Even governments can fall victim to anchoring. One of the last goverment’s big ideas was to make banks print the “minimum interest repayment amount” on all credit card statements, to encourage people to repay at every given opportunity, and so not rack up spiralling interest charges. But oh dear, it has really back-fired.
It has not worked because of that old devil, “anchoring”. Which has meant, even people that could and should make much bigger credit card re-payments are paying back the bare minimum only on the interest.
What is this anchoring? I’ll demonstrate…
If I ask you: “Is my friend Jane LeReyne taller or shorter than 3 inches? You would say taller, of course.
But when I now ask you: “How tall is Jane LeReyne?” You’ll probably guess a height statistically shorter than average. This is simply because you brain anchored to the 6 inch height you read earlier, pulling your estimate down.
This anchoring is currently occurring for people when they see the minimum repayment interest amount included on their credit card statements. They a) ignore the fact that is only talking about repayments on interest not on the full loan, and b) latch on to that lowest figure, and so praise themselves if they even pay back any amount larger than that.
As Citizens Advice Bureau Manager, Jay Lowe, explains: “We will often see what they’ve really done is look at the bottom line figure in terms of what’s owing on interest…they very rarely look at the statement in more detail to actually see each that they should be working to clear their overall debt”
We are all susceptible to anchoring when it comes to financial matters, according to Professor Stewart: “Unfortunately our brains are just not set up to deal with those kinds of calculations…. If one thinks back a few thousand years, no-one was really worrying about money and so, evolutionarily, we are stuck with stone age brains that are simply not equipped to deal with modern finance.”
And now some anchoring with an entertaining twist, check it out…