Practical Psychology For Business

Contents:

Introduction

1. Anchoring effect on pricing decisions

2. Loss effect on investments

3. Paradox of choice in purchases

4. Halo effect on brand perception

5. Effect of scarcity on demand

6. Commitment and consistency in sales

7. Confirmation effect in investment decisions

8. Psychology of rounded vs. Unrounded

9. Representativeness bias in the stock market

10. Endowment effect on owned assets

11. Uncertainty about variable prices

12. Framing effect on financial decisions

13. Uncertainty aversion in finance

14. Social conformity in investments

15. Illusion of control in business decisions

16. Effect of delayed gratification on investments

17. Availability bias in estimating financial returns

18. Effect of visual appeal on the perceived quality of a financial product

19. The influence of social reviews on financial purchase decisions

20. Effect of optimism on risk-taking by entrepreneurs

Introduction

A rational approach is not always enough in the business world, where competition is fierce, and decisions must be made quickly and accurately. The behaviors and decisions of consumers, investors, entrepreneurs, and managers are deeply influenced by psychological factors that often operate unconsciously. These forces, such as risk perception, decision-making under uncertainty, confirmation bias, or the impact of optimism, can determine success or failure in the economic and financial arena.

This book, Practical Psychology for Business, offers an innovative view of economic and business behavior from the perspective of psychology. By presenting 20 psychological experiments of direct relevance to economics, finance, and business, we seek to shed light on the mental processes that affect our decisions in these fields. Each experiment has been selected for its practical application and its ability to reveal key behavioral patterns, showing how these tendencies can be leveraged—or avoided—to improve business performance, reduce risk, and maximize success.

Throughout the book, we will explore a series of experiments that not only detail the objectives, methods, and results obtained but also the practical implications that each finding has for business professionals. From the famous anchoring effect experiment, which explores how initial prices can influence purchasing decisions, to the delayed gratification effect, which explains self-control in investment decisions, each chapter provides a comprehensive view of how underlying psychological concepts are reflected in economic behavior.

Why do consumers prefer rounded prices in some cases and non-rounded in others? How does the endowment effect impact the valuation of assets or products that we already own? How does the illusion of control influence entrepreneurs' risk-taking? These questions, among many others, are answered through the experiments presented in this book.

At the end of each chapter, a practical analysis of the results is included, providing tools that can be immediately applied in the business world. This approach makes the book ideal for entrepreneurs, investors, executives, and any business professional who wants to understand better the motivations and biases that affect their decisions and those of their clients or collaborators.

We intend that Practical Psychology for Business becomes an essential resource for those who not only seek to understand the what and how of business decisions, but also the why that underlies each choice and strategy. The practice of psychology applied to economics and business can transform how we interpret the market, address challenges, and ultimately achieve our goals.

1. Anchoring Effect on Pricing Decisions: How First Impressions Define a Product's Value

Consumer purchasing decision-making is a complex process that involves several conscious and unconscious factors. One of the psychological phenomena that most influences how we perceive product prices and values is the anchoring effect. This cognitive bias leads people to rely heavily on the first figure they see or hear (the anchor) when evaluating how much they are willing to pay for a good or service, even if that figure is not relevant or has little connection to its actual value.

The anchoring effect, initially studied by psychologists Amos Tversky and Daniel Kahneman, refers to the human tendency to anchor on an initial figure, which then acts as a reference for subsequent decisions. This cognitive bias affects everything from product valuation to purchasing and negotiation decisions. In marketing contexts, this tendency is used to influence the perception of the value of a product, usually through high initial prices or high original price suggestions that lead consumers to perceive an offer as more attractive than it is.

Objective of the experiment

The objective of this experiment is to study how an initial or anchor price can influence consumers' willingness to pay for a product. The aim is to determine whether a high price presented as an initial reference increases the perception of value and the consumer's willingness to pay, and, in turn, whether a low anchor price decreases this willingness.

Methodology

Participants: For this experiment, 100 participants between 18 and 65 years old were selected, with different purchasing experiences and income ranges, to achieve a representative sample of the general population.

Group Division: The participants were divided into two groups of 50 people: the high anchor group and the low anchor group.

Procedure:

The product selected for the experiment was an automatic coffee maker with a target market price of $100.

High Anchor Group: This group was presented with the coffee maker with initial information indicating that its regular selling price is $150. After seeing this information, they were asked how much they would be willing to pay for the product on a special sale.

Low Anchor Group: This group was given the information that the regular selling price of the coffee maker was $50. They were then also asked how much they would pay on a special offer for the same product.

Both groups were