Predictably Irrational: Summary & Response

       In chapter two, The Fallacy of Supply and Demand, of his book, Predictably Irrational, author Dan Ariely presents the results of his studies of arbitrary coherence and anchoring. The first concept Ariely explains is imprinting, a concept brought about by Konrad Lorenz, which is when an initial decision is made and that decision is stuck with. Ariely then explains the term anchoring as giving a certain value to an item, this is the initial value that is given to an item. He then explains arbitrary coherence, which is the concept that although initial prices are arbitrarily assigned, they are established in our minds and will shae present and future prices. Ariely goes on to describe a study done at MIT which showed that once a person is willing to pay a certain price for one product, their willingness to pay for other products is relative to this first price, or the anchor. He cites a study involving being payed to listen to unpleasant sounds, which showed that people remain anchored to initial price, they do not flip flop very easily, that our first decisions resonate over a long period of time and decisions. Ariely next explains the concept of herding where we base our opinions on other people's behaviors and our actions follow theirs. He expands on this by presenting self-herding, which is where we base our future actions off of our initial interaction. Next, Ariely presents that sensitivity to price changes relies on the memory of the past price. This sensitivity can be altered if the product changes along with the price in order to reflect the price change.
        Anchoring is the first encounter we have with the value of something, determining our perception of the price of the product in the future.  Arbitrary coherence is the concept that although initial prices are arbitrarily assigned, they are established in our minds and will shae present and future prices.  By buying this used car and putting in that much work, the student will think that the prices of the other items are probably too  high to be worth it since they got a car for only $3000 and were able to see the work they needed to put in ot get this car. Businesses get consumers to pay higher prices for items anchored in their memories by altering the product in question. They make the product appear to be better through its display, surroundings, advertising, etc. The fallacy of supply and demand is that people base their sensitivity to price changes on past memories, no on the level of demand.