What is anchoring bias? (Definition, examples and effects)

By Indeed Editorial Team

Published 8 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Cognitive biases play a role in people's decision-making processes. Anchoring is one of the cognitive biases that affect a person's choices, opinions and assumptions. Knowing examples of anchoring can help you identify factors that affect your decision-making. In this article, we explore what anchoring bias is, examine some examples of anchoring and share tips on how to overcome its effects.

What is anchoring bias?

Anchoring bias, also called the anchoring effect, is people's tendency to use the first piece of information that they receive on a subject as an anchor. It's a cognitive bias that makes us depend heavily on early information in a decision-making process. The anchor is the reference point for any future decisions, expectations or judgments. The first piece of information has the most value due to the anchoring effect. People often focus on this initial information instead of learning more about the subject.

It's normal to use existing information to form an opinion or make an important decision. With anchors, people can make reasonable estimates. Though this can sometimes produce positive results, it often has the opposite effect.

Why does anchoring bias happen?

Several theories suggest why anchoring effects happen, including:

The anchor-and-adjust hypothesis

This hypothesis infers that people develop anchors and make decisions due to uncertainty. The anchor-and-adjust hypothesis states that humans make estimates based on an initial value or starting point and then adjust it. The change typically turns out to be insufficient.

The selective accessibility hypothesis

This theory states that the anchoring effect happens because humans recall and notice anchor-consistent information. When humans gain exposure to a particular subject, their brains undergo priming. Priming activates certain areas of the brain regarding that subject. This makes the subject is easily accessible and more able to influence someone's behaviour without them realising.

Moods

Mood is a determining factor in the anchoring effect. Anchoring is more typical in sad people than in happier people. It's common knowledge that sad people are slow decision-makers. If sadness makes people process information thoroughly, they activate more anchor-consistent information, reinforcing the anchoring effect.

Related: How to maintain a positive attitude in 11 simple steps

Effects of anchoring bias

Cognitive bias has several effects, including:

Poor decision-making

Depending on a single piece of information that misrepresents a situation leads to poor decision-making. If someone relies on the first piece of information they learn about a subject, it affects how they perceive things and results in an inaccurate interpretation of information. People may be hesitant to learn more about a situation from a different perspective and this can cause them to make uninformed decisions.

Related: Decision-making skills: definition and examples

Skewed expectations

Anchoring also distorts expectations. This happens when we attach meanings to specific values. For example, when estimating the value of the following two multiplications, you may say that the answer to 15 x 11 x 8 x 4 is higher than that of 4 x 8 x 11 x 15, even though both equal the same. This is because the starting value in the series acts as an anchor, which skews your expectations. If the first figure is higher, you expect the value from the multiplication to be higher too.

Dismissal of new information

Another effect of anchoring is that people are likely to accept information that supports an anchor. When they encounter information that contradicts the anchor, they may not give it much credibility. This affects their ability to be objective. For example, if you underestimate the time needed to complete a project, you may still feel reluctant to adjust your expectations once you realise they're illogical.

Examples of the anchoring effect

Here are some examples to help you better understand anchoring:

Negotiations

Anchoring plays a primary role in negotiations. Usually, when you want to purchase a product, you wait for the other party to tender an offer. Research shows that in uncertain situations, offers can attract reasonable negotiations. Cases of higher offers usually have higher sales prices than lower first offers.

For example, a person wants to buy a TV set and budgets £700, but at the shop, the salesperson offers to sell a new TV set for £1,050 instead. The salesperson, consciously or unconsciously, sets this amount as an anchor and prices down. If the customer leaves with that TV set for an agreed price of £999, they believe they have got a good deal as they got it for a significantly lower price than the first offer. Here, the anchoring effect played a significant role in the price of the TV set.

Related: How to negotiate successfully (plus tips and its importance)

Hiring

Anchoring also happens during the hiring process when businesses hire new professionals. When checking the candidates' CVs, the first CV may affect how the hiring manager views the others. For example, if the first candidate has a specific certification or a master's degree, the hiring manager may use that to compare against the other candidates, even if it's not a prerequisite for the job.

Marketing

Anchoring is another tool for increasing sales. Businesses employ specific techniques to take advantage of anchoring in customers. A frequent technique is an artificial increase in the price of a product by introducing discounts. So when customers see a high anchor price, they see discount products as a good deal. Restaurants, travel agencies and other businesses use this marketing technique to increase sales.

How to overcome the anchoring effect

You can reduce the effect of anchoring and how it affects your choices by following these steps:

1. Be aware

The first step to avoiding the effects of anchoring is knowing that it happens all the time. Being aware of this may help you put in more effort before deciding on specific choices. Beyond being aware of this cognitive bias and its effect on your daily life, take the necessary steps to combat it. For example, if you want to make a purchase, state your offer before the other party does.

2. Do thorough research

If you purchase a product or service or make a choice, resist impulsive decision-making that favours the anchoring effect. Instead, perform intensive research on that subject or topic, improve your deduction skills and consult with professionals. This can counteract cognitive biases such as the anchoring effect.

For example, if a travel agency is offering a discounted vacation trip to Paris at £800, research how much a flight ticket and accommodation cost. You may also look for other agencies offering similar discounts to evaluate price differences. This can help you make a better and more informed decision.

3. Seek the opinion of another person

If you feel you made your decision via the anchoring effect, try asking for another person's opinion. Keep your estimate to yourself to avoid an anchoring effect on the other person. Instead, listen to their reasoning and evaluate it to make your final decision.

4. Use tools

Use tools like checklists during your decision-making process to eliminate anchoring effects. For example, if you're working in the medical field, a symptoms checklist or assessment can help to decrease cognitive bias. In the workplace, computer-based games help identify the different cognitive biases to reduce the effect of bias on employees.

Frequently asked questions on the anchoring effect

Here are some frequently asked questions about anchor bias:

What is an example of anchor bias?

A typical example of anchor bias is when you want to make a purchase. You walk into a second-hand car showroom and see a car for £13,000. If the next car you see is £10,000, you may view it as cheap and buy it regardless of its actual value.

Who discovered anchoring?

The first mention of anchoring bias was in a study by Muzafer Sherif, Carl Hovland and Daniel Taub in 1958. Their investigation used the term 'anchor' to describe the effect of one extreme weight on other objects. The term was first coined by two researchers, Amos Tversky and Daniel Kahneman, in their 1974 paper 'Judgment under Uncertainty: Heuristics and Biases' in behavioural economics.

How does anchoring affect decision-making?

Biases affect decision-making as they help humans make reasonable estimates with limited information. They may also result in significant mistakes. When people rely too much on a single piece of information, it affects their ability to think and make logical decisions.

Please note that none of the companies mentioned in this article are affiliated with Indeed.

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