What is Anchoring Bias
Anchoring Bias is a cognitive bias where people stick to the first piece of information they encounter. It unconsciously allows their subsequent actions such as arguments, decisions and estimates to be influenced by it. Anchoring bias is kind of like a shortcut our brain takes to make a decision. It can skew our judgment, and prevent us from updating our plans or predictions as much as we should.
Anchoring bias can also work in your favour sometimes. However, it can work against us in decision-making processes.
How Anchoring can work in your favour
While shopping for return to school items for my kids, I saw a cute school bag in a shop at a price I thought was a bit too expensive. I decided to look around to see if I could see the same bag or something else for a better price. I saw the bag in a different shop but more expensive than in the first shop. While negotiating for the bag in this shop, I had made up my mind not to go above the price of the bag in the previous shop. It worked in my favour and I was able to get the bag cheaper than the previous shop. Unknown to me, my mind had anchored on to the price in the first shop and that was what I used as my negotiating price.
How Anchoring can work against you
Anchoring bias can also lead to significant mistakes. When we rely too heavily on one piece of information, it restricts our ability to think logically and consider other aspects that need to be considered. We, therefore, miss out on or ignore important information we need in our decision making. For example, in a negotiation, if the other party puts up a figure first, all negotiations will be centred around this number. The number becomes an anchor.
How can you avoid Anchoring Bias?
By acknowledging Anchoring Bias exists, you can avoid it. Acknowledging that our minds are susceptible to such influences, we are less likely to fall into the bias trap that is set.
So instead of going into a negotiation and letting the other party drop the anchor and make the first offer, you are able to beat them to it.
Step back and take your time
If your decision is not time-bound, it is important for you to take time over it. In doing so, you will be able to step back, acknowledge any anchoring bias, and look at the bigger picture.
By taking your time in the decision-making process, you are able to collect more information and dilute the effect that the anchor has. This is why it is important to step back, acknowledge the information is limited and thereby acquire information.
This helped me in making a decision when shopping in my example above.
Counter the Anchor
Once we understand how and why the anchor exists, it is important to counteract it. We can use our awareness of its existence to make better-formed decisions. For example, instead of looking at the stock price first, look at the company reports and fundamentals and create an estimated value that is independent of the current stock price.