Coherent Arbitrariness

Our initial choices for unfamiliar things are often random, but our later choices are logically consistent with that first decision. For example, if the first artisan coffee you buy is $5, that price becomes your anchor, making a $7 coffee seem expensive and a $4 one a bargain, even if that initial $5 price had no real basis. Try this: Think about the first price you paid for a subscription service—how has that shaped your view of its value today?

Coherent arbitrariness works because our brains use the first piece of information we receive as an anchor. When we face uncertainty, like pricing a novel product, we grasp for this initial anchor and then make adjustments from there. The anchor itself might be random, but our adjustments are rational and coherent in relation to it.

This process, known as anchoring and adjustment, creates an illusion of stable, well-reasoned preferences. In reality, our valuations are highly malleable and dependent on the initial context.

Consider pricing for a new software-as-a-service (SaaS) product. If a company initially frames its price at $99/month, that number anchors your perception of its value. A subsequent “limited time” offer of $49/month seems like a fantastic deal. Had they initially anchored the price at $29/month, the $49 price would seem like an unreasonable hike.

This isn't limited to money. In negotiations, the first salary figure mentioned—whether by the candidate or the employer—powerfully anchors the subsequent range of offers and counteroffers. Both parties will make coherent adjustments from that arbitrary starting point, often without questioning its validity.

The concept of coherent arbitrariness was demonstrated in a series of experiments showing that people's valuations can be anchored by irrelevant information, yet they act consistently based on those anchors. This research challenges the standard economic assumption that people have pre-existing, stable preferences and instead suggests that we often construct them on the fly.

• Ariely, Loewenstein, and Prelec (2003) famously asked participants to write down the last two digits of their Social Security number and then bid on items like wine and chocolate. Individuals with higher Social Security numbers consistently bid more for the items, showing that a completely random number arbitrarily anchored their willingness to pay. [1]
• The foundation for this work was laid by Tversky and Kahneman's (1974) research on the anchoring heuristic. In their classic study, participants spun a wheel of fortune with numbers from 0 to 100 and were then asked to estimate the percentage of African nations in the UN. Their estimates were significantly skewed toward the random number they had just seen on the wheel. [2]
• Simonson and Tversky (1992) found that preferences are shaped by the immediate context of choices. For example, the willingness to pay for a product increases when it is presented alongside a more expensive model, demonstrating that relative comparisons, rather than absolute value, drive coherent choices. [3]

The effect of coherent arbitrariness is most powerful for novel goods and experiences where people have no prior valuation history. For highly familiar products with established market prices, like a gallon of milk or gasoline, individuals have strong pre-existing anchors, making them less susceptible to new, arbitrary ones. Furthermore, the coherence can be disrupted if people are encouraged to think carefully about their reasoning or are given multiple, conflicting anchors to consider.