Anchoring

Imagine you walk into a watch shop. The first display you see is a Patek Philippe priced at two hundred thousand dollars. You stare, you admire it, and you walk past. The next display shows a Tag Heuer at three thousand dollars. Compared to the Patek, three thousand feels reasonable. Almost a bargain. But if you had walked straight to the Tag Heuer without seeing the Patek first, three thousand dollars for a watch would feel expensive. The number you showed first, the anchor, changed how you evaluated every number that came after it. Your brain did not judge the price on its own merits. It judged it relative to the first number it encountered. Every sophisticated pricing strategy on Earth understands this. Restaurants place a sixty dollar steak at the top of the menu so the thirty dollar pasta below it feels like a deal. Real estate agents show you the worst house on the street first so the second house seems perfect. Software companies offer three pricing tiers and make the middle one look like the obvious choice by putting an expensive enterprise option next to it.