CARLOS VETTORAZZI

Mental Models

Anchoring: The Cognitive Bias You Didn’t Know Controlled Your Choices

25 August 2023
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Imagine a boat built to sail the open sea. Like our minds in decision-making, this boat is made to explore new places and possibilities. However, the boat’s owner has anchored it to the seabed because he is afraid to explore new places, so the ship is now anchored in one place; it is not going anywhere.

Once the anchor is set, the boat is “anchored” in a fixed location and can’t explore new places unless the anchor is lifted. Similarly, when we anchor our decisions to an initial information or reference point, we become “anchored” to that point of view.

Any anchoring we may have prevents us from exploring new ideas, perspectives, or options and significantly influences subsequent judgments and decisions, even if they are unrelated or irrelevant to the decision.

A ship in a harbor is safe, but that is not what ships are built for.

Exploring new places requires effort, calculated risks, and venturing outside our comfort zone. Only by doing so can we discover new places. Just as a boat can’t explore new places without lifting its anchor, we must be willing to lift our mental anchors, stop relying heavily on the first piece of information we receive, and consider a broader range of information and perspectives to make more reasonable decisions.

Why Anchoring Bias Matters

In today’s information overload, our anchoring bias gets constantly triggered by the daily flow of information and commercials.

Anchoring influences our decisions, judgments, perspectives, purchases, relationships, career choices, and life satisfaction.

Our biases can lead us to cling to irrational numbers, affecting project schedules, budgets, and how we relate to others.  

Despite our best efforts to remain objective and impartial, our initial anchor often colors our perceptions and leads us down paths we may not have otherwise chosen.

The anchoring process is an important bias to understand as it helps us arrive at well-informed and less impartial decisions.

Real-life examples of anchoring

To help illustrate this phenomenon, here are a few real-life examples:

Pricing Strategies: Retailers often use the anchoring effect to make discounted prices more appealing by emphasizing a higher initial price.

Negotiations: The first offer sets an anchor for the rest of the negotiation. Starting with a high or low proposal can influence the outcome.

Product Bundling: Businesses offer bundled packages with high-priced items alongside lower-priced items to make the high-priced items appear like a better deal.

Menu Pricing: Restaurants frequently position high-priced items at the top of the menu to anchor customer perceptions of value for the rest.

Salary Negotiations: When negotiating a salary, the initial offer or job posting often serves as an anchor that influences following negotiations.

Real Estate Pricing: Anchoring is a standard in real estate pricing, with sellers setting higher listing prices to create the perception of value and potentially negotiate a higher final price.

Car Sales: Car salespeople often initially quote a high price to anchor the buyer’s expectations and then negotiate a lower price, making it seem like a better deal.

Advertising: Have you seen a Coca-Cola commercial recently? The people in the commercial are happy, enjoying each other’s company and having fun. The only way to sell a sugar-rich product like Coca-Cola that drives diabetes is to use anchoring to associate the products with positive emotions, attractive images, or influential personalities.

Companies can shape consumers’ perceptions and influence their purchase decisions through anchoring.

Anchoring and portion sizes: The tendency to overeat when served larger portions may be due to anchoring. In a study, participants estimated food intake was affected by the portion size (large or small) offered.

Relationships: Anchoring also impacts our subjective judgments, particularly when evaluating someone’s intelligence. 

The idea that our first impression of someone can serve as an anchor is thought-provoking, as this suggests that we may not be as open-minded as we believe ourselves to be, that we somehow are not in complete control of our perceptions, and that we tend to judge those we encounter.

It serves as a reminder that our initial impression can become an anchor, shaping how we engage with the person in front of us. 

Approaching interactions with empathy and an open mind prevents first impressions from limiting the perception or treatment of others.

Exploring Anchoring in Practice: Pros and Cons

Pros of Anchoring:

Cognitive Efficiency: Anchoring allows us to make quicker cognitive processing and decision-making. It provides a reference point that simplifies the mental effort required to evaluate options and make choices.

Simplifies Complex Choices: Anchoring can simplify complex decision-making scenarios, helping us reduce the number of options. It provides a framework to compare choices against, making the decision-making process more manageable.

Boosts Confidence: Anchoring provides a starting point for decision-making, boosting confidence and reducing anxiety.

Cons of Anchoring:

Bias and Distortion: Anchoring can introduce biases and distortions in decision-making. Over-relying on an initial anchor may lead to skewed perceptions and judgments, as it can limit the consideration of alternative information or viewpoints.

Rigid Attachment To Initial Anchors: Falling into the “anchoring trap” occurs when we cling too tightly to initial information and fail to adjust our thought processes to new information, often resulting in poor decisions and missed opportunities.

Lack of Flexibility: Anchoring to a single reference point can limit flexibility in decision-making by restricting questioning and exploring unconventional options that may be more beneficial.

Context Dependency: The practical value of anchoring can vary depending on the context or situation. The anchor may not provide accurate or relevant information in certain circumstances, leading to inadequate decisions.

Considering additional pros and cons in all areas of life, especially those we struggle with, will result in a more thorough understanding of anchoring’s practical implications in decision-making.

How To Minimize Anchoring Bias

Avoiding anchoring bias can be problematic because it is a powerful subconscious bias that drives various other biases and heuristics affecting many areas of our lives.

A common mistake I used to make was taking more time to decide, which often backfired because it strengthened the anchor effect.

In other words, everyday strategies for countering bias might not work for anchoring – you have to find what works for you.

Let’s examine how adding a few steps to your decision-making process can expose your anchoring bias and explore alternatives that may help reduce the influence of the anchor.

Questions to Align the anchor effect with your Values and Goals

When I first started learning about the anchor effect, I tried to avoid it at all costs, which was exhausting, so I decided to let it work in my favor.

Here are some questions that have helped me align the impact of the anchor effect with my values and goals:

  1. Does it support my long-term goals?
  2. Does it support the person I want to be?
  3. Is it consistent with my values and principles?
  4. Is it in line with my priorities at this stage of my life?
  5. Does it take into account likely consequences and risks?
  6. Does it respect my boundaries?
  7. Will it lead to fulfillment and happiness?
  8. Will it fit my financial, mental, emotional, and time constraints?
  9. Have I sought out different perspectives and additional information?
  10. Am I making this decision out of fear or anxiety, or is it an authentic choice?

Actionable insights

Stay Alert: I remind myself that there are anchors; I don’t entrust my happiness to them.

Compare anchors: I always compare prices and buy second-hand whenever possible.
Hunt for information: I gather information from many sources before deciding.

Break It Down: I scrutinize the anchor to see if it’s trustworthy and aligned with my values and principles.

Consider multiple perspectives: I get different perspectives from vulnerable mortal beings I admire to make better decisions; adding this step to my decision-making exposes objective weaknesses and explores alternatives.
Sources

  1. Epley, N., & Gilovich, T. (2006). The anchoring-and-adjustment heuristic. Psychological Science, 17(4), 311–318. Link
  2. Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131. Link
  3. Strack, F., & Mussweiler, T. (1997). Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73(3), 437-446. Link
  4. Enough, B., & Mussweiler, T. (2001). Sentencing under uncertainty: Anchoring effects in the Courtroom1. Journal of Applied Social Psychology, 31(7), 1535-1551. Link
  5. Marchiori, D., Papies, E. K., & Klein, O. (2014). The portion size effect on food intake. An anchoring and adjustment process? Appetite, 81, 108-115. Link
  6. Epley, N., & Gilovich, T. (2002). Putting adjustment back in the anchoring and adjustment heuristic. Heuristics and Biases, 12(5), 139-149. Link
  7. Ariely, D., Loewenstein, G., & Prelec, D. (2006). Tom Sawyer and the construction of value. The Construction of Preference, 60, 271-281. Link
  8. Rastogi, C., Zhang, Y., Wei, D., Varshney, K. R., Dhurandhar, A., & Tomsett, R. (2022). Deciding fast and slow: The role of cognitive biases in AI-assisted decision-making. Proceedings of the ACM on Human-Computer Interaction, 6(CSCW1), 1–22. Link
  9. Nicholas Epley and Thomas Gilovich. 2006. The Anchoring-and-Adjustment Heuristic: Why the Adjustments Are Insufficient. Psychological Science 17, 4 (2006), 311–318. Link

Books to Dive Deeper

  • “Thinking, Fast and Slow” by Daniel Kahneman
  • “Influence: The Psychology of Persuasion” by Robert B. Cialdini

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