How Anchoring Bias Affects Decision-Making

When someone makes a decision, they tend to rely heavily on the first piece of info they receive about the issue at hand. In psychology, this type of cognitive bias is known as the anchoring bias or anchoring effect, which often sways decisions and occurs regardless of gender and other external factors.

Anchoring Bias Can Influence How Much You're Willing to Pay

Imagine you're buying a new car. You read online that its average price is $27,000. At the local car lot, the dealer offers you the same vehicle for $26,500, which you quickly accept, After all, you might reason, it's $500 less than what you were expecting to pay—but the dealer across town is offering the same vehicle for just $24,000, a full $2,500 less than what you paid and $3,000 less than the average price you found online.

If you buy the more expensive car, you might berate yourself for making such a quick decision without shopping around. So why might you jump so quickly on that first offer? Because your initial research indicated that $27,000 was the average price—your anchor point. Despite further information, such as the possibility that other dealers might have lower prices, you based your decision on that anchor. Any price lower than that probably would have been appealing.

Anchoring Bias Can Influence How Much You Make

Imagine that you're negotiating a pay raise with your boss. You might hesitate to make an initial offer, but anchoring-bias research suggests that the first person to lay their cards on the table might have the advantage. So you name a number, which then becomes the anchor—the starting point for all further negotiations. This puts negotiations in your favor because your first offer established a range of acceptable counteroffers. Any future offers will use that initial number as an anchor or focal point.

Anchoring Bias Affects Much More Than Your Finances

The anchoring effect has an impact on many areas beyond financial and purchasing decisions. Take these examples:

• How old should your kids be before you allow them to date? Your kid argues that their peers are dating at 14, but you were raised to believe that 16 is the minimum dating age. Thus, 16 is your anchor, and any other age will be relative to that.
• How long do you expect to live? If your parents were both very long-lived, you might automatically expect to live a long life. Because of this anchoring point, you might ignore the fact that your parents lived a healthier, more active lifestyle than yours.
• How much television should your children watch each day? If you watched lots of TV as a kid, a few hours might seem acceptable.
• What is causing a patient's chronic pain? The anchoring effect can influence a physician's ability to diagnose an illness because their first impression of symptoms can become an anchor point that affects all subsequent assessments.

Awareness Is Key

The next time you're making an important decision, consider the possible impact of the anchoring bias on your choices. Are you giving enough weight to all of the available information and possible options, or are you basing your decision on an existing anchor point?