ANCHORING AND ITS AFFECT ON CHOICE

We’re back with another heuristic fallacy that allows us to make quick decisions, but which increases the likelihood of choosing based on the first impressions, rather than the actual truth.

Anchoring - The tendency to rely too heavily on the first piece of information encountered (the "anchor") when making decisions or estimates.

When an anchor is presented, or assumed, the initial information serves as a reference point that influences our judgement, even when it's not directly related or relevant. An anchor has a gravity that attracts bias to it, while pushing away alternative explanations.

We apply anchoring without thinking in everyday life. Signs that state a required height, weight or speed limit create anchors that directly influence our behavior. Anchors can tell us what is socially acceptable i.e., 77% of our customers choose the 2-year subscription rather than the more expensive, 1 year offer.

Anchoring is used by individuals and companies to manipulate our choices, whether they are items on a menu, important social issues, or hard science. Often the data is factual, but the anchoring point can be completely subjective, intended to manipulate higher sales or a specific opinion. ??

Menu pricing is notorious for using anchoring to influence a patron. Let’s say we’re out at Posh’s Steakhouse. The menu for the evening’s entrees lists the bone-in, Cowboy Cut Ribeye at $75. The Berkshire pork chops are $55, and the Cedar Planked Atlantic Salmon is $48. These prices are anchors, and they define the range for an entrée. As we scroll down the menu the NY Strip looks like a bargain, at $48.

Anchoring not only influences our choice of the “deal” for our entrée, but also sets the expectations for the sides, drinks, and desserts. If the entrée is $48, then paying $15 for the scalloped potatoes, $16 for a glass of pinot noir, and $10 for the flourless chocolate cake seem relatively acceptable. $89 turns into $97.90 after taxes. If we tip 20% on the bill, we’ll have spent $117.48 for dinner.

Advertising has been using Anchoring for 100 years, i.e., “80% of Dentists recommend Colgate”. DeBeers Diamonds Ads arbitrarily decree that the cost of an engagement ring should be at least “2 months’ salary.”

Political parties frequently uses anchoring. The 2023 debt ceiling negotiations began with Biden and House Republicans taking opposite stances — Biden refused to negotiate at all, and Republicans called for repealing several of Biden’s key accomplishments. Each side “anchored” their starting point well within what they may have been comfortable with. In the end, both sides claimed they had “won” the negotiations by denying the other their initial ask.

Avoiding the seduction of an anchor, requires that we pay close attention to the initial numbers or statistics. Anchoring commonly starts with a specific figure prominently mentioned early in the message. Here are some methods to avoid irrational anchoring:

Note data consistency: Does later data support the initial claim?

Check for “spin”: Look for modifiers like "unexpected downturn”, "surprisingly high" or "in line with forecasts."

Know the source of the anchor: It could be older data, a single expert’s forecast, or a median.

Decide if it applies: Is the anchor actually relevant to the current situation.

Seek other positions to be considered: Change the anchor and see how it impacts the story.

Find context: Is there a historical perspective that helps you understand the Anchor’s impact?

Research expert opinions: Other experts may have already discounted the validity of the Anchor.

Be wary of round numbers and generalized percentages: figures like, “17%, or $111 million” are often used as anchors, and may be misleading.

Remember that 83% of those exposed to manipulation by anchoring are influenced by it without knowing that it has happened. (That may not be true. I made it up.)