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Moreover, not only do different individuals assign different values to the same object, but even the same individual may assign different values to the same object in different circumstances. For example, suppose you have a finance background and have calculated your own value to be 1 million dollars. If one day you are kidnapped and the kidnapper demands 5 million dollars for your release, would you be willing to pay 5 million for yourself, who you believe is only worth 1 million based on your own subjective judgment? Or, if the kidnapper believes that you are worth 5 million while you believe you are only worth 1 million, which value will be used as the final transaction price?
In the 1960s, psychologists Sarah Lichtenstein and Paul Slovic observed that pricing is a subjective and ambiguous phenomenon that varies from person to person. Later, with the advancements in brain imaging technology, it was discovered that humans require information from their environment to construct their evaluation of price. However, there is no consensus among scientists regarding the specific preferences or models that humans use to process this information. This question is not only relevant to the finance industry but also to the traditional business field, which is interested in understanding how consumers evaluate prices. Research has revealed that humans first determine the nature of something based on its familiarity when evaluating it. Unfamiliar things can trigger fear emotions and exaggerate negative characteristics. For instance, when cars were first introduced, people considered them unsafe and preferred to ride in carriages. Even minor car accidents were widely reported in the media. However, over time, people adapted to the role of cars in their lives, and their evaluation of cars changed. Although car accidents still occur, people don't attribute them to the cars themselves but rather to the drivers. Therefore, the level of familiarity humans have with something directly influences their evaluation of it, and if their attention is focused on negative characteristics, their evaluation of it will decrease.
Achieving precise pricing requires accuracy, as seeing an object priced between 4 and 6 per kilogram, instead of the typical 4.5 per kilogram, would cause confusion for consumers. However, relying solely on an object's characteristics to establish a specific price is insufficient to create a precise pricing list in the brain. Psychologists have proposed the anchoring effect, which is the easiest psychological effect to prove through experiments but is also the most challenging to explain. In 1974, Kahneman and Tversky conducted a famous experiment on the anchoring effect using a roulette wheel and found that the numbers on the wheel significantly influenced participants' estimates of the percentage of United Nations seats held by African countries, despite no logical connection between the two. When humans form a price for something in their mind, they first retrieve historical information from memory, such as the value of an apple, and then make adjustments based on the current environment. If there is no memory to retrieve, the brain uses information obtained in the current environment as a reference and adjusts accordingly. This is why the numbers on the roulette wheel had an absurd impact on the participants' answers in the experiment.
If we were to break down the entire pricing process into modules, the first step would be to determine the/>/>/>