Mechanism and Hints Behind the Anchoring Effect in Sales, Auction, and Willingness to Pay

Abstract

The anchoring effect, a cognitive bias, has substantial implications in various fields, including behavioural economics. It influences individuals' assessments and choices by anchoring them to specific initial values and causing insufficient adjustments. This article explores the anchoring effect's mechanisms and its impact on B2B sales, auctions, and willingness to pay. It also offers guidance for business owners, price-setters, and auctioneers to leverage the anchoring effect to their advantage. In B2B sales, results indicate that when salespeople are informed of higher reference discounts, they tend to offer significantly higher discounts to new customers, which leads to conservatism and cause a systematic distortion in various economic contexts. This demonstrates the positive impact of reference discounts on pricing decisions, driven by a tendency to avoid risk. Auction item sequences influencing bidding outcomes. Auctions featuring more valuable items first yield higher revenues, as buyers anchor their expectations to the initial prices. Sellers can strategically position items to maximize profits, particularly when the initial auction prices are set lower than market expectations. Studies also reveal that Lower anchoring prices may decrease willingness to pay (WTP) while higher initial reference points can lead to higher WTP. Additionally, the use of "up to" in advertising discounts can positively affect WTP due to an asymmetry effect.