The reason you can't cut losses is the "anchoring effect"
Hello, this is Shimoyama.
“The terms suddenly changed and my account
ended up suspended (panic)”
At the very start of the new year,a acquaintance said in a downbeat tonethat.
He makes profits through resale,
using a site called BUYMA,
and selling fashion items.
BUYMA is a peer-to-peer site where inventory is not required
and which is somewhat specialized in fashion items.
When selling on BUYMA, there is no need to purchase items until after an order is placed.
The biggest risk in retailing is not having stock,
which is a substantial advantage for retailers,
right?
Starting with little capital is another big advantage
that makes it feasible.
However, in exchange
“orders come in, but the supplier planned for is sold out and cannot procure”
this risk arises.
With other suppliers, you can procure, but
the price may go up,which is another risk.
In this way, inventory-less selling has its own risks.
Until now, on BUYMA,
if the expected price couldn’t be procured as planned,
sellers canceled orders,or negotiated price hikes,
and so on,such responses were common.
However,there are reports
that the BUYMA administration has recentlytightened enforcement against such actions.
There were even sellers who deliberately listed items cheaply
and then raised the price later...
Regarding post-order price hikes,
since around November last year, this has been prohibited by the terms.
In this kind of climate,your acquaintance didn’t know about the rule change,
and after an order came in,they canceled or
attempted price negotiations,
and it seems his BUYMA account was suspended.
When an account is suspended,
suddenly there are zero sales,
and from what I hear,that must have been quite tough.
By the way,if you were a customer,
what would you think?
After you place an order,
if you were told,
“The price will go up, is that okay?”how would you feel?
Unless the item is extremely rare,
you’d be disappointed, right?
Most likely you would lose the motivation to buy all at once.
But,even if the price rises
if it remains the lowest among options,
and compared with other listings, it is still the cheapest?
what if a price increases to 110,000 yen after ordering 100,000 yen
Reasonably speaking, even with a higher price,
if you deem it fair,you might still buy, but
you would probably hesitate.
This is becausethe anchoring effect is at work.
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What is the Anchoring Effect?
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Humans are easily swayed by numbers,and often misjudge as a result.
You might think, “I’m not swayed, and I won’t misjudge,”
but how about you?
There is an experiment like this.
Participants were gathered and two restaurants were introduced
each named
“Studio 97” and
“Studio 19.”
And then they were asked:
“What amount would you be willing to pay for each restaurant?”
Now, which restaurant did the subjects think
they would be willing to pay more for?
Here is the answer
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According to a study,
the amount participants thought was acceptable to pay for Studio 97
was greater than the amount they thought acceptable to pay for Studio 19.
There is only one reason: at Studio 97,
97 served as the anchor,
and at Studio 19,
19 served as the anchor.
Claudia Hammond
“Mind Over Money (Asa Publishing, Inc.)”
First edition, June 24, 2017
P.121-122
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You might not believe it, but
97 is numerically larger than 19,
and just from that,
the price difference can emerge.
People are swayed by such simple things
in making judgments.
“Being pulled by the first number you heard.”
In the world of psychology, this is
called the“Anchoring Effect.”
Because of this anchoring effect,even in BUYMA
a rise in price, even if within a reasonable range,
often leads to customer dissatisfaction and more cases of complaints.
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Most traders lose due to the anchoring effect
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Now,this anchoring effect
is not at all unrelated to traders.
In the world of investing,many traders
are still todaytormented by the “Anchoring Effect.”
For example, in a situation where stock prices keep dropping
to 2000 yen, 1900 yen, 1800 yen,
and you think, “I have to cut losses somewhere,”
but you just can’t cut losses,and end up waiting,
which tends to happen.
If you want to succeed in investing,you must absolutely avoid becoming a victim of the Anchoring Effect.
That said,avoiding the Anchoring Effect
is not easy.
It is a deeply rooted human instinct.
However, there is a way to avoid it.
If you change your mindset a little.
Most people trade by judging whether prices are high or low.
So they get manipulated by the Anchoring Effect.
Instead of basing trades on whether prices are high or low,
trade based on the balance of your own positions.
This will help avoid the Anchoring Effect.
In any case,don’t let yourself be swayed by a single price
and please trade with strategies to avoid anchoring.
Thank you for watching until the end today as well.
Sincerely, Keizo Shimo.
