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Teaching activity

Parents 'nudged' in economics experiment

George Vlachonikolis

13th November 2017

At a recent school Open Morning, several economics A Level students here at Headington conducted an economics experiment. Armed with a clipboard and pen, the girls tested whether prospective parents were susceptible to behavioural ‘nudges’. This is an activity that you may wish to repeat too ...

The experiment involved asking parents just three things:

1)to write down the last two-digits of their credit cards (not the whole card number!) 2)whether they would pay that amount of money for a selection of three products: a bottle of wine, annual subscription to their favourite magazine and a set of headphones 3)what would be the maximum price they would be willing to pay for those products

The experiment is based on Dan Ariely’s famous ‘price-anchoring’ experiment. Ariely argued that by forcing someone to write down a number (such as the last two digits of a credit card), they are essentially ‘primed’ with that number in their mind. The purpose of the second question - would you pay that much for the product? - is not about the ‘yes’ or ‘no’ answer, it’s about getting the person to think about the price of that product being a particular number: the ‘price anchor’. The hypothesis states that those people with a high price anchor like 88 or 95 would be willing to pay higher prices for products than people with low a price anchor like 07 or 12.

Unconvinced? This is the same process that car salesman and shop assistants go through when trying to make a sale in a shop. Imagine looking at a designer jacket labelled at £600. The assistant then offers to do you a favour and bring the price down to £400. Bargain? Perhaps. Unless, of course, that jacket was never meant to retail for more than £200.

So, what were the results for prospective parents at our Open Morning?

Our economists found that for each of the three items, prospective parents were willing to pay more if their price anchor was higher – with the correlation being most significant for magazine subscriptions. This suggests that the parents surveyed on Open Day were, to some extent, susceptible to price-anchoring nudges. I will try to publish the graphs later in the week ...

Behavioural economics is becoming an increasingly important part of the economics agenda. The 2017 Nobel Prize for Economics was announced just before half-term and the winner, Richard Thaler, is a pioneer in this area. His 2009 book ‘nudge’ was a best-seller. A Level economists will also have to study the area of behavioural economics; it is a new addition to the two-year curriculum.

George Vlachonikolis

George is Head of Economics and Business at Headington School, Oxford.

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