Anchoring in Montevideo

We are here in Montevideo, the capital of Uruguay, which apparently is not pronounced "Mon-tee-VID-ee-o" as I originally had thought. We live, we learn. Once again we were able to score a room upgrade with the hotel when we let the good people at the front desk know that we were celebrating our three year anniversary, and they were so nice that they gave us a suite. After going out for dinner, we came home to find a chocolate cake and a card waiting for us. (And maybe even more importantly, free wifi.) I can't say enough good things about the good people at the Four Points here -- everyone on the staff is so dang nice.


Something that's a little less nice is the exchange rate here, which we originally thought would be fantastic since you get an astounding 22.5 Uruguayan pesos for one measly American dollar. When you hand a money changer one hundred bucks, this is what you get back (minus the cost of a taxi ride):

There is something very satisfying about pulling a $1,000 bill out of your wallet. And that's what you have to do to pay for a fancy lunch here (which is a good deal less satisfying) since that amounts to about $45 American. We've been spoiled by the low prices of Buenos Aires and we thought things would be even better here in Uruguay because, well, isn't that what's supposed to happen when you get a 22:1 exchange rate? Unfortunately, prices seem to be even a bit higher here than in the states. We walked by a McDonald's and saw that a quarter pounder, just the burger without fries or a drink, is going for $110 (about $5 American). It's the same story at other restaurants, and in the grocery store, too. In fact, Uruguay has become one of the most expensive countries in South America, due in part to inflation.

This is especially unpleasant for us, since we'd anchored our price expectations based on what were were paying in Argentina. Anchoring is what happens when your first prediction, or first piece of information, has a lingering effect on how you perceive things going forward, even when there's glaring evidence that your first impression was wrong. I was expecting to find juicy, six dollar steaks here, like we saw in Buenos Aires. So when we are presented with a $18 ribeye and fries in Montevideo, it seems expensive, even if it was the best steak I've ever eaten, and even though that seems to be the going rate at all the restaurants here. I'm not letting go of the prices I saw last week, even though they are from another country, and have no bearing at all in the place I'm in now.

We do this sort of anchoring all the time. As Jason mentioned in his excellent post on investing, we anchor based on the number we bought or sold an investment at previously. We let an old price impact our decisions on current prices. When we see a home that is listed at $200,000 and decide to counter with a 10% reduction, the anchor is already impacting our negotiation. The discount itself is calculated from the first price, which is given legitimacy via the anchor, and established as the starting point for negotiations. It goes on and on. We lament when a sale ends or a coupon expires, and the current deal suddenly seems too high, since we could have had it for half as much. We see prices rise due to inflation, and remember way back, when a gallon of gas or milk only cost a dollar, and when college educations could be paid for with student work. We look up, and everything ends up seeming too expensive. 

We should forget the past when it comes to prices. It is done and gone, and the old prices aren't coming back anyway. Only the current information matters. Find a benchmark. Compare an offer to the other offers you can find in the here and now. Do the best you can with the situation you're currently faced with, and don't bother yourself with reminders of past opportunities. As always, the lesson seems to be to live in the present. I have a few more days to do just that, with my wife, in a cool little corner of the world, and I am very happy about that. Cheers.

*Photo is from magnetismus at Flickr Creative Commons.