What Is Anchoring Bias? | Examples & Definition
Anchoring bias is a type of cognitive bias that affects the way we perceive information and consequently the decisions we make. It describes our tendency to rely too much on the first piece of information we receive on a topic, irrespective of how reliable that information might be. As a consequence, anchoring bias can lead to poor decision-making.
Next, the dealer shows you some other, much cheaper cars that are within your budget. Compared with the earlier, expensive models, these seem like good value. This impression is misleading, as in reality, they are all overpriced. But because the first cars have fixed a price in your mind, they seem like a good buy.
What is anchoring bias?
Anchoring bias is a type of mental shortcut. Our brains use mental shortcuts, or heuristics, to help us limit the data on which we make decisions. Most of the time, they are essential to prevent our being overwhelmed by the data we receive. However, sometimes they become a problem and distort the decision-making process in a negative way.
The term anchor is used to describe the first piece of data we encounter in an interaction. Because it is first, it becomes lodged in our minds and forms an anchor in our perception of the situation. This then skews our perception of all the subsequent data we receive.
Similarly, if you know the going rate for salaries in your field, you will have a clear idea of whether you are being offered a good deal or not.
What causes anchoring bias?
There is no single widely accepted explanation for why anchoring bias happens. There are two aspects that help to explain the phenomenon:
- Confirmatory hypothesis testing helps to explain how external anchors can affect our decisions and judgment.
- Anchoring and adjustment is best understood in circumstances where an internal anchor influences you.
Confirmatory hypothesis testing
If an external anchor is presented to us, it is likely that this will be considered as a possible answer while we evaluate it alongside information we already know that is consistent with the anchor.
- An initial high-value external anchor will tend to lead to our forming an assessment with a high value.
- Conversely, a low-value external anchor will have the opposite effect, leading to a low-value estimate.
More remarkably, when presented with implausible anchors, the effect is possibly even more pronounced. An initial high-value anchor of 140 years resulted in an average estimate of 67 years, while a low-value anchor of 9 years old produced an average estimate of 50 years old.
Clearly, although the anchors were extremely implausible, they appear to have anchored the respondents’ answers and produced a significant variation in responses.
Anchoring and adjustment
Anchoring and adjustment refers to when we take knowledge we already have to make an estimate. Our existing knowledge is the internal anchor, and it provides the basis on which we adjust or our answer.
- If we don’t know the answer to a general knowledge question, we make an educated guess based on what we do know.
- Our initial guess becomes an internal anchor and the basis for subsequent adjustments.
- The internal anchor can mean that adjustments are limited and biased because they are restrained by the anchor.
We are likely to estimate something in single digits as the answer, based on what we know. The correct answer, of somewhere in the region of 40 to 50 cans, is unlikely to be part of our calculation.
Some other types of cognitive bias
There are two other types of heuristic that can affect our decision-making:
- The representativeness heuristic describes when we calculate something’s probability based on how much it resembles (or is representative of) a known situation.
- The availability heuristic is the result of our tendency to give easier-to-recall information more weight when making decisions.
As with all heuristics, they make decision-making easier and faster but can lead to unconscious biases.
Frequently asked questions about anchoring bias
- Is there a difference between anchoring bias and availability bias?
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The difference between anchoring bias and availability bias is that the former is a response to external or internal anchors that work as a starting point for estimates we form, whereas the latter favors the most recently available data.
Availability bias describes when a recent event (e.g., a plane crash) affects our assessment of how safe air travel is, because it is recent and well-publicized.
Anchoring bias can be seen in situations like purchasing a car. When we are offered, for example, a car for $20,000 that we can’t afford, that figure becomes an anchor, and a subsequent car priced at $15,000 seems cheap (even if it is objectively overpriced).
- What is anchoring and adjustment bias?
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Anchoring and adjustment bias is a heuristic (mental shortcut) we use to estimate the answer to a general knowledge question. The anchor element is an initial educated guess, and it tends to limit how much we adjust our answers.
For example, if asked to estimate how long one billion seconds is, most people will underestimate the difference between one million and one billion (even though we know a billion is one thousand million).
So even if we know that a million seconds is equal to 12 days, few will correctly estimate a billion seconds correctly at 31 years.
- When does anchoring bias occur?
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Anchoring bias can occur, for example, in salary negotiations or bargaining for goods such as a used car. Seeing vehicles that are out of our price range might provide a high anchor point that makes cheaper cars seem like good value, even if they are overpriced.
Anchoring bias is seen in marketing all the time with products stated as being “worth hundreds of dollars” but being offered for “only” a much cheaper price. The initial anchor of “hundreds of dollars” makes $39.99 seem like good value.
