Insight: Once we buy a product, we are anchored to that price.
Insight: Economics assumes supply and demand are independent. In reality we can be anchored by advertised prices, recommended retail prices, new product prices - these are all supply side variables.
Reference: Uri Simon-sohn and George Loewenstein study - people moving to a new city are anchored to prices for housing in the former city.
Insight: Although initial prices are arbitrary, once price is established through decision making, they will shape future prices (making them choerent).
Insight: Arbitrary Coherence challenges assumptions of standard economics:
(1) Economics frameworks state that demand determines market prices - however consumers willingness to pay can easily be manipulated through arbitrary anchors, and consumers are not rational when it comes to the price they are willing to pay for goods.
(2) Economics assumes that supply and demand are independent - however consumers are easily infleunced by suppliers and can be anchored by suggested retail prices, advertised prices, promotions etc. These anchors (from the supply side) influence demand from the consumer.
Insight: An implication of arbitrary coherence is that the decisions we make are not a reflection of the utility or pleasure we get from the goods and services, which undermined the claimed benefits of the free market (that parties benefit from trade).
Insight: Another implication is that if we cannot rely on free markets to maximise utility, then regulated markets may be optimal for essential services such as health care, medicine, water, education etc.
