<prompt> Human: Behavioral finance is a closet interest of mine, especially as it applies to how I manage my money. Although I think I do a pretty good job setting my investments on autopilot, the more I read about how the retail industry exploits tendencies that seem to be hard-wired into the brain the more I get annoyed at myself when I catch one working. Once you see it, youll... Here are three tricks the retail industry exploits that I find particularly confounding, and that I notice basically everywhere I go to buy something these days.AnchoringAnchoring refers to the human tendency to bias future actions based off of the first relevant piece of information offered. In context, the first piece of information is a higher price. Ever wonder why the manufacturers suggested retail price is never what you actually pay? Because whatever price the marked-down unit is seems like a great deal after youve been exposed to the higher reference price.Anchoring is further exploited by retailers to guide you towards particular products. They do this by offering different pricing tiers and displaying them together. The most and least expensive iteration of the product will have sparser stock, as retailers know that youre most likely to buy the model priced right in the middle. Its no coincidence that the middle-price unit will be a companys biggest moneymaker, even though the more expensive item might have better margins or the lowest-priced model might be the best deal. The restaurant industry makes full use of this - the most expensive item on the menu is usually somewhat of an outlier, making every other price look better incomparison. Look for items like computers, TVs, cars, cell phone plans, coffee cup sizes, McDonalds meals, or pretty much anything else for which it makes sense to have different versions to come in three or four tiers. Mental AccountingLoss AversionOn average, people place twice as much value on money lost as money gained - in other words, you have to offer at least 10 payout for a simple game in which it costs 5 to play. Retailers exploit this in conjunction with anchoring. By first establishing the reference price and pairing it with a discount, youre tricked into thinking youve gained the difference. Guess what you do with your mental gains? You spend them, of course. Whether its buying that extra item in your Amazon cart that you wouldnt have otherwise or getting dessert at a restaurant because you bought a 10 pasta dish instead of a 20 steak, your mental gains often turn into real losses. As long as those real losses are about half or less of the mental gains, odds are youll feel like you came out ahead.Expected ValuesPrices tell us more than just what youll pay for a certain item - how a price is listed transmits information about what kind of item it is. To illustrate this, take the following list of prices with the first two digits blanked out and match them to a retailer in list B:List A: XX.99 XX.00 XX.98List B: Wal-mart Target Brooks BrothersWithout any other information about the quality of the shirt, what kind of shirt it was, whether or not there was a sale, what the first three digits were, etc. you probably matched XX.99 to Target, XX.00 to Brooks Brothers, and XX.98 to Wal-Mart. Why? Because you know something about those stores and their target demographic. Wal-mart is a bargain store, home of the Everyday low price. Prices ending in a 8 imply that its on sale or clearance. Target is in the middle - inexpensive, but not cheap. The 9 signals that the item being offered at that price is good, but not great. The 0 at the end of the Brooks Brothers shirt says that the item is high quality and perhaps even a luxury item.Clearly these strategies arent limited to the clothing industry, or even to a single retail sector. Individual vendors adjust prices to signal the quality of their goods on offer. Also, I cant remember the last time I saw a list or sale price that ended in 1, 2, 3, 4, or 6. 7 8 are generally interchangeable, as is 5 and 9 in terms of the implied quality message imputed by the price.ConclusionIts hard to say if I spend more or less money after starting to look out for these things, but knowledge is power I suppose. Anyone have any others?Further readingFor further reading, I recommend: Thinking, Fast and Slow - Daniel Kahneman. This should be your starting point if you want an overview of behavioral finance from someone who more or less founded the field. Predictably Irrational - Dan Arielly Why She Buys - Bridget BrennanAll of these books speak to the tendencies above in some way. I hope you find them as interesting as I did.  <response>: Very interesting read. I can only relate to the Expected Values portion, though, and the first two sections have me thinking that my mind wasnt wired properly during my growth stages. I always go for the low tier except on a computer and money saved is money saved. No dessert just because for me, Id rather keep the extra 10. 