"We're generally overconfident in our opinions and our impressions and judgments." ~ Daniel Kahneman
The anchoring effect is one of the most solid tested phenomena in the world of experimental psychology. Daniel Kahneman and Amos Tversky carried out a good number of experiments, which conclusions you can find in the book Thinking, Fast and Slow.
It is a cognitive bias which takes place when we consider a particular value of an unknown quantity before estimating such quantity. The value we have considered or that have been shown to us before, strongly determines the estimate we are going to make, which will always be relatively close to that previous value, which is called the anchor.
Once the anchor has been established, we evaluate whether it’s high or low and then we adjust our estimate to that amount. This mental process finishes early, because we are not sure of the real amount. Therefore, our estimation is not usually far from the anchor.
We have a huge tendency to use the small pieces of information that we are offered to trigger decisions and estimates.
For example, if someone asks you if Gandhi was over one hundred and four years old when he died and then asks you how old you think Gandhi was when he died, you will make a much higher estimate than if you had been asked first if Gandhi was over forty-four years old when he died.
In the same way, when you make an estimate of the price of something, you are influenced by the initial price they ask for. Even if you think you’re one of those who do not let themselves be influenced, a house will seem more valuable to you if it has established a high price than if it has a low price. I’m pretty sure that you’re tired of seeing images like this in the online world:
The effects of anchoring are used in a usual and quite effective way in marketing. The seller always makes the first move by fixing the price of a product or service, and gains advantage in the negotiation, since your estimate of the product value will be unconsciously anchored on that price. From there, a discount or a much better offer if you buy now, will be hard to resist even if the product remains expensive.
This effect is so strong that it reaches absurd limits. In fact, your judgment will be seriously influenced by any number, even if it is not informative and has no relation to the amount you are estimating. In a disturbing experiment, a fair number of judges were asked to establish a prison sentence for a woman who had made a robbery. Before answering loaded dice were thrown on the table so that the result was always going to be a 3 or a 9. The judges which got a 9 proposed a sentence of 8 months of prison, on average. The average sentence of the judges who got a 3 was of 5 months of prison.
How to avoid this bias? It is frankly difficult, if not impossible. In the case of a negotiation, you must focus on the minimum amount that the opponent would accept, or on what it would mean for the opponent not to reach an agreement. In all other situations, you will be aware of the anchor and you will think that it does not affect you, but you will be deceiving yourself.
One comment
The anchor effect is real and is constantly influencing my estimates. But so is past experience. When I have to estimate the time for a project, I calculate it by first comparing the project's overall size to previous projects that are comparable. I then change my estimate based on the high/low range values I know I have for the project (cost, time, etc.).
As you can see, an anchor can be very useful, but before it can be so, you must first make an educated estimate based on KNOWN FACTS instead of random values.
The anchor effect is real and is constantly influencing my estimates. But so is past experience. When I have to estimate the time for a project, I calculate it by first comparing the project's overall size to previous projects that are comparable. I then change my estimate based on the high/low range values I know I have for the project (cost, time, etc.).
As you can see, an anchor can be very useful, but before it can be so, you must first make an educated estimate based on KNOWN FACTS instead of random values.