Archive for December, 2010

Recovery impossible without real estate
December 16, 2010

An economic recovery without real estate is akin to fishing without a hook.  It isn’t effective.  The Wall Street recovery is good in that it makes people feel wealthier, but a true recovery must add jobs and circulate money through the general economy.  Right now, job growth is limited to a very few industries.  Hopefully, we can find an answer to unemployment beyond government jobs and health-care.  A real estate recovery would be a huge boost to the overall economy because a healthy real estate market creates jobs.  Think about the ripple effects of building one home.  The number of people who benefit directly or indirectly is amazing.  Real estate has a positive impact on white-collar and blue-collar workers alike.  It affects small and large businesses and wholesalers and retailers.  Even the tax man benefits.  Policy that engenders growth in the real industry is just plain smart because a recovery without real estate may not be a real recovery at all.

Be Careful Where You Anchor
December 5, 2010

Ever wonder why a loaf of bread sets you back about $2 or a pair of basic jeans cost about $40.  Sure much of it has to do with the item’s production cost but there’s much more to the story and it’s more arbitrary than you might think.  How many of your friends, assuming they could afford it, would pay $14K for a purse?  Most would not shell out thousands and thousands of dollars for a purse even if they had the money to begin with.  After all, they are not crazy and luxury handbag makers like Gucci are well aware of this.  However, being exposed to a $14K purse in a retail store’s window or on the display floor might cause you to think differently about a purse that cost $1,500 – $3,000.  The retailer is counting on this because the retailer has long understood the power of anchoring, and the research on price anchoring confirms that it has a powerful influence on shoppers.  Anchoring is the idea that most things in our world, including prices, are very subjective and very relative.  Being able to price compare is how we make sense of a world that is subjective.  Take away or alter a person’s ability to make comparisons and it becomes increasingly difficult to determine an object’s real value.  The idea of anchoring is everywhere and retailers are not the only ones utilizing its mysterious power.  Before you agree to that next raise or accept that next job, for instance, stop and think about what you’re really worth.  Your employer is counting on the fact that you are anchored low, so start by asking yourself the question: What’s my current salary anchor? You might be surprised by your own answer.  Think you’re immune to the influence of anchoring?  The research suggests otherwise.  For example, that shirt you love with the marked-thru original price of $89 seems like such a great deal at $39 but ask yourself what its true value really is.  If it makes sense at $39 then by all means you should purchase it since value, just like beauty, is in the eye of the beholder.  However, the truth is that shirt which seems like such a great deal is priced using a ploy known as Advertised Reference Pricing, another form of price anchoring.  This holiday season, be careful where you drop your anchor.  Shop smart by understanding how the phenomenon of anchoring is impacting your decision to buy, and perhaps overpay. 

Q: When was the last time you paid $6 for a cup of coffee?