Anchoring: Why Do We Think What We Think?

Introduction

Imagine you went to the store to buy a new pair of shoes. You find some Nikes you absolutely love but notice a hefty price tag. Although you think they are great shoes that would make you look very cool, you decide $175 is too much to pay for a pair of shoes. When the salesperson sees you holding the shoe, she makes her way over and informs you that the shoes are actually on sale for $75. You decide to buy the shoes since $100 off the original price seems like a great deal. 

Reason

The reason why you decided to get the shoes after you learned of the sale price is because you are basing all future arguments, negotiations, and estimates on the original anchor price, or $175. You are now interpreting all information regarding the value of the shoes based on the initial value you learned of. This means that now anything over $175 will be too high, while anything below this price will be low. Even if the shoes are still overpriced at the sale price at this store, the cost may seem reasonable or even cheap to you compared to the original price. 

Definition/Anchoring

Anchoring occurs when a person bases their decisions and opinions solely upon the first few pieces of information (known as “anchors”) that they encounter.

How It Works

The first theories concerning the anchoring effect originated from psychologists Amos Tversky and Daniel Kahneman. In one of the studies they conducted, Tversky and Kahneman split a pool of volunteers into two groups; in Group 1, the researchers asked participants to state the product of the math expression “1 x 2 x 3 x 4 x 5 x 6 x 7 x 8,” and in Group 2, they asked participants to compute the product of the same expression, but presented the numbers in reverse order as “8 x 7 x 6 x 5 x 4 x 3 x 2 x 1.” However, there was a catch - the participants were only given 5 seconds to come up with their answers. Given the time constraint, the participants could only form rough estimates rather than an exact answer. Tversky and Kahneman found that the members of Group 1, who were asked to multiply the numbers 1 through 8 in ascending order, gave much smaller estimates than members of Group 2, who were asked to multiply the same numbers in descending order. As such, Tversky and Kahneman hypothesized that the size of the first few numbers that a person hears in an expression will heavily influence their assumptions about the size of the product. 

In a follow-up study, Tversky and Kahneman told each participant to spin a wheel that was divided into many wedges. Each of the wedges had either the number 10 or 65 written on it. Then, the researchers asked each participant to estimate how many African nations are members of the United Nations. Overall, participants were more likely to guess lower values if the wheel landed on 10 and higher values if the wheel landed on 65. Once again, the observed pattern suggested that the first piece of information that a person sees has a huge influence on the person’s later thought processes. 

Applying It

In school, you will all come into contact with individuals who think and do things differently than you. Sometimes you will agree with them, and other times you will disagree. During times of disagreement, it is essential that you stop and analyze the reason why you are upset or confused by the other person’s point of view. Are your negative thoughts and feelings coming from a subconscious belief that there is only one right way of doing things? Try thinking of an alternative way of doing things and achieving the same result. We often think there is only one way of doing things because for a long time, we have relied on one piece of information and refused to change our way of thinking even when new information is presented. Don’t be a victim of the anchoring effect!

Think Further

  1. Are there any instances where the anchoring effect caused you to make suboptimal decisions?
  2. Do you think that there are instances in which the anchoring effect can prove to be beneficial? Explain.
  3. What can you do to prevent yourself from thinking there is only one “right way”of doing something?

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Learn More

  1. Edward Teach, “Avoiding Decision Traps“, CFO (1 June 2004). 
  2. Strack, Fritz; Mussweiler, Thomas (1997). “Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility”. Journal of Personality and Social Psychology. 73 (3): 437–446. doi:10.1037/0022-3514.73.3.437
  3. Wilson, Timothy D.; Houston, Christopher E.; Etling, Kathryn M.; Brekke, Nancy (1996). “A new look at anchoring effects: Basic anchoring and its antecedents”. Journal of Experimental Psychology: General. 125 (4): 387–402. doi:10.1037/0096-3445.125.4.387