New York-to-Paris automobile race: [Automobile stuck in snow]

Anchoring Means Your Low Starting Salary Gets Your Stuck In Low Paying Work

Forrest ChristianCareers Leave a Comment

A tweet from Jane Hadfield some months back mentioned a then recent post by Cynicus Economicus, who asks “So what exactly is this optimism [about the economy] all about?” His answers are interesting, and reminded me about something I wanted to talk about here regarding jobs and the idea of anchoring.

He notes that there is very little to really be happy about. Yet people are talking as if things are turning around and the risk is behind us. What’s going on?

I have already found one interesting insight, which can be found in ‘Predictably Irrational‘, by Dan Ariely. He points out that when making a valuation of something, we develop what he calls an anchor price. Through a series of experiments he shows that the first price that we see for an item becomes an anchor for valuations, and that it is very hard for us to adjust to a new reality, to adjust our perceptions of price. Interestingly, for some of his research he used bankers as his experimental subjects, though the principles he establishes have wider relevance. In particular it is possible to stretch his insight, and see that we might have made a broad brush evaluation of whole economies, so that we have a fixed view of the Western economies. We have anchored our valuation of the economy to a certain level, such that it is very hard for us to adjust to a new valuation.

Whilst this is stretching the findings, I do not believe it is over-stretching them. He is reporting an underlying factor in human thinking, and there is no reason to think that his examples of decisions about individual valuation might not apply to a broader valuation.

The argument is pretty interesting, although anchoring is actually more complex than that. His argument, which seems to have reasonable amount of merit, is that we’re seeing the same dynamic at the larger economy that you would at the micro level. When you start at a certain price, that anchors what you think it is worth. This is one reason why people who paid $100k in 1998 would not lower the price of their house, preferring to let it sit unsold on a declining market, because it had to be worth $180k. They had anchored their price at a previous market. The market had adjusted the price downward, but they couldn’t see it. It was irrational, but predictably so, as Ariely points out.

This got me thinking (for whatever reason) about something I usually don’t say:

Sometimes the market has changed its valuation of the work that you do so that it’s worth less than it used to be.

This happens sometimes when currencies collapse (as every one of them will) or when markets collapse — as when a new product replaces an entire industry, such as automobiles replacing horses — but it can also happen when the market simply changes.

Sometimes it’s when work goes to a country that can do it cheaper than you can. Your work isn’t as valuable any more.

Sometimes it happens when automation has changed the level of complexity needed in the role downward. The level of work done in the role simply isn’t as large, so the fair wage for the work goes down.

Just because what you used to get $140,000 a year doing something doesn’t mean that it has stayed that way. You may think that you’re still worth that much, but the market says something different. If you add to this the issue of automation or better processes reducing the level of work required to accomplish the same results, you can have some permanent shift.

I’m speaking from experience. I’ve had three careers collapse because the market for them fell apart. I’ve done a lot of IT related work, and much of that collapsed after the dotcom bubble burst. Oddly, even when computer work in general picked back up the particular parts that I had done didn’t: they stayed collapsed. They’ve never recovered and this last collapse seems to have done them in for good. People are choosing to simply not have the work done at all.

You have to let go of the past. If you’re an Empiricist decision maker, you can’t do that. You imagine that the past predicts the future. It often does, of course, which is why science works. But sometimes discontinuous change wrecks the curve. Or we get that outlier that demonstrates that life is not gaussian.

(Side note: this is why the Black Swan argument falls on deaf ears. The quants are all Empiricist decision makers and he was making a Systemicist argument.)

You can get some good traction by playing with anchoring with your boss, by the way. I learned this a bit when I sold cell phones and electronic paraphernalia at Radio Shack. It’s an old sales trick that works surprisingly well.

Image Credit: New York-to-Paris automobile race: [Automobile stuck in snow]. Photo by Spooner and Wells, Inc. ca. 1908. Library of Congress #2004670703.

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