Anchoring bias is the tendency of people to rely disproportionately on the first piece of information encountered when making judgments. This initial reference point, or “anchor”, influences subsequent decisions, even if better or more accurate information becomes available later.
Once an anchor is established, it becomes difficult for people to adjust their thinking objectively, often leading to poor or limited decisions.
EXAMPLE
A real estate agent first shows you properties priced far above your budget. Even though you know they are unaffordable, those prices become your mental anchors. Later, when you view houses within your actual budget, they suddenly feel cheaper, even if they’re still overpriced.
Here, the initial high price shapes your perception of value and influences your final decision.
What is Anchoring Bias?
Anchoring bias is a cognitive bias that affects judgment and decision-making by causing people to depend excessively on initial information, even when that information is irrelevant, outdated, or incorrect.
When an anchor is introduced, such as a price, a number, a belief, or an assumption, it shapes how future information is interpreted. Instead of evaluating all available options objectively, decisions are made by adjusting around this anchor.
This bias plays a major role in:
- Personal decision-making
- Business and finance
- Negotiation and pricing
- Medical diagnosis
- Academic and research processes
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Types of Anchors
Anchors can be of two types:
- External Anchor: External anchors are those reference points that are provided by outside sources. Examples are price tags, suggested retail prices, initial salary offers, and first numbers mentioned in negotiations.
- Internal Anchors: Internal anchors are those reference points that are based on beliefs, past experiences, memories, or expectations. Examples are childhood beliefs, past salary levels, previous exam scores, and prior health diagnoses.
What Are the Causes of Anchoring Bias?
Here are two mechanisms which will help you understand the phenomenon of anchoring bias:
Anchoring and Adjustment Bias
This mechanism explains how people answer questions using their common sense instead of knowing the full correct answer. Their answer is influenced by an existing anchor in their brain. In short, they use their common knowledge to make a guess.
If their answer is not correct, then they adjust their anchor according to the correct information.
The more people guess, the more their anchor point gets adjusted.
Sometimes, they don’t get the correct information to adjust their anchor point, and then it results in a biased estimation. In short, they only have the answer that is close to their anchor point.
EXAMPLE
A graduate applies for a marketing position but has little knowledge of current market salaries. Before the interview, they recall that their senior earned around £35,000 five years ago. This figure becomes an internal anchor, even though the market has changed significantly.
During the interview, the employer asks about salary expectations. The graduate initially wants to say £50,000, but the internal anchor of £35,000 makes this “too high”. As a result, they slightly adjust their expectations and ask for £40,000 instead.
In reality, the market average for the role is £55,000. The adjustment away from the anchor was insufficient, causing the individual to undervalue their worth.
Confirmatory Hypothesis Testing
This mechanism tells how external factors influence the decision-making process. When people are presented with an anchor to enhance their knowledge, they think that maybe it is the correct information because they haven’t had the information about this before this anchor. Their internal anchor also gets activated.
They compare both the information of internal and external anchors to derive a correct answer. This process is called selective accessibility.
EXAMPLE
A patient visits a clinic complaining of fatigue and headaches. The initial physician suggests stress-related anxiety and records this in the file. This diagnosis becomes an external anchor.
When another doctor examines the patient later, they subconsciously focus on information that confirms anxiety:
- Work stress supports anxiety
- Lack of sleep supports anxiety
They ignore the contradictory clues, such as:
- Family history of thyroid disorders
- Sudden unexplained weight loss
Because the doctor searches only for information confirming the anchor, the actual condition “hypothyroidism” is diagnosed much later.
Anchoring Bias Examples
These examples of anchoring bias can help you to understand this concept thoroughly:
Example 1: Anchoring Bias in Finance
Anchoring bias is very prominent in finance. When individuals predict the future price based on the present value of the commodities. For instance, when people are asked about where the stock of Apple will be in three months, they will make an assumption based on where the stock is today.
Example 2: Anchoring Bias in the Workplace
Imagine you’re negotiating with your boss for a raise. Initially, you will be more likely to hesitate to make an offer. When you do, it will become an anchor point. This anchor point will be a starting point for further negotiations.
Example 3: Anchoring Bias in Healthcare
Anchor bias in healthcare is seen in how doctors ask you questions. When doctors explain the diagnosis process to you, they will ask if you have any questions. By anchoring the questions, they assume that the patient has questions, which encourages honest and open conversation.
Example 4: Anchoring Bias in Medicine
In medicine, anchoring bias significantly influences the decision-making of a physician. When physicians focus on a single piece of information provided by the check-up of another physician, it causes information bias that significantly impacts their clinical process. Due to this, physicians ignore the subsequent information that can help to understand the condition of the patient better.
Example 5: Anchoring Bias in Negotiation
This bias deals with the tendency to present a first number to the seller or buyer during a buying process. After setting a starting point, the number is adequately adjusted until it reaches a point where both parties agree. This is how anchoring bias works in negotiation.
Example 6: Anchoring Bias in Restaurants
The menu of the restaurants is designed in a way that customers think the restaurant is inexpensive. The lower-priced items are listed first, and subsequently, the price is increased as the list goes down. By starting menus with lower-priced items, restaurants create an impression of value.
Why does anchoring bias lead to poor decisions?
Anchoring bias limits decision-making by:
- Narrowing perspective
- Ignoring alternative options
- Overvaluing early information
- Reducing creativity and flexibility
This is especially dangerous in fields requiring objectivity, such as medicine, finance, and law. Moreover, it can lead to research bias.
How to Avoid Anchoring Bias?
Here is how you can avoid anchoring bias in your daily lives:
- Identify the anchor: Recognise the initial information influencing your judgment. Ask: “Why am I using this as my reference point?”
- Explore multiple perspectives: Actively seek alternative viewpoints, data sources, and comparative information before making a decision.
- Delay decision-making: Take time before committing to important decisions. Time weakens the influence of the anchor.
- Use objective benchmarks: Rely on data, averages, ranges, and evidence; not first impressions.
- Reverse the anchor: Ask yourself: “If I had received different information first, would I have decided differently?”
Frequently Asked Questions
The anchoring bias is a psychological phenomenon when people rely too much on existing or initial information to make decisions. This initial information is called as Anchor or Reference Point.
Individuals usually use the existing or initial information to make a decision. This limits their ability to explore other reference points. When limited information is used as an anchor, it significantly affects the decision-making process.
Anchoring bias impacts creativity, accuracy and efficiency. However, there are several tips to avoid anchoring bias.
- By identifying the anchor
- By exploring multiple alternative perspectives
- By adjusting your thinking
Not always. Anchoring can speed up decisions when information is limited. However, it becomes harmful when it prevents objective evaluation.
