Explain the concept of anchoring in the context of pricing psychology.

Explain the concept of anchoring in the context of pricing psychology.

Anchoring in the context of pricing psychology refers to the cognitive bias where individuals rely heavily on the first piece of information they receive (the anchor) when making decisions about the value or price of a product or service. This initial anchor serves as a reference point that influences subsequent judgments and evaluations. For example, if a consumer sees a high-priced item first, they may perceive other items as relatively cheaper, even if they are still expensive. Anchoring can be used by businesses to manipulate consumer perceptions and influence purchasing decisions.