Watch the Anchor

Going back to basic maths at school, you would agree that 8x7x6x5x4 gives the same answer as 4x5x6x7x8. 

Yet in an experiment where two groups of people were given these two sets separately, those that saw the 8 first in the sequence estimated the answer much higher than those that saw the 4 first in the sequence. This illustrates the cognitive bias of anchoring.

Anchoring refers to the tendency to rely on and ascribe too much value to the first piece of information we receive when making decisions. We see a very expensive jacket and suddenly the other clothing items look reasonably priced. Or, the initial price offered for purchasing a new car, sets the standard for the final price agreed on.

Anchoring is one our minds’ basic ways of making sense of the world around us. The mind struggles to perceive and give a value to something in a vacuum. It needs a reference point to do so; an anchor that will help it ascertain a value and a meaning to that “something”. But then the mind overshoots and it relies too heavily on that first impression. It adjusts in relation to the anchor.

In one study students were given base estimates that are obviously wrong. One group was asked whether Mahatma Ghandi died before or after age 9, and another group before or after age 140. Of course neither of these numbers could be correct but the two groups still guessed significantly differently. The first group guessed an average age of 50 and the second  an average age of 67.

Here is an experiment I ran in a class that I guest-lectured. The class of about seventy MBA students class was split in two. Half were handed pictures of the following three cars.

The other half of the class were given the following different set of three pictures of motor vehicles.

Both groups of individuals were then asked to value black car at the bottom. Clearly it is the same one. The question here is to what extent the groups could be influenced by first two cars preceding it  - the anchors. In the first set, it is clearly two expensive cars, and in the second the two preceding vehicles are in lower price ranges. The results were telling: the top group valued the car on average at $22 600 and the group looking at the bottom trio valued the black car at about $6 000. A huge difference!

When we buy something, we don't value the purchase item in isolation; we compare it to other similar items. What's more, we tend to compare to other items in close proximity. Perhaps not overtly or even consciously but we always set a reference point and value or price in our minds for a given item or service.

Anchoring also impacts empathy. When trying to decide how someone feels we start thinking how we would feel in the situation and then adjust for how we think the other might feel. Typically we don’t adjust far enough and end up believing the other’s state of mind is more like ours than what it actually is.

Is there a way to avoid the anchoring effect? 

Simply knowing about this cognitive bias is a start, but may not be enough. One trick is to try and estimate a range of numbers or feelings rather than pinpoint a specific estimate. Researchers argue that when moving from an anchor, we just move up or down until we get to the edge of a reasonable range and stop there. 

Thinking more in terms of a spectrum or a range waylays the natural tendency of our minds to anchor.