Understanding Anchoring Bias

Anchoring bias is one of the most robust and well-documented cognitive biases in behavioral economics and psychology. First described by psychologists Amos Tversky and Daniel Kahneman in 1974, this bias demonstrates how initial information creates a mental reference point that disproportionately influences subsequent judgments and decisions.

The Mechanism

Anchoring works through a two-stage process:

Stage 1: The Anchor is Set

The first number, value, or piece of information you encounter becomes your reference point. This can happen:

• Deliberately: A car salesman shows you the most expensive model first
• Randomly: You see a number on a billboard before estimating a value
• Unconsciously: You're exposed to information without realizing it affects you

Stage 2: Insufficient Adjustment

When making your own estimate or decision, you start from the anchor and adjust. However, research consistently shows that people don't adjust enough—they remain too close to the initial anchor, even when they know it's arbitrary or irrelevant.

Real-World Impact

Negotiations and Sales

Anchoring is perhaps most powerful in negotiations:

Salary Negotiations: The first number mentioned in a salary discussion typically becomes the anchor. If an employer offers $60,000 first, the final salary will likely be closer to that number than if the candidate had anchored at $80,000.

Real Estate: Listing prices serve as powerful anchors. A house listed at $500,000 will sell for more than the same house listed at $450,000, even if both are negotiable.

Retail Pricing: "Was $199, Now $99" uses the original price as an anchor to make the sale price seem more attractive.

Legal System

Anchoring affects even trained professionals:

Sentencing: Prosecutors' sentencing recommendations anchor judges' decisions. Higher recommended sentences lead to longer actual sentences.

Damages: Initial damage claims in lawsuits anchor jury awards, even when the claims are clearly inflated.

Medical Decisions

Doctors can be anchored by:

• Initial diagnoses (making them less likely to consider alternatives)
• First test results (affecting interpretation of subsequent tests)
• Suggested treatment plans (influencing their own recommendations)

Everyday Decisions

Restaurant Menus: Expensive items at the top of the menu anchor expectations, making mid-priced items seem reasonable.

Charity Donations: Suggested donation amounts ($25, $50, $100) anchor how much people give.

Product Comparisons: Showing a premium option first makes standard options seem more affordable.

The Science Behind Anchoring

Classic Experiments

The Wheel of Fortune Study (Tversky & Kahneman, 1974):
Participants spun a wheel that landed on either 10 or 65. They were then asked to estimate the percentage of African nations in the UN. Those who saw 10 estimated around 25%, while those who saw 65 estimated around 45%. The random number anchored their estimates.

The Gandhi Study (Strack & Mussweiler, 1997):
Participants were asked: "Did Gandhi die before or after age 140?" vs. "Did Gandhi die before or after age 9?" The first group estimated he died around age 67, while the second estimated around age 50. Even absurd anchors had an effect.

Why It's So Powerful

Anchoring persists even when:

1. You know about the bias: Awareness doesn't eliminate the effect
2. The anchor is obviously wrong: Even absurd numbers influence estimates
3. You're incentivized to be accurate: Monetary rewards don't eliminate anchoring
4. You're an expert: Professionals are affected just like novices

Types of Anchoring

Numeric Anchoring

The most studied form—numbers influence numerical estimates.

Semantic Anchoring

Words and descriptions create anchors. "Luxury apartment" vs. "Affordable housing" anchors expectations about the same property.

Self-Generated Anchoring

You can anchor yourself by considering a value before making a decision.

Overcoming Anchoring Bias

While anchoring is difficult to eliminate, several strategies can reduce its impact:

1. Consider the Opposite

Before making a decision, deliberately consider why the anchor might be wrong. Ask: "What if the true value is much higher/lower?"

2. Delay Initial Judgments

Don't make snap decisions. Give yourself time to gather more information before forming an opinion.

3. Use Multiple Reference Points

Seek out several different estimates or values rather than relying on a single anchor.

4. Start from Your Own Estimate

In negotiations, make the first offer yourself to set a favorable anchor.

5. Question the Source

Ask: "Why was this particular number chosen?" Often, initial values are arbitrary or strategically selected.

6. Use Ranges Instead of Points

Think in ranges ("between $50-70") rather than single values ("$60").

Professional Applications

For Negotiators

• Make the first offer to set a favorable anchor
• Anchor high (but not absurdly so) when selling
• Anchor low when buying
• Prepare multiple anchors for different scenarios

For Decision Makers

• Gather information independently before seeing others' estimates
• Use structured decision processes that minimize early anchoring
• Seek diverse perspectives to counter single anchors

For Consumers

• Research prices independently before shopping
• Ignore "original prices" in sales
• Set your own budget before seeing options
• Walk away if you feel anchored to an unreasonable price

Historical Impact

Anchoring has influenced major events:

Financial Markets: Initial IPO prices anchor investor expectations, affecting long-term valuations.

International Negotiations: First offers in treaty negotiations anchor final agreements.

Policy Decisions: Initial budget proposals anchor final spending levels.

The Research Continues

Recent studies have explored:

• Cultural differences in anchoring susceptibility
• Neural mechanisms underlying the bias
• Effective debiasing techniques
• Anchoring in digital environments (online shopping, apps)

Conclusion

Anchoring bias is a fundamental feature of human cognition that affects virtually every domain where we make estimates or judgments. Understanding how anchors work—and recognizing when you're being anchored—is crucial for making better decisions in negotiations, purchases, investments, and everyday life.

The key insight is that first impressions matter enormously. Whether you're buying a car, negotiating a salary, or estimating project timelines, the first number you encounter will likely have more influence than it should. By being aware of this bias and actively working to counter it, you can make more rational, independent decisions.