What is Anchoring and How Does it Affect Our Decision Making?

Anchoring is a psychological bias that refers to the tendency of individuals to rely heavily on an initial piece of information, known as the \"anchor,\" when making subsequent judgments or decisions.

What Causes Anchoring Bias?

The human brain has a tendency to compare new information to pre-existing information in order to make sense of it. When confronted with a new decision or problem, the brain defaults to preconceived notions or initial pieces of information as a starting point, or anchor.

For example, imagine a person is shopping for a new television and sees a high-end model with all the latest features priced at $2,500. Despite knowing that lower-priced models with similar features exist, the person may still feel anchored to the $2,500 price tag and consequently view less expensive models as inferior or subpar.

How Can Anchoring Affect Our Daily Lives?

Anchoring can impact decisions related to financial investments, salary negotiations, and even purchasing decisions. However, it can also influence less consequential decisions, such as choosing what to eat for dinner or which brand of toothpaste to buy.

In the case of financial investments, for example, an individual who is given a higher initial stock price as an anchor may be less likely to invest in a lower-priced stock, even if it ultimately has better performance potential.

How Can We Overcome Anchoring Bias?

One way to overcome anchoring bias is to consciously consider alternative options or pieces of information beyond the initial anchor. This can involve seeking out and analyzing other sources of information, considering different viewpoints, and being open to changing one's mind.

Another effective technique is to use quantitative decision-making tools such as decision matrices or cost-benefit analyses, which provide objective and comprehensive evaluations of different options.

Finally, being aware of and acknowledging one's own biases can be a powerful tool in overcoming them. By recognizing and actively working to combat anchoring bias, individuals can better navigate decision-making processes and make more informed choices.

Conclusion

Anchoring is a common cognitive bias that can affect a wide range of decision-making processes in our daily lives. However, with conscious effort and an openness to alternative sources of information, we can overcome this bias and make more informed and rational choices.