Anchoring

Introduction

Anchoring is a cognitive bias that describes the human tendency to rely too heavily on the first piece of information encountered (the "anchor") when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth.

Psychological Basis

The anchoring effect is a result of cognitive biases in human decision making processes. It is a heuristic, or rule of thumb, that influences the way people intuitively assess probabilities. According to the anchoring heuristic, people start with an implicitly suggested reference point (the "anchor") and make adjustments to it to reach their estimate. A person begins with a first approximation (an anchor) and then makes incremental adjustments based on additional information. These adjustments are usually insufficient, giving the initial anchor a great deal of influence over future assessments.

Experimental Evidence

Anchoring was first studied extensively by Tversky and Kahneman. In one of their original anchoring experiments, they asked people to estimate various quantities, stated in percentages (for example, "What is the percentage of African countries in the United Nations?"). For each question, a number between 0 and 100 was spun on a wheel of fortune in the presence of the participants. Participants were then asked whether the quantity in question was larger or smaller than the value on the wheel, and subsequently to estimate the quantity.

Criticisms and Limitations

Despite the robustness of the anchoring effect, it has been criticized on several fronts. Some researchers argue that the anchoring effect is simply a product of experimenter-induced demand characteristics, and not a real cognitive bias. Others argue that the anchoring effect is not a single, unified phenomenon, but rather a collection of several different effects. Despite these criticisms, the anchoring effect remains a widely accepted and well-documented cognitive bias.

Applications

Anchoring has a number of practical applications, particularly in the fields of negotiation and marketing. In negotiation, the party who makes the first offer often has an advantage because they can set the anchor point around which the negotiation revolves. In marketing, anchoring is used to make products seem more attractive. For example, a high initial price (the anchor) can make subsequent prices seem more reasonable, leading consumers to perceive a greater value.