Anchoring

by Craig Shrives

What Is Anchoring?

The anchoring bias is a cognitive bias in which individuals rely heavily on the first piece of information they encounter when making decisions or judgments. This initial information serves as an "anchor" and influences subsequent thoughts and evaluations, even if the anchor is unrelated or arbitrary.

Here's a short example to illustrate anchoring bias: Anchoring bias demonstrates how our judgments and decisions can be swayed by the initial information presented to us, even if it has no real relevance or justification.

An Example of Anchoring:

How many countries are there in Africa?

On a business analysis course, the class was split into two groups, and each group was presented with two questions:

Group A:
Are there more or fewer than 25 countries in Africa? (2 points)
How many countries are there in Africa? (5 points)

Group B:
Are there more or fewer than 50 countries in Africa? (2 points)
How many countries are there in Africa? (5 points)

In fact, there are 54 countries in Africa, but those in Group A never got anywhere near the answer. This is because most British people have no idea how many countries there are in Africa, and the groups became anchored to the number in the first question. On average over a two-year period, the Group As thought there were 27 countries in Africa, whereas the Group Bs thought there were 51. Week in week out and without fail, each group's decision was affected by the anchor. It was a simple lesson, but it stuck.

Another Example of Anchoring:

Ensure your customers are happy with your bad service

Setting an anchor is easy. Airlines do it all the time to sugar the pill of a cancelled flight. For example, if your 10 a.m. flight is cancelled, they will quickly promise you a seat on the 4 p.m. flight. Once they've set that anchor (and your expectation), they will try to book you on an earlier flight. When you get a call an hour later saying you're on the 2 p.m. flight, you feel looked after and happy with the airline.

If they'd just bumped you from the 10 a.m. flight to the 2 p.m. flight, you'd have been disgusted with them. That's the value of their 4 p.m. anchor to them. It cost them nothing to establish that anchor, but it just moved your tick on their customer-service questionnaire from "1: Not At All satisfied" to "5: Extremely Satisfied".

Clearly, this is a tactic you can employ in a thousand contexts to win favour. Simply establish an anchor beyond what you know you can deliver, and then surprise everybody with your efficiency when you overachieve. Retailers do it all the time with the old "was £7 now £5". Setting the anchor is free. It's a mind game.

Another Example of Anchoring:

Where's my anchor just gone?

Imagine this. You go to buy a car advertised for £10,000 and offer £5,000. The seller accepts your offer immediately and seals the deal with a handshake. You'd drive away from that deal wondering what was wrong with the car you've just bought. You'd wish you'd said £4,000. This would happen because the £10,000 anchor was destroyed by the seller's immediate acceptance. As a result, you now don't have an anchor, and you don't really know what to think about your purchase. You would actually drive off happier if you haggled like a Moroccan market-stall owner and got the car for £8,500, because you'd be making a comparison with the £10,000 anchor. You'd be £3,500 worse off, but happier. That's the power of an anchor. People like to create anchors when making decisions, because anchors provide a fixed point against which comparisons can be made.

Another Example of Anchoring:

"I need to hold on to something… anything!"

A version of this experiment features in Dan Ariely's book Predictably Irrational. You should try this with your mates. It's fascinating.

Ask a group of people to write a random two-figure number (say the last two numbers of their bank account) on a piece of paper and then place a pound sign before it. Show them an item (say a bottle of wine) and describe the wine to them using a doctored version of the words on the label. (An explanation why follows shortly.) Next, ask your group to estimate the cost of the wine and to write their guess below the random number. Interestingly, their estimates will be proportional to the random number. In other words, those with a high random number will think the wine is more expensive than those with a low random number. In this experiment, your "guinea pigs" will anchor to the random number in guessing how much the wine was worth.

This occurs because people do not like to make decisions in a vacuum. So, when you describe the wine, doctor your description to ensure you do not say the year or something else that will give them a clue as to the value. If you do, their brains will anchor to that information immediately and make a comparison with some wine they've bought with a similar trait. In other words, try to give them no anchor whatsoever and then watch them anchor to (i.e., be influenced by) the random number.

A Practical Application:

Use anchoring to ensure a bargain

Car boot sales are a great place to use anchoring to attain a bargain. Quite often at these places, a seller will present the contents of his house on a table without having done any real research to determine the value of his wares. Of course, he'll probably know the age and how much he paid for each item, but that is likely to be his only anchor in determining the price. The great thing about anchoring is that you can override weaker anchors and make the decision-maker adopt your anchor. A quick comment, which is loud enough to be heard by the stall owner, to whomever you're with, will usually do the trick. Just say something like "Oh, my auntie bought one of these last week for £15 to put in her kitchen", and you will have set a strong anchor. You'll soon be negotiating around the £15 mark.

Do not forget the influence of a "blurt" over those who don't fully understand anchoring. A blurted offer of 80K for a 100K apartment is likely to get a "no, 90K" response. An opening offer of 95K is likely to get a "no, 98K" response. I really doubt I'm telling you anything new. But, now that you fully understand anchoring, you can attack a seller with a conscious blurt and snub a blurting buyer with more confidence. So, an "80K" blurt to you will now get a "98K" response not a "90K" response.

Critical Thinking Test

Are you good at spotting the biases, fallacies, and other cognitive effects? Can you spot when statistics have been manipulated? Can you read body language? Well, let's see! Show Instructions

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