Have you ever been to a restaurant or a store with your parents and grandparents and heard them reminisce about the past? Perhaps they've said something like, “Back in my day, gas was only 50 cents a gallon!” While the sentiment is a mix of nostalgia and surprise at how prices have risen, there's a deeper psychological process at play here.
They perceive current gas prices as expensive because their reference point—the anchor—is that old price of 50 cents. On the other hand, if you grew up when gas was much pricier, you might view today's prices differently. This variance in perception, based on an initial reference point or "anchor," is more than just a generational observation. It is a manifestation of a psychological phenomenon that can significantly influence our decisions. Welcome to the world of the anchoring effect.
The anchoring effect explains that we tend to cling to one set of beliefs or information. Often, this information is the first piece that we learn. That information influences how we perceive any supplemental information, even if it’s received years later.
Example of the Anchoring Bias
When your grandparents were younger, they learned that gas was valued at 50 cents a gallon. Therefore, $2.20 for a gallon of gas is expensive. When you were younger, gas prices might have been as high as $5. To you, $2.20 for a gallon of gas isn’t expensive - in fact, it’s a pretty good deal.
You and your grandparents are both looking at a gallon of gas at $2.20. But you feel very different about that price based on the information that your beliefs are anchored to.
This is a huge phenomenon in the world of sales and economics. Anchoring determines what people are willing to pay for products. After all, if they first see paper towels sold for $5 in a store, but then look over to another brand that is selling the same product for $3, they are more likely to think that price is cheap. But if the same person first sees paper towels on sale for $1, that $3 price tag looks excessive.
Who Came Up With the Term "Anchoring Bias?"
Studies on the anchoring effect don’t just look at prices (although many of them do.) One of the most fascinating studies on the anchoring effect took place in the 1970s. Tversky and Kahneman were two psychologists who looked extensively at biases. (In fact, they were some of the first researchers to look at hindsight bias, which is the tendency for people to believe, after an event has occurred, that they would have predicted or expected the outcome.)
Tversky and Kahneman’s study started with a wheel with numbers from 1 to 100. The researchers spun the wheel and it landed on a number. (Let’s say it was 60.) They then asked participants to think about how many countries in the U.N. were African countries and then asked whether that number was higher or lower than the number. Finally, the researchers asked the participants to make a prediction of how many countries in the U.N. were African countries.
The findings were fascinating. Participants were more likely to choose a number closer to the number picked by the wheel. For example, if the wheel landed on 60, participants were more likely to choose a higher number than if the wheel landed on 20.
The wheel has no relation whatsoever to the actual number of African countries in the U.N. Yet, participants were anchored to a number that hovered around the one they were anchored to.
Why Does Anchoring Bias Occur?
Why are we anchored to one piece of information? Psychologists don’t have one for sure answer, but we can look to other phenomena that might explain why we tend to be anchored to the first piece of information that we learn.
One of these phenomena is the Primacy Effect. The Primacy Effect is based on the idea that we are more likely to remember items that are presented at the beginning of a list rather than those presented at the middle or the end. Psychologists still have questions regarding why we are more likely to remember items at the beginning of a list, but likely it is due to the fact that we have a limited memory capacity or are more alert when we start to take in new information.
So information learned first is information that is more likely to stick. Once that information is in our brains, it might be hard to adjust our perspective.
Why? Our brains don’t like conflicting information. When we learn that gas is $5, but then we learn that gas is $2.20, we enter a state of cognitive dissonance. This discomfort is not the brain’s favorite state to be in. So the brain will make meaning of the situation by saying that the $2.20 gallon of gas is cheap, holding onto that original idea that gas is “normally” $5.
These are just speculations, but it goes to show how the brain’s biases and psychological phenomena work together to form how we make decisions and see the world. I have videos on my channel about both the Primacy Effect and Cognitive Dissonance.
More Examples of Anchoring Bias
Pricing and predictions are the two most common examples of the anchoring effect. But there are many ways that we are affected by pieces of “anchored” information in our minds. And some of the results could actually change your life.
Examples of Anchoring Bias in the Workplace
Take salary negotiations. Think back to the study with the wheel. Even if the number spun on the wheel was drastically high, it had an impact on the participants’ predictions. The same effect has appeared in studies regarding salary. Starting the negotiations off with a high number may just help you get a higher salary by the end of your meeting.
Salaries are not the only thing we negotiate. As a teenager, we negotiate how late we can stay out at night. As a child, we negotiate how many vegetables we can eat before we are excused from the dinner table. The list goes on and on.
Examples of Anchoring Bias in Decision Making
Anchoring doesn’t just impact numbers, either. Doctors may be anchored to one set of a patient’s symptoms and fail to make the proper diagnosis. Your roommate doing more work around the house may be considered more admirable if your first roommate wasn’t big on cleaning.
It’s important to understand the anchoring effect and how it impacts the way we make decisions. We can fail to see things objectively if we are stuck to one number or one point of view. When you are making decisions, ask yourself, “What information am I comparing my decision to? Am I looking at this objectively, or am I ‘anchored’ to one choice?”
Combatting the Anchoring Effect in Everyday Decisions
While the anchoring effect is a deeply ingrained cognitive bias, there are strategies that can help you become more aware of its influence and make more objective decisions. Here are some steps you can take:
- Awareness is Key: Simply being aware of the anchoring effect can help you recognize when it might be influencing your judgments. When faced with a decision, pause and ask yourself if your initial piece of information is swaying your perspective excessively.
- Seek Multiple Perspectives: Before making a decision, gather information from various sources. This can provide a more rounded view of the situation, free from the influence of a single anchor.
- Reframe the Question: Sometimes, the way a question or choice is presented can create an anchor. Consider reframing the question to see if your perspective shifts. For example, instead of asking, "Is this product worth $100?" you might ask, "What value does this product offer?"
- Avoid Making Rapid Decisions: Take your time when making decisions, especially important ones. Rapid decisions are more prone to the influence of anchors. Deliberate thinking can help you weigh all information more evenly.
- Challenge Your Initial Impressions: Regularly challenge your first impressions or beliefs about a situation. Ask yourself why you hold a particular belief and whether there's concrete evidence to support it.
- Discuss with Others: Talk through decisions with friends, family, or colleagues. They might provide a different perspective, which can help in identifying and breaking free from the influence of an anchor.
By actively integrating these strategies into your decision-making processes, you can mitigate the effects of anchoring bias and make choices that are more in line with your true preferences and values.