- The Effects of Anchoring Bias on Human Behavior
- Psychological Anchoring
- Anchoring Bias and Gasoline
- Anchoring Bias and Restaurant Wait Time
- Anchoring Bias and Black Friday
- Anchoring Bias and Product Pricing
- Does anything perform better than the number 9?
- Anchoring and Salary Negotiations
- Summary of the Anchoring Effect
- Avoiding Psychological Bias in Decision Making: How to Make Objective Decisions
- What Is Psychological Bias?
- Common Psychological Biases
- 1. Confirmation Bias
- How to Avoid Confirmation Bias
- 2. Anchoring
- How to Avoid Anchoring
- 3. Overconfidence Bias
- How to Avoid Overconfidence Bias
- 4. Gambler's Fallacy
- How to Avoid Gambler's Fallacy
- 5. Fundamental Attribution Error
- How to Avoid Fundamental Attribution Error
- Anchoring Bias
- Anchoring Bias Example in Finance
- Anchoring in Public Markets
- Avoiding Anchoring Bias
- Additional Resources
- Cognitive Biases — The Anchoring Effect | by Michael Gearon | Medium
- Kahneman and Tversky experiments
- 3 Tier Advertising
- Further Examples
- Black Friday
- Further Reading
- Anchoring Bias: How The Mind Is Biased by First Impressions
- Anchoring bias example
- Anchoring bias definition
- Anchoring the emotions
- Anchoring bias in salary negotiations
- Anchoring bias explanation
- How to avoid the anchoring bias
The Effects of Anchoring Bias on Human Behavior
Consumers today are bombarded by more daily advertising messages than at any point in history. Demonstrated by the Superbowl, watching ads is now a pastime unto itself.
What consumers do not realize is that there are psychological tactics that are the invisible arrows in an advertiser's quiver. In this post, we'll discuss the power concept of anchoring bias on human behavior.
Psychological Anchoring is a term used to describe the human tendency to rely too heavily on one trait or piece of information when making decisions.
In the 1974 paper «Judgment Under Uncertainty: Heuristics And Biases,» Kahneman and Tversky conducted a study where a wheel containing the numbers 1 through 100 was spun. Subjects were asked whether the percentage of U.N.
membership accounted for by African countries was higher or lower than the number on the wheel. Afterward, the subjects were asked to give an estimate.
Tversky and Kahneman found that the anchoring value of the number on the wheel had a pronounced effect on the answers the subjects provided. When the wheel landed on 10, the average estimate given by the subjects was 25%.
When the wheel landed on 60, the average estimate was 45%. The random number had an «anchoring» effect, pulling subjects' estimates closer to the number they were shown even though the number had zero correlation to the question.
Similar psychological patterns affect nearly all consumers and are seen across varied industries. Anchoring is most often evident when consumers lack solid evidence or knowledge. Anchoring is notably prevalent when people are dealing with new concepts. The anchor is also often the first piece or the most recent piece of information received, which shades decisions that follow.
Anchoring Bias and Gasoline
Under President George W. Bush's second and Barack Obama's first terms, we observed similar trends in gas price-per-gallon. Beginning around $1.85 per gallon, prices began to climb.
Consumers had grown accustomed to low gas prices and anchored mentally at the sub-$2-per-gallon rates. As prices crept toward $3-per-gallon, consumer sentiment was mostly negative.
When prices settled above the $3 threshold, consumers reset their psychological anchors. As prices declined toward $2.50 per gallon, consumer sentiment was largely positive.
In one scenario, consumers begrudgingly paid $2.50 per gallon. In another, they happily paid $2.50 per gallon. The price was less of a factor on willingness/happiness-to-pay than the context in relation to the anchor.
Anchoring Bias and Restaurant Wait Time
Have you ever added your name to a restaurant waiting list, been told the wait was 30 minutes and ended up waiting longer?
Imagine two parties visiting a restaurant that is running a 15-minute wait time for seating. In scenario 1, the host tells the customer their wait will be 15 minutes. In scenario 2, the host tells the customer their wait will be 30 minutes.
In both, the time for seating begins to approach 25 minutes. In all lihood, the party who was told 15 minutes has been waiting in frustration, checking their watch, and perhaps awaiting an opportunity to voice frustration.
Meanwhile, the second party heads to their table, pleased that their wait was 5 minutes shorter than expected.
Anchoring Bias and Black Friday
Perhaps one of the best examples of the anchoring effect is Black Friday. Shoppers pour over endless sales ads, map their shopping routes and time their visits all for the chance to receive steep discounts.
Although there are occasional genuine loss leaders, much of the value that customers perceive is little more than anchoring. Sales ads tell you what a new TV should cost and offer it to you at a deep discount. Of course, your mind is taking a mental shortcut by taking their word for how much that TV was originally worth.
Anchoring Bias and Product Pricing
My personal interest in anchoring began with price psychology. Visit most stores and you will see prices ending in a 9. Thanks to neuropsychological data, marketers know that a vase priced at $39 versus $40 is not merely perceived as $1 cheaper, it is perceived as $10 cheaper.
This tactic has been dubbed charm pricing. In the book «Priceless» William Poundstone dissected 8 studies on the use of charm prices and found that on average they increased sales by 24%.
Does anything perform better than the number 9?
If the number 9 performs so well, is there anything that is more powerful than «charm prices?» In an experiment tested by MIT and the University of Chicago, a standard women’s clothing item was tested at $34, $39 and $44. Researchers expected the item to sell best at the cheapest price. However, the item sold best at $39.
Why? At the $39 price point, researchers included an anchor price.
Researchers have found that sales prices indicating an anchor price seem to beat the number 9 when split tested.
Anchoring and Salary Negotiations
You can see the same effect in salary negotiations. There’s some evidence that when the initial anchor figure is set high, the final negotiated amount will usually be higher (Thorsteinson, 2011).
Incidentally, the anchoring effect is another reason it is advisable to open negotiations rather than waiting for the employer to tell you the range. You are able to set the anchor higher.
Summary of the Anchoring Effect
Since the anchoring effect occurs in so many situations, no one theory has fully explained it. There is a modern favorite for explaining the anchoring effect in decision-making. It is thought to stem from the tendency to look for confirmation of things we are unsure of.
Studies suggest that even when you know about anchoring and are forewarned, the effect can still affect your judgement. It just shows the power that the first piece of information has on how we make decisions in all facets of life.
*ThoughtHub is provided by SAGU, a private Christian university offering more than 60 Christ-centered academic programs — associates, bachelor's and master's and doctorate degrees in liberal arts and Bible and church ministries.
Avoiding Psychological Bias in Decision Making: How to Make Objective Decisions
Are you making a balanced judgment, or do you have confirmation bias?
Imagine that you're researching a potential product. You think that the market is growing, and, as part of your research, you find information that supports this belief.
As a result, you decide that the product will do well, and you launch it, backed by a major marketing campaign.
However, the product fails. The market hasn't expanded, so there are fewer customers than you expected. You can't sell enough of your products to cover their costs, and you make a loss.
In this scenario, your decision was affected by confirmation bias. With this, you interpret market information in a way that confirms your preconceptions – instead of seeing it objectively – and you make wrong decisions as a result.
Confirmation bias is one of many psychological biases to which we're all susceptible when we make decisions. In this article, we'll look at common types of bias, and we'll outline what you can do to avoid them.
What Is Psychological Bias?
Psychologists Daniel Kahneman, Paul Slovic, and Amos Tversky introduced the concept of psychological bias in the early 1970s. They published their findings in their 1982 book, «Judgment Under Uncertainty.»
They explained that psychological bias – also known as cognitive bias – is the tendency to make decisions or take action in an illogical way. For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues.
Psychological bias is the opposite of common sense and clear, measured judgment. It can lead to missed opportunities and poor decision making.
Common Psychological Biases
Below, we outline five psychological biases that are common in business decision making. We also look at how you can overcome them, and thereby make better decisions.
1. Confirmation Bias
As we showed above, confirmation bias happens when you look for information that supports your existing beliefs, and reject data that go against what you believe. This can lead you to make biased decisions, because you don't factor in all of the relevant information.
A 2013 study found that confirmation bias can affect the way that people view statistics. Its authors report that people have a tendency to infer information from statistics that support their existing beliefs, even when the data support an opposing view. That makes confirmation bias a potentially serious problem to overcome when you need to make a statistics-based decision.
How to Avoid Confirmation Bias
Look for ways to challenge what you think you see. Seek out information from a range of sources, and use an approach such as the Six Thinking Hats technique to consider situations from multiple perspectives.
Alternatively, discuss your thoughts with others. Surround yourself with a diverse group of people, and don't be afraid to listen to dissenting views. You can also seek out people and information that challenge your opinions, or assign someone on your team to play «devil's advocate» for major decisions.
This bias is the tendency to jump to conclusions – that is, to base your final judgment on information gained early on in the decision-making process.
Think of this as a «first impression» bias. Once you form an initial picture of a situation, it's hard to see other possibilities.
How to Avoid Anchoring
Anchoring may happen if you feel under pressure to make a quick decision, or if you have a general tendency to act hastily.
So, to avoid it, reflect on your decision-making history, and think about whether you've rushed to judgment in the past.
Then, make time to make decisions slowly, and be ready to ask for longer if you feel under pressure to make a quick decision. (If someone is pressing aggressively for a decision, this can be a sign that the thing they're pushing for is against your best interests.)
Read our article on the Ladder of Inference to find out more about the stages of thinking that people tend to go through when they make good decisions. This can help you ensure that you've made a thorough, well-considered decision.
3. Overconfidence Bias
This happens when you place too much faith in your own knowledge and opinions. You may also believe that your contribution to a decision is more valuable than it actually is.
You might combine this bias with anchoring, meaning that you act on hunches, because you have an unrealistic view of your own decision-making ability.
In a 2000 study, researchers found that entrepreneurs are more ly to display the overconfidence bias than the general population. They can fail to spot the limits to their knowledge, so they perceive less risk. Some succeed in their ventures, but many do not.
How to Avoid Overconfidence Bias
Consider the following questions:
- What sources of information do you tend to rely on when you make decisions? Are these fact-based, or do you rely on hunches?
- Who else is involved in gathering information?
- Has information been gathered systematically?
If you suspect that you might be depending on potentially unreliable information, think about what you can do to gather comprehensive, objective data.
4. Gambler's Fallacy
With the gambler's fallacy, you expect past events to influence the future. A classic example is a coin toss. If you toss a coin and get heads seven times consecutively, you might assume that there's a higher chance that you'll toss tails the eighth time.
Often, the longer the run, the stronger your belief can be that things will change the next time. However, in this example, the odds are always 50/50.
The gambler's fallacy can be dangerous in a business environment. For instance, imagine that you're an investment analyst in a highly volatile market. Your four previous investments did well, and you plan to make a new, much larger one, because you see a pattern of success.
In fact, outcomes are highly uncertain. The number of successes that you've had previously has only a small bearing on the future.
How to Avoid Gambler's Fallacy
A 2008 study reported at gambler's fallacy was less ly to happen when decision makers avoided looking at information chronologically.
So, to avoid gambler's fallacy, make sure that you look at trends from a number of angles. Drill deep into data using tools such as Situational Appreciation.
If you notice patterns in behavior or product success – for example, if several projects fail unexpectedly – look for trends in your environment, such as changed customer preferences or wider economic circumstances. Tools such as PEST Analysis can help here.
5. Fundamental Attribution Error
This is the tendency to blame others when things go wrong, instead of looking objectively at the situation. In particular, you may blame or judge someone a stereotype or a perceived personality flaw.
For example, if you're in a car accident, and the other driver is at fault, you're more ly to assume that he or she is a bad driver than you are to consider whether bad weather played a role.
Fundamental attribution error is the opposite of actor-observer bias, in that you tend to place blame on external events.
For example, if you have a car accident that's your fault, you're more ly to blame the brakes or the wet road than your reaction time.
How to Avoid Fundamental Attribution Error
It's essential to look at situations, and the people involved in them, non-judgmentally. Use empathy and (if appropriate) cultural intelligence, to understand why people behave in the ways that they do.
Also, build emotional intelligence, so that you can reflect accurately on your own behavior.
It's hard to spot psychological bias in ourselves, because it often comes from subconscious thinking.
For this reason, it can often be unwise to make major decisions on your own.
Researchers Daniel Kahneman, Dan Lovallo, and Olivier Sibony reflected on this in a 2011 Harvard Business Review article, in which they suggest that you should make important decisions as part of a group process.
Psychological bias is the tendency to make decisions or take action in an unknowingly irrational way. To overcome it, look for ways to introduce objectivity into your decision making, and allow more time for it.
Use tools that help you assess background information systematically, surround yourself with people who will challenge your opinions, and listen carefully and empathetically to their views – even when they tell you something you don't want to hear.
Anchoring bias occurs when people rely too much on pre-existing information or the first information they find when making decisions. For example, if you first see a T-shirt that costs $1,200 – then see a second one that costs $100 – you’re prone to see the second shirt as cheap. Whereas, if you’d merely seen the second shirt, priced at $100, you’d probably not view it as cheap.
The anchor – the first price that you saw – unduly influenced your opinion. Anchoring bias is an important concept in behavioral financeBehavioral FinanceBehavioral finance is the study of the influence of psychology on the behavior of investors or financial practitioners. It also includes the subsequent effects on the markets. It focuses on the fact that investors are not always rational.
Anchoring Bias Example in Finance
If I were to ask you where you think Apple’s stock will be in three months, how would you approach it? Many people would first say, “Okay, where’s the stock today?” Then, where the stock is today, they will make an assumption about where it’s going to be in three months. That’s a form of anchoring bias. We’re starting with a price today, and we’re building our sense of value that anchor.
Learn more in CFI’s Behavioral Finance Course.
Anchoring in Public Markets
Anchoring bias is dangerous yet prolific in the markets. Anchoring, or rather the degree of anchoring, is going to be heavily determined by how salient the anchor is. The more relevant the anchor seems, the more people tend to cling to it. Also, the more difficult it is to value something, the more we tend to rely on anchors.
So when we think about currency values, which are intrinsically hard to value, anchors often get involved.
The problem with anchors is that they don’t necessarily reflect intrinsic valueIntrinsic ValueThe intrinsic value of a business (or any investment security) is the present value of all expected future cash flows, discounted at the appropriate discount rate.
Un relative forms of valuation that look at comparable companies, intrinsic valuation looks only at the inherent value of a business on its own.. We can develop the tendency to focus on the anchor rather than the intrinsic value.
Avoiding Anchoring Bias
So, how do you guard against an anchoring bias? There’s no substitute for rigorous critical thinking.
When you approach evaluation, instead of looking at where a stock is now, why not build up a first principles evaluation using DCFWalk me through a DCFThe question, walk me Through a DCF analysis is common in investment banking interviews. Learn how to ace the question with CFI's detailed answer guide.
analysis? When analysts find their evaluation is far out from the actual stock price, they often try to change their evaluation to match the market.
Why? Because they’re being influenced by the anchor instead of trusting their own due diligenceDue DiligenceDue diligence is a process of verification, investigation, or audit of a potential deal or investment opportunity to confirm all relevant facts and financial information, and to verify anything else that was brought up during an M&A deal or investment process. Due diligence is completed before a deal closes..
More reading: Not All Anchors Are Created Equal.
Thank you for reading CFI’s guide to understanding how anchoring bias works. To learn more, check out CFI’s Behavioral Finance Course. Additional relevant resources include:
- Behavioral Finance GlossaryBehavioral Finance GlossaryThis behavioral finance glossary includes Anchoring bias, Confirmation bias, Framing bias, Herding bias, Hindsight bias, Illusion of control
- Loss Aversion BiasLoss AversionLoss aversion is a tendency in behavioral finance where investors are so fearful of losses that they focus on trying to avoid a loss more so than on making gains. The more one experiences losses, the more ly they are to become prone to loss aversion.
- Framing BiasFraming BiasFraming bias occurs when people make a decision the way the information is presented, as opposed to just on the facts themselves. The same facts presented in two different ways can lead to different judgments or decisions from people.
- Narrative FallacyNarrative FallacyOne of the limits to our ability to evaluate information objectively is what’s called the narrative fallacy. We love stories and we let our preference for a good story cloud the facts and our ability to make rational decisions. This is an important concept in behavioral finance.
Cognitive Biases — The Anchoring Effect | by Michael Gearon | Medium
Claudio Schwarz — Unsplash
Anchoring or focalism is a cognitive bias that influencing our decision-making abilities. This bias uses our reliance on an a certain piece of information. Typically, the first bit of information we receive becomes an anchor and all future evaluations are this anchor piece of information.
Kahneman and Tversky experiments
The anchoring effect is a well documented bias and the best researchers in this field are widely regarded as Daniel Kahneman and Amos Tversky, who’ve have carried out many experiments.
One of their books I would recommend is Thinking, Fast and Slow. Here is just one example of their testing from September 27th 1974:
Two groups of high school students estimated the answers to the below sums, within 5 seconds. One group (group A) estimated the result of:
8 x 7 x 6 x 5 x 4 x 3 x 2 x 1
while the other group of students (group B) estimated the product of:
1 x 2 x 3 x 4 x 5 x 6 x 7 x 8
Given the short time the students had, they were only able to do the first couple of multiplications and then had to guess the rest their initial sums.
What Kahneman and Tversky found was that the median of the students sums for the the descending sequence (group A) was 2,250 whilst the ascending median (group B) had an estimate median of 512. The actual correct answer to the multiplication sum is 40,320.
When someone sets the anchor, in this case the result of the first few sums, they then evaluate whether the overall answer is a little or a lot higher or lower and then adjust their estimate to take that into account.
Group A had higher value sums to work out first (8 x 7 x 6…), so their initial calculation would be higher than that of Group B, who had the lower value sums (1 x 2 x 3…). Because group A’s initial calculation (the anchor point) was higher than group B’s, their overall answers were generally also higher than group B’s.
3 Tier Advertising
3 tiered hosting options
A common example of the anchor bias is the 3 tiered approach. What we can see in the example above is three price points; an expensive £18.02 top tiered package, a £6.59 mid-range package and a ‘cheap’ £2.92 package.
We take the most expensive price point as our anchor point, which then fuels the perception that the £6.59 package is better value than the £18.02 one, because it’s cheaper and the middle option.
In many situations, people make estimates by starting from an initial value that is adjusted to yield the final answer.
The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of partial computation.
In either case, adjustments are typically insufficient…that is, different starting points yield different estimates, which are biased toward the initial values.
– “Judgment Under Uncertainty” by Kahneman, Slovic and Tversky
In terms of selling and marketing, the seller would benefit from establishing the value of a product first. Once a seller sets a price, the negations with potential buyers will revolve around that initial valuation, because the buyer is unconsciously anchored to that price.
We’ve all been exposed to this hundreds of times without even noticing. For example, if you’re told a house is worth £200,000 then you would assume it’s got to be worth more than a £150,000 house, even if they appeared exactly the same at first glance.
But is it really worth an extra £50,000? Have you been tricked into anchoring on to what you’ve been told it’s worth?
The anchoring effect can easily slip in unannounced. Drazen Prelec and Dan Ariely conducted an experiment at MIT in 2006 where they had students bid on items in a bizarre auction.
Ariely explains in his book, Predictably Irrational, that the researchers would hold up a bottle of wine, or a textbook, or a cordless trackball and then describe in detail how great it was.
Then, each student had to write down the last two digits of their social security number as if it was the price of the item. If the last two digits were 11, then the bottle of wine was priced at $11. If the two numbers were 88, the cordless trackball was $88.
After they wrote down the pretend price, they bid on the items. Sure enough, the anchoring effect scrambled the students ability to judge the value of the items. People with high social security numbers paid up to 346% more than those with low social security numbers.
For example, people with numbers from 80 to 99 paid on average $26 for the trackball, while those with 00 to 19 paid around $9.
Social security numbers were the anchor in this experiment only because we requested them. We could have just as well asked for the current temperature or the manufacturer’s suggested retail price. Any question, in fact, would have created the anchor. Does that seem rational? Of course not.
“Predictably Irrational” by Dan Ariely
Despite the above examples, cognitive biases don’t have to be used negatively all the time.
In a 1975 study by Catalan and Lewis et al, researchers asked a group of students to volunteer as camp counsellors for two hours per week for two years. They all said no.
The researchers followed up by asking if they would volunteer to supervise a single two-hour trip. Half said yes.
Another group of students were asked straight out if they would volunteer to supervise a single two-hour trip. This time, only 17 percent agreed.
In the second group, less students agreed to a single two-hour trip because they did not have the anchor of a two-year commitment, so it made a single trip seem more off-putting as they had nothing to compare it to.
Black Friday is a classic example of where the anchoring effect comes into play. We often see discounted prices or items grouped together to make them seem cheaper or that you’re getting the best discount.
All this discounting is doing is setting an anchored benchmark to create the illusion that you’re getting a great deal. The thing to remember is to only buy something if you need it and consider whether the cost is worth the use you’ll get it.
If you want to sell something, make your initial price high. People will anchor from that original price and make their decision off that.
Remember the anchoring bias can be used in many different situations on an almost daily basis such as salary negotiations, buying a car, even day to day shopping. The only real way to conquer the anchoring bias is to compare market prices and not buy frivolously.
The anchoring effect bias is just part of the larger series around cognitive biases and how they can influence decision making. Here are a few other biases to read:
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Anchoring Bias: How The Mind Is Biased by First Impressions
Anchoring bias in psychology is a cognitive bias that causes people to rely too much on the first piece of information they get when making decisions.
The anchoring bias or anchoring effect or anchoring heuristic is a cognitive psychology finding that people over-emphasise the first piece of information they receive.
A simple example of the anchoring bias is the first price quoted for a car: this number will tend to overshadow subsequent negotiations.
The anchoring bias means that people rely too heavily on this first piece of information, even when more is known later on.
Anchoring bias example
To illustrate the anchoring bias or effect, let’s say I ask you how old Mahatma Gandhi was when he died.
For half of you I’ll preface the question by saying: “Did he die before or after the age of 9?”
For the other half I’ll say: “Did he die before or after the age of 140?”
Obviously these are not very helpful statements.
Anyone who has any clue who Gandhi was will know that he was definitely older than 9; while the oldest person who ever lived was 122.
So why bother making these apparently stupid statements?
Because, according to the results of a study conducted by (Strack & Mussweiler, 1997), these initial statements, despite being unhelpful, affect the estimates people make.
This is the anchoring bias, effect or heuristic.
In their experiment, the first group guessed an average age of 50 and the second, 67.
Neither was that close, he was actually assassinated at 87; but you can still see the effect of the anchoring bias on the initial number.
Anchoring bias definition
These might seem silly little experiments that psychologists do to try and suggest that people are idiots, but actually it’s showing us something fundamental about the way we think.
It’s so basic to how we experience the world that we often don’t notice it.
We have a tendency to use anchors or reference points to make decisions and evaluations, and sometimes these lead us astray.
Anchoring the emotions
This sort of things is going on in loads of different areas of our lives.
Take the emotions for starters.
Psychologists have found it can be difficult to predict our future emotions and one reason is that the anchoring bias affects how we feel right now.
That’s why people who have just had lunch feel they’ll never be hungry again; compared with those who haven’t, who don’t display the same short-sightedness (I have described the relevant study in the context of the projection bias).
Real estate agents, car sellers or negotiators will be nodding their heads.
That’s because the anchoring bias is vital in all these lines of work, and many more.
The initial price you set for the car, house or, more abstractly, for a deal of some kind, tends to have ramifications right through the process of coming to an agreement.
Whether we it or not, our minds keep referring back to that initial number.
That doesn’t mean you just set the highest possible price you can get away with (although in reality that’s often what is done).
In real life things are more complicated than the Gandhi experiment.
People usually have a choice about which house or car to buy or which deal to take and they can always walk away.
Still, there’s a good reason sticker prices on car forecourts are mostly so high.
Anchoring bias in salary negotiations
You can see the effect of the anchoring bias in salary negotiations.
There’s some evidence that when the initial anchor figure is set high, the final negotiated amount will usually be higher (Thorsteinson, 2011).
Incidentally, the anchoring bias is another reason that you should open negotiations rather than waiting for the employer to tell you the range: because then you can set the anchor higher (more on this in: Ten Powerful Steps to Negotiating a Higher Salary).
Anchoring bias explanation
Since the anchoring bias occurs in so many situations, no one theory has satisfactorily explained it.
There is, though, a modern favourite for explaining the anchoring bias in decision-making.
It is thought to stem from our tendency to look for confirmation of things we are unsure of.
So, if I’m told the price of a particular diamond ring is £5,000, I’ll tend to search around looking for evidence that confirms this.
In this case it’s easy: plenty of diamond rings cost about that, no matter the value of this particular ring.
For all I know about diamond rings it could be worth £500 or £50,000.
The problem is that this explanation is less satisfying when the anchor is so manifestly unhelpful, when you tell people that Gandhi was older than nine when he died.
Perhaps, then, it’s all down to our fundamental laziness.
When given the Gandhi example we can’t be bothered to make the massive adjustment from the anchor we’re given up to the real value, so we go some way and then stop.
How to avoid the anchoring bias
Whatever the reason for it, the anchoring bias is everywhere and can be difficult to avoid.
That’s especially true when we are deciding what to pay for stuff since we are overly influenced by the price that’s been set.
One way of avoiding the anchoring bias — whether it’s emotional or in decision-making — is by trying to from the anchor state.
This can be done by thinking about other comparisons.
That’s what we’re doing when we comparison shop: getting some new price anchors.
In the realm of the emotions it might mean trying to compare with other emotional states, not just how you feel right now (creating a ‘memory palace‘ for reference emotions may help with this).
When negotiating avoiding the anchoring bias might mean thinking about what the other options are (negotiation theorists call this the ‘BATNA’: the Best Alternative To a Negotiated Agreement).
Alternatively, for nullifying the anchoring bias in decision-making, find out more about the area: experts are less susceptible to it.
There’s little doubt it’s hard, though: some studies suggest that even when you know about it and are forewarned, the anchoring bias can still affect our judgements.
It just shows the power that first piece of information can have on how we make decisions.