What is the Anchoring bias?
Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the « anchor ») when making decisions. During decision making process, people are influenced by information presented early in the decision process which makes them anchor to this initial value.
How does it work?
The anchoring effect can be demonstrated in many different ways, but two simple examples include starting an item pricier and then bargaining down or starting at a lower price and negotiating up. As you can see attempts made by sellers to make buyers believe they will get more value out of something than what they originally intended decreases at higher prices. So if I told you $100 was the original price for an apartment, then you would probably want to pay even less. While if I told you $1,000 was the original price of the apartment, then it’s easier for me to negotiate down to a lower amount (e.g., $900).
Why this bias is dangerous?
This bias can be dangerous because some financial and business decisions are made quickly with little information or consideration of alternatives. To use an example of an insurance company that has only two car models on their lot but is hesitating between those two types for their next stock purchase. If they use anchoring, they first ask themselves what is the more popular model among customers and buy lots of this type so they will not run out of this particular model. Even though both cars might provide the same safety features, the « more popular » option has a higher probability of getting sold.
Why do people use this bias?
People are using anchoring because it is the human nature that first impression is very important. Thus, sellers are more likely to receive better prices for their product if they initially list it at a high price. Another reason behind this could be that people assume that others who are more experienced will pay higher amounts first, so they first estimate how much an expert would be willing to pay and then decide on their own amount.
How do people use this bias?
Anchoring can occur in many different circumstances, but four common examples include negotiating price, estimating numerical values, making decisions about fairness or morality, and setting goals.
How can we create this bias?
We create this bias by simply showing the initial value to the customers before they know anything about that product or service. For example, I could begin bargaining with a price of $5 for my car instead of $10,000 because it is already written on it. This makes it easier for me to reduce prices from that starting point. Another way would be mentioning an extremely high number as some kind of a starting figure first, which will make others believe they can still bargain down from it. In fact, some studies show that merely touching items’ higher price tag first can increase sales figures because buyers anchor onto these numbers without even noticing it.
How to avoid this bias?
Anchoring can be reduced by taking your time while making decisions instead of thinking about it quickly, trying to consider different options and also do not accept the first number offered. You can also make conscious effort to avoid being influenced by this bias in negotiations or even just daily conversations with other people. Instead of that, try considering different alternatives because if you are able to clearly understand all pros and cons, then you might be more likely to see the actual value behind things. Also, reading some books on negotiation could prove very helpful here. Another example would be asking further questions instead of accepting an initial offer straightaway without having a clear picture of what they are actually offering you. This will help you more information before making any decision so you can later make a better judgment.
Anchoring bias examples?
In an experiment conducted by Amos Tversky and Daniel Kahneman, participants were asked to write the last two digits of their social security number and then indicate whether this number would be higher or lower than a certain value. In one experimental condition, they gave numbers from 0 to 100 as example values. In another experimental condition, they gave numbers from 65 to 99 as example values. In both conditions, participants given higher numbers tended to pick lower ones even though the actual numerical difference was irrelevant in determining the result of the experiment. Furthermore, those who had written a larger pair of digits tended to have a stronger anchoring effect on their judgement even though these two factors were independent of each other.
Which profession use the Anchoring bias?
Persuaders, salespeople, lawyers, negotiators and marketing agents are some professions that try to use this cognitive bias most often because they like to create an initial impression by mentioning a high number first. Then they can later negotiate prices from there which creates a stronger anchoring effect on the people who first heard those numbers first. It is actually very common in everyday life as well since it happens almost every time we have to decide how much should be an amount for something or whether we agreed with something or not.
Anchoring bias conclusion.
In general, anchoring is a very strong technique to influence other people’s decision-making process as long as it happens subconsciously. This is why it is important for people to be able to recognize this bias and make an effort to overcome it, or at least remember that it can be used against them when they are in a certain situation. However, there are also some advantages associated with the use of the Anchoring Bias because people who learn how to properly use this technique can get better deals on things and feel more satisfied with what they have while having less fear of losing out on opportunities. And especially if we consider that we do not know everything about negotiating or bargaining, then using this cognitive bias could help us become better at such tasks even though we might misuse it sometimes by choosing wrong price tags first instead of finding out actual value behind things.
Secrets de Marketeurs 