How Anchoring Bias Psychology Affects Decision Making
When people are trying to make a decision, they often use an anchor or focal point as a reference or starting point. Psychologists have found that people have a tendency to rely too heavily on the very first piece of information they learn, which can have a serious impact on the decision they end up making.1 In psychology, this type of cognitive bias is known as the anchoring bias or anchoring effect.
"People make estimates by starting from an initial value that is adjusted to yield the final answer," explained Amos Tversky and Daniel Kahneman in a 1974 paper. "The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of a partial computation. In either case, adjustments are typically insufficient. That is, different starting points yield different estimates, which are biased toward the initial values."
Tversky and Kahneman found that even arbitrary numbers could lead participants to make incorrect estimates.2 In one example, participants spun a wheel to select a number between 0 and 100. The volunteers were then asked to adjust that number up or down to indicate how many African countries were in the U.N. Those who spun a high number gave higher estimates while those who spun a low number gave lower estimates. In each case, the participants were using that initial number as their anchor point to base their decision.
Anchoring Bias Can Influence How Much You Are Willing to Pay
So, for example, imagine that you are buying a new car. You read online that the average price of the vehicle you are interested in is $27,000 dollars. When you are shopping at the local car lot, the dealer offers you the same vehicle for $26,500, which you quickly accept—after all, it's $500 less than what you were expecting to pay. Except, the car dealer across town is offering the exact same vehicle for just $24,000, a full $2,500 less than what you paid and $3,000 less than the average price you found online.
Afterward, you might berate yourself for making such a quick decision and not shopping around for a better deal. So why did you jump so quickly on that first offer?
The anchoring bias suggests that we favor the first bit of information we learn.
Since your initial research indicated that $27,000 was the average price, the first offer you encountered seemed like a great deal. You overlooked further information, such as the possibility that other dealers might have lower prices, and made a decision on the information you already had, which served as an anchoring point in your mind.
It Can Influence Your Salary Negotiations
Imagine that you are trying to negotiate a pay raise with your boss. You might hesitate to make an initial offer, but research suggests that being the first one to lay your cards down on the table might actually be the best way to go. Whoever makes that first offer has the edge since the anchoring effect will essentially make that number the starting point for all further negotiations. Not only that, it will bias those negotiations in your favor. That first offer helps establish a range of acceptable counteroffers, and any future offers will use that initial number as an anchor or focal point.3
One study even found that starting with an overly high salary request actually resulted in higher resulting salary offers.
It Influences Much More Than Money
The anchoring effect has an impact on many areas of our daily lives beyond financial and purchasing decisions.1 For example:
How old should your kids be before you allow them to date? Your kid argues that his or her peers are dating at 14, but you were raised to believe that 16 is the minimum dating age. The anchoring effect leads you to believe that 16 is the earliest age a kid should be allowed to date.
How long do you expect to live? If your parents were both very long-lived, you might automatically expect that you will also live a long life. Because of this anchoring point, you might ignore the fact that your parents lived a healthier, more active lifestyle that probably contributed to their longevity while you eat poorly and are mainly sedentary.
How much television should your children watch each day? If you watched a great deal of TV as a kid, it might seem more acceptable for your kids to be glued to the television for hours each day.
What illness is responsible for a patient's chronic pain? The anchoring effect can influence a physician's ability to accurately diagnose an illness since their first impressions of a patient's symptoms can create an anchor point that impacts all subsequent assessments.4
The anchoring effect as a powerful impact on the choices we make, from decisions about the things we buy to daily preferences about how to live our lives.
So the next time you are trying to make an important decision, give a little thought to the possible impact of the anchoring bias on your choices. Are you giving enough consideration to all of the available information and all of the possible options, or are you basing your selection on an existing anchor point?