Don't Be Anchored Down! Break Free from the Anchoring Effect
The anchoring effect: a hidden psychological trick that might be influencing your choices. Learn how to recognise and overcome it.
Does that first salary figure mentioned in a job interview secretly hold way too much power? Can the initial ballpark estimate for a project determine its entire financial fate? It's unsettling, but the answer might be yes.
I've been fascinated lately by the concept of cognitive biases – those subtle ways our minds can trick us into making less-than-ideal decisions. Today, I want to continue a series of posts about so-called mind traps and to share my discoveries about one particularly sneaky bias: the Anchoring Effect. Let's explore how it messes with our perceptions in the business world and even in our own lives!
Understanding the Anchor Effect
The anchoring effect is a powerful cognitive bias where the first piece of information we receive about a topic disproportionately influences our subsequent judgments. Even if that initial information is irrelevant or inaccurate, it leaves a subconscious “anchor” that colours our thinking. In business world, this can skew everything from salary negotiations to project budgets.
The most unpleasant aspect is that the experts themselves may not recognise the influence. However, once the anchor is mentioned, even with the instruction "don't pay attention to it" – it gets "recorded" in memory and starts to influence our decisions.
Consider this situations:
During a salary negotiation, the first number mentioned establishes a baseline, even if it's unreasonable. This unfairly tilts the negotiation in favour of the person who made that initial offer. Surprisingly, this simple tactic can significantly affect the entire negotiation process.
Imagine trying to assess the time required for a complex development task. If you've recently heard about a similar project taking 2 months, or if someone just randomly mentioned it, that timeframe becomes your anchor, potentially distorting your own estimate.
In my opinion, the anchoring effect is one of the most dangerous distortions that requires very close attention. In this distortion, people heavily rely on initial information, even though it may be incorrect.
The Hidden Dangers of Anchoring
Misconception: You thoroughly and rationally
consider all factors before making a decision or assessing value.
I like to consider this simple experiment, which illustrates the concept of anchoring perfectly: If you ask two groups of people, "Is the height of a sequoia more or less than 330 meters, and what do you think its height is?" and "Is the height of a sequoia more or less than 45 meters, and what do you think its height is?" people will give different estimates, even though the numbers 330 and 45 are chosen randomly. Those given the anchor of 330 will, on average, answer around 227 meters, while those given the anchor of 45 will answer around 78 meters.
Reality: Your first impression persists,
shaping your subsequent perceptions and decisions.
The danger is how easily it can go unnoticed and compromise the objectivity. We may confidently believe our decisions are based on careful analysis, but the influence of an early, irrelevant anchor can be surprisingly persistent and difficult to neutralise. This hidden influence can lead to a range of suboptimal outcomes:
Overpaying for goods and services;
Agreeing to unfair terms;
Miscalculating risks and potential rewards;
and many more..;
Strategies to Mitigate the Anchoring Effect
How can you combat this effect or use it to your advantage?
First, it's important simply to be aware of its existence. And remember: if experts are involved in project evaluation, initially you should not share any existing numerical information that could skew the evaluation. Especially at the beginning, it is crucial to obtain the most objective and independent project evaluation, and tying it to specific numbers can be misleading.
Seek multiple perspectives – gathering evaluations from several independent experts actively combats the anchoring effect. It's important that these experts work independently, without sharing information with each other. Although it might seem helpful to seek agreement or share opinions early on, this could unintentionally focus everyone on one viewpoint. Having a variety of unbiased opinions instead offers a stronger basis for making decisions
If you're lucky enough to spot that people have already been exposed to a potential anchor, it's crucial to encourage critical thinking. Asking them to explicitly challenge their own assumptions and the validity of any initial data points can help mitigate the bias.
Finally, you can skilfully use this effect when communicating with others, but be aware that other people can also influence you using the very same effect:
If you are selling, you can often operate with some large numbers in discussions about costs: “CD Projekt spent $85M developing and promoting Cyberpunk 2077”;
And if you are buying, operate with smaller numbers: “I heard that the Apple logo cost only $10”;
I would note that it's primarily worth seeking out cognitive biases in oneself, rather than focusing on those of colleagues or friends. While it's easier to discuss these biases than to avoid them in practice, learning to recognise and mitigate them pays off in the long run. This awareness saves time and money, benefiting both ourselves and those we work with.
Now, if you'll excuse me, I need to go lie down and contemplate the meaninglessness of all my prior decisions influenced by this bias.. Thanks for reading, see you next time!