculous price for a cheeseburger most places).

According to the article, the effects of anchoring are widely accepted by restaurant owners and consultants who use it to design menus. I had a related experience last year when I went to New York City. One night we ended up at an overpriced restaurant, paying something like $3 for a cup of mediocre coffee and $14 for a plate of eggs, bacon, and toast that tasted like something you’d get at IHOP. Compared to everything else on the menu, it was pretty cheap (under $25 at least), and since we were tired, hungry, and cold, we gave in and ordered.

If you had told me before I left for New York that I’d pay that much for such disappointing food, I’d never have believed you. But in those circumstances I cared more about not being cold and hungry and not spending $25.

The other side of anchoring
Hyman also explains that anchoring can have an opposite affect:

If I thought I would be able to buy something for around $20 and end up having to pay $39.99, this is an ugly situation. This time my anchor was low and was adjusted upwards. Bummer. Now I don’t feel so good. I feel sick to my stomach if I spend more than I thought I should have to spend.

When you pay more than the anchored price, you’re vulnerable to buyer’s remorse.

Whether it’s a $400 dress or a $69 hot dog, introducing those numbers to the consumer is extremely important because they sway the decision-making process. A $80 dress is too good to pass up when it was $400. “This is why stores leave the original price on a discounted item,” writes Ira Hyman in his article, Shopping Procrastination on Christmas Eve, “now you can see that this is worth more than you will be asked to pay for it. A price discount can improve the feelings that accompany spending money. It isn’t how much you spent, but rather how you evaluate the entire situation.”

Likewise, when you evaluate the entire menu, an $14 plate of scrambled eggs appears relatively reasonable compared to the $25 plates. Oh well. At least the waitress was fun.

What are some of your own experiences with anchoring? Tell us in the comments!

GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, GE Capital Bank, and more.