What is Anchoring Bias?
Anchoring bias is our tendency to rely too heavily on the first piece of information we encounter (the "anchor") when making decisions. Once an anchor is set, we make adjustments from that starting point, but these adjustments are usually insufficient, keeping us too close to the original number.
This bias is remarkably powerful because:
- It works with any number: Even completely random numbers can serve as anchors
- It persists despite awareness: Knowing about anchoring doesn't eliminate its effect
- It affects experts too: Even professionals fall victim to anchoring in their areas of expertise
- It influences complex decisions: Not just numerical estimates, but judgments about quality, value, and probability
Real-World Example
The Car Negotiation
Jessica is shopping for a used car. The first car she looks at is priced at $25,000. The salesperson mentions this price early in their conversation. Even though Jessica thinks the car is overpriced and has some mechanical issues, this $25,000 figure becomes her anchor.
When she looks at other similar cars priced at $18,000 and $20,000, they feel like great deals in comparison to that first $25,000 car. She ends up paying $19,500 for a car that, had she researched market prices first, she would have known was only worth about $16,000. The initial high price anchored her expectations and made moderately high prices seem reasonable.
The Famous Anchoring Experiment
Psychologists demonstrated anchoring's power with a simple experiment:
🎰 The Setup
Participants spun a wheel with numbers 1-100, then estimated the percentage of African nations in the UN
📊 The Results
Those who spun high numbers (like 65) gave much higher estimates than those who spun low numbers (like 10)
🤯 The Surprise
The random wheel spin had nothing to do with UN membership, yet it significantly influenced answers
Anchoring in Action
🏠 Real Estate Pricing
Listing prices serve as anchors for both buyers and sellers. Even overpriced listings influence final sale prices, with buyers adjusting insufficiently from the high anchor.
💼 Salary Negotiations
The first salary figure mentioned in a negotiation anchors the entire discussion. Starting with a higher number typically leads to a higher final agreement.
🛒 Retail Pricing
"Was $100, now $70" makes $70 seem like a bargain, even if the item was never actually sold at $100. The high anchor makes the current price feel like a good deal.
⚖️ Legal Judgments
Damage awards in court cases are influenced by the amounts initially requested by plaintiffs, even when those amounts are clearly excessive.
How Anchoring Affects Your Decisions
Anchoring bias can lead to poor decisions across many areas of life:
💰 Financial Choices
Investment decisions anchored to purchase prices ("I can't sell for less than I paid") or recent high values can prevent sound financial decisions.
🎯 Goal Setting
Performance targets anchored to past results may be too conservative or ambitious, preventing optimal goal setting.
🤝 Business Negotiations
Failing to make the first offer allows the other party to set the anchor, potentially costing thousands in deals.
⏰ Time Estimates
Project timelines anchored to initial rough estimates often remain unrealistic even as new information emerges.
How to Counter Anchoring Bias
Research Before You Engage
Before negotiations or major purchases, research fair market values independently. Set your own anchor based on solid information.
Make the First Offer
In negotiations, consider making the first reasonable offer to set the anchor in your favor. This is especially powerful when you've done your research.
Consider the Opposite Extreme
When you encounter an initial number, deliberately consider what the opposite extreme might be. This helps counteract the pull of the original anchor.
Use Multiple Reference Points
Instead of adjusting from a single anchor, gather several reference points and consider them all when making your decision.
Take Time to Recalibrate
Don't make important decisions immediately after encountering an anchor. Give yourself time to research and think independently.
Question the Anchor's Relevance
Ask yourself whether the initial number is actually relevant to your decision. Sometimes anchors are completely arbitrary.
Test Your Understanding
Quick Check: Recognize Anchoring in Action
Read this scenario and identify how anchoring bias might be affecting the decision:
Rachel is interviewing for a new job. The recruiter mentions early in the first interview that the position "typically pays in the $60,000-$80,000 range." Rachel was hoping for around $75,000, so this seems perfect. She accepts an offer of $65,000, feeling pleased with the negotiation. Later, she discovers that people with her experience in similar roles at other companies typically earn $85,000-$95,000.