Why Things Cost $19.95

One of Alfred Hitchcock’s most enduring bits of comedy is the auction scene in the espionage thriller North by Northwest. Cary Grant plays RogerThornhill, a businessman who has been mistaken for a CIA agent by the ruthless Phillip Vandamm. At a critical juncture, Thornhill is cornered by his enemies inside a Chicago auction house, and the only way he can escape is by drawing attention to himself. When the bidding on an antique reaches $2250, Thornhill yells out “Fifteen hundred!” When the auctioneer gently chides him, he loudly changes his bid: “Twelve hundred!” When the bidding on a Louis XIV chaise lounge reaches $1200, Thornhill blurts outs “Thirteen dollars!” The genteel crowd is outraged but Thornhill gets precisely what he wants: The auctioneer summons the police, who “escort” him past Vandamm’s henchmen to safety.

Clever thinking, and good comedy. It’s funny for a lot of reasons, and one is that Thornhill violates every psychological “rule” for how we negotiate price and value with each other. So much of life is an “auction” of one sort or another, whether it’s buying a used car or making health care choices or even choosing a mate. But unlike Roger Thornhill, most of us are motivated by the desire for a fair deal, and we employ some sophisticated cognitive tools to weigh offers, fashion responses, and so forth—all the to-and-fro in getting to an agreement.

But how does life’s dickering play out in the brain? And is it a trustworthy tool for getting what we want? Psychologists have been studying cognitive bartering for some time, and some basics are well-established: For example, an opening “bid” of any sort is normally perceived as a mental anchor, a starting point for psychological jockeying to follow. If we perceive an opening bid as fundamentally inaccurate or unfair, we reject it by countering with something in another ball park altogether. But what about less dramatic counter offers? What makes us settle on a response?

University of Florida marketing professors Chris Janiszewski and Dan Uy suspected that something fundamental might be going on, that some characteristic of the opening bid itself might influence the way the brain thinks about value and shapes bidding behavior. In particular, they wanted to see if the precision of the opening bid might be important to how the brain acts at an auction. Or to put it in more familiar terms: Are we really fooled when storekeepers price something at $19.95 instead of a round twenty bucks?

Janiszewski and Uy ran a series of experiments to test this idea. The experiments used hypothetical scenarios, in which participants were required to make a variety of “educated guesses.” For example, they had participants think about a scenario in which they are buying a high-definition plasma TV, and asked them to guesstimate the wholesale cost. They were told the retail price, plus the fact that the retailer had a reputation for pricing TVs competitively.

But there were three scenarios involving three retail prices: Some hypothetical buyers were given a price of $5000, while others were given the price of $4988 and still others $5012. When all the buyers were asked to estimate the wholesale price, those with the $5000 price tag in their heads guessed much lower than those contemplating the more precise retail prices. That is, they moved farther away from the mental anchor. What’s more, those who started with the round number as their mental anchor were much more likely to guess a wholesale price that was also in round numbers. The scientists ran this experiment again and again with different scenarios, and always got the same result.

Why would this happen? Well, as Janiszewski and Uy explain in the February issue of Psychological Science, people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it’s worth $19 or $18 or $21; we’re thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different: We might still think it’s wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so that a fair comeback might be $19.75 or $19.50.

The psychologists decided to check these lab findings in the real world. They looked at five years of real estate sales in Alachua County, Florida, comparing list prices and actual sales prices of homes. They found that sellers who listed their homes more precisely—say $494,500 as opposed to $500,000—consistently got closer to their asking price. Put another way, buyers were less likely to negotiate the price down as far when they encountered a precise asking price. What’s more, houses listed in round numbers lost more value if they sat on the market for a couple months. So, bottom line: One way to deal with a buyer’s market may be to pick an exact list price to begin with.

This isn’t all about money, however. Medical information, Janiszewski and Uy note, can also be offered in either precise or general terms: A physician might say that your chance of responding to a medication is “good,” or that your chance of responding is 80 percent. The percentage is more precise, but many studies have shown that patients prefer vague generalities like “good,” so doctors tend to use them. But remember that life is an auction: In his mind the patient is dickering with the doctor, so why not negotiate “good” up to “excellent”? When treatment choices are on the line, the auction house can indeed be a perilous place.

For more insights into the quirks of human nature, visit the “We’re Only Human . . .” blog at www.psychologicalscience.org/onlyhuman.

Does Smart Equal Liberal?

Nobody thinks their own values and attitudes are foolish. It goes against human nature. Say you meet someone who believes that a woman’s proper place is in the home. And say, for the purposes of argument, that you firmly believe this as well. You are going to assume that this person who shares this core value is intelligent, that this attitude is a reflection of reason and mental acuity. Or say you meet someone who shares your concern for the natural environment. You will automatically conclude that this new acquaintance must be a sophisticated thinker. At the very least, you are not going to think, hey, he’s a lot like me, he must be stupid.

Given that this is true, how can we ever know if some values are more intelligent, more reasoned, or more cognitively sophisticated than others? Put another way, does native intelligence lead to a certain set of values, and stupidity to another worldview altogether?

Surprisingly, this fundamental question has never been examined scientifically—until now. Psychologist Ian Deary of the University of Edinburgh realized he could explore the link between IQ and values using a very large existing data base on kids who were born in 1970. These boys and girls, more than 7000 of them, had all taken IQ tests at the age of ten, so he was able to sort out the bright kids from their duller classmates. These kids had then been tracked and interviewed repeatedly for two decades, so there was a rich record of not only their education and work lives but also their basic attitudes and beliefs: on race, gender equality, the environment, the sanctity of marriage, and so forth. In short, Deary wanted to see what kind of people they turned into at age 30, as they stood on the cusp of the 21st century.

Not to put too fine a point on it: The smartest kids turned into the most broad-minded and progressive adults. For example, the most intelligent kids turned out 20 years later to be much more tolerant of other races. They were also much more supportive of working mothers, rejecting the notion that pre-school children will suffer without a stay-at-home mother. In general, the sharpest kids came to embrace much less traditional moral values and were much more apt to challenge authority. They were also much less cynical as adults, more trusting that the political system can do good.

Why would native intelligence translate into a more enlightened worldview later on? One obvious possibility is that the smarter kids end up getting a better education; they read more books and newspapers and are exposed to a richer culture of ideas. But the data, reported in the January issue of Psychological Science, don’t appear to support this explanation.

Instead, it appears to be something about the intelligent brain itself: Smart people may have a different emotional makeup, a personality that is more open to experience. Or it may be that high IQ at age ten eventually leads to more complex moral reasoning: In short, smart people alone may have the cognitive machinery that’s needed for more flexible analysis of political and moral quandaries.

For more insights into human nature, visit “We’re Only Human . . .” at www.psychologicalscience.org/onlyhuman.