Dollars and Sense

Why? Because even though we may not “own” something like cable TV, that trial offer has endowed us with a sense of ownership.

The main psychological force of credit cards is that they separate the time that we consume from the time we pay. And because credit cards allow us to pay for things in the future (when exactly is our payment due?), they make our financial horizons less clear and our opportunity costs more blurry, and they lessen our current pain of paying.

We should try not to think in percentages. When the data is presented to us in percentages (for example, 1 percent of assets under management), we should do the extra work and figure out how much money is really on the line. The money in our pocket is tangible; it exists in absolutes—$100 is $100.

The basic idea of arbitrary coherence is that, while the amount that participants were willing to pay for any item was largely influenced by the random anchor, once they came up with a price for a product category, that price became the anchor for other items in the same product category.

That’s important and worth repeating: An anchor price can be any figure, no matter how random, so long as we associate it with a decision. That decision gains power and influences our future decisions moving forward. Anchoring shows the importance of early decisions about pricing, that they establish a value in our heads and affect our own value ca

the amount we’re willing to pay for things often depends, to a large degree, on how fair the price appears to be.

The point is that in many aspects of life, the existence of a past investment doesn’t mean we should continue on the same path; in fact, in a rational world, the prior investment is irrelevant.

The less attention, the less pain, the more we value something without cause.

If we have high expectations for an experience, regardless of the source of these expectations, we will value it highly and be willing to pay a premium for it. If we expect less, we’ll value it less and be willing to pay less.