A recent post on this site looked at the decline in the contribution of physical music to global music revenue. CDs and Vinyl have finally been overtaken by streaming in this field. While there is a definite decline in the sale of CDs and other physical music formats, they still have their place in the music industry and as of 2017; physical music sales still contributed a total of $5.2 billion to global music revenue.
So, there is still a lot of money (for the moment) to be made from physical music, which is why today I thought I would right a post on something I observed in a Golden Discs CD store the other day. It was an example of a cognitive bias which is explored in behavioral economics known as the anchoring bias.
This is a cognitive bias where individuals concentrate excessively on one initial piece of information when making a decision. I fell victim to this bias the other day when I went into Golden Discs for the sole purpose to buy The Beatles album THE BEATLES: 1967-1970 on Vinyl. This was actually quite an expensive album, it costed €65 so I planned that I wouldn’t spend anymore money on anything in the shop, but I ended up buying more CDs because there was a three CDs for €13 deal on in the store.
According to classical economic theory I shouldn’t have done this because I said at the start that €65 was my total budget for music, but the issue is I was anchored toward the high price of €65 for one album, so by contrast an additional €13 for three more albums seemed relatively cheap, even though previously I specifically set out that €65 was the total amount of money I would be willing to spend.
So even though, the extra purchase brought me to €78 I was willing to pay the excess because I didn’t think of the total amount I was spending, just the additional €13 which seemed relatively small compared to the initial budget of €65. This may only seem like a small trivial example of the anchoring bias but because of people’s tendency to fall victim to this type of thinking, behavioral economics has become a very valuable field which allows us to try and manage these biases in fields like investment.
By Daragh O’Leary