What is Anchoring Bias: Causes & Examples

We frequently make choices in our daily lives, both big and minor. But have we ever questioned why unrelated facts or initial reference points impact our decisions? Our decision-making processes can be significantly impacted by a phenomenon known as anchoring bias.

Studying anchoring bias is important as it might impact various consequences on different elements of our life, including financial choices, interpersonal interactions, and dealings with the legal system. Let’s look into the anchor bias definition in detail.

What is Anchoring Bias?

Anchoring bias is the inclination of individuals to base their decisions or judgments significantly on the first bit of data they are given. Even when it may be unimportant or random, this bias affects evaluations and causes insufficient change away from the initial anchor.

This anchoring bias definition determines that people frequently use anchors as a point of comparison when assessing and estimating new information. The anchor can be any data that establishes a baseline for evaluation, including a number, a value, a proposed solution, etc. 

People frequently fail to make necessary modifications from the anchor, leading to biased judgments and choices influenced by the initial reference point, which is how bias develops.

Causes of Anchoring Bias

Anchoring bias is caused by several factors influencing how individuals process and interpret information. Here are some common causes of anchoring bias:

• Insufficient Adjustment

People tend to adjust from an initial anchor but may need to adjust more to reach an accurate judgment. It can happen due to limited cognitive resources, time constraints, or a lack of awareness of the need for adjustment.

• Priming Effect

Prior exposure to a related concept or numerical value can influence subsequent judgments. Anchoring can occur when a previous reference point primes the mind to use it as a starting point for subsequent judgments.

• Context and Framing

The way information is presented or framed can influence the anchor. Different frames or contexts can lead to different anchoring effects. For example, presenting a high price first may anchor a person to higher expectations.

• Overreliance on Available Information

People often need to seek additional evidence or consider alternative perspectives to readily available information or initial impressions. This can lead to anchoring bias if the initial information provided is influential.

• Cognitive Heuristics

Anchoring bias is connected to various cognitive heuristics, such as representativeness and availability. These heuristics involve mental shortcuts that can lead to biased judgments and decisions.

• Emotional Factors

Emotions can influence how individuals process information and make judgments. Emotional reactions to an anchor, such as surprise or shock, can impact the adjustment process and result in anchoring bias.

• Expertise and Knowledge

Even experts in a specific field are susceptible to anchoring bias. Their expertise may help them make more accurate judgments, but initial anchors can still influence them.

It’s important to note that anchoring bias is a complex phenomenon influenced by multiple factors, and its causes may vary in different situations. Understanding these causes can help individuals recognise and mitigate the impact of anchoring bias in decision-making.

Anchoring Bias Experiment

Here is an example of the anchoring bias experiment. Some participants were first asked whether the percentage of African countries in the United Nations was higher or lower than a specific anchor value, such as 65%. Afterwards, participants were asked the same question but with a lower anchor value, such as 10%.

Result of the Anchoring Bias Experiment

The study found that participants’ estimates were influenced by the anchor value they were exposed to. Participants in the high-anchor condition provided higher estimates than those in the low-anchor condition.

It is crucial to comprehend the root causes to overcome the effects of anchoring bias in our everyday life. By becoming aware of it, we may lessen reliance too much on the initial anchor. Awareness of anchoring bias can help individuals make more informed decisions by consciously considering initial anchors.

Anchoring Bias Examples from Everyday Life

Some real-life examples of anchoring biases are discussed as follows:

• Anchor Bias in Decision Making
• Anchor Bias in Healthcare
• Anchor Bias in Medical Field
• Anchor Bias in Finance 

Anchoring Bias in Decision Making

Jurors may be swayed by the initial anchor, potentially leading to biased judgments.

• Legal Proceedings

Anchoring bias can affect legal decision-making. For instance, when jurors hear the prosecution’s opening statement and the initially suggested punishment for the defendant, it can influence their perception of guilt and subsequent judgments.

• Product Discounts

Retailers often use the strategy of “anchoring” original prices to make discounts appear more appealing. For example, an item originally priced at 100 pounds is marked down to 50. The 100-pound price is an anchor, making the discounted price seem like a significant bargain, even if the item’s value is lower.

• Salary Negotiation

During a job interview, the employer asks you to state your salary expectations. If you mention a relatively high number as your initial anchor, it can significantly influence the employer’s subsequent salary offer. 

They may be more likely to offer a salary closer to your initial anchor, even if it is higher than initially intended.

 Anchoring Bias In Finance

Anchoring bias can have notable implications in the field of finance. Here are a few examples of anchoring bias in finance:

• Stock Market Pricing

Anchoring bias can impact how investors perceive the value of stocks. For instance, investors may consider the anchor if a stock’s price has historically been around 100 pounds. 

If the price drops to 80 pounds, some investors might perceive it as undervalued and be more inclined to buy. Conversely, if the price increases to 120 pounds, investors might see it as overvalued and hesitate to buy. 

Anchoring bias can affect investors’ judgments of whether a stock is a good investment based on the initial anchor price. 

• Initial Public Offerings 

Anchoring bias can influence investors’ decisions when evaluating IPOs. The initial offering price often acts as an anchor for determining the company’s perceived value. 

Investors may base their judgments on the stock’s performance relative to the IPO price. If the stock price increases significantly shortly after the IPO, investors may perceive it as a positive signal, anchoring their expectations for future performance.

• Financial Planning and Budgeting

Anchoring biases can impact personal financial planning and budgeting. For example, if individuals have been accustomed to a certain income level, they may use that as an anchor when setting financial goals and making spending decisions.

• Real Estate

When selling a house, the listing price is an anchor for potential buyers. Suppose the initial listing price is set too high. In that case, buyers’ perceptions of the house’s value may be influenced, making it more difficult to negotiate lower offers even if they are closer to the actual market value.

Anchoring Bias in Health Care

Anchoring bias in healthcare can impact medical professionals’ diagnostic and treatment decisions. Suppose a physician is presented with a prominent symptom early in the diagnostic process. In that case, they may anchor their subsequent thinking and focus primarily on that symptom, potentially overlooking other relevant factors or alternative diagnoses.

• Test Interpretation

Anchoring biases can influence how healthcare providers interpret test results. If a physician sees an initial abnormal result, they may anchor their subsequent interpretation and focus on confirming that abnormality, potentially disregarding other possibilities. It can lead to unnecessary tests, treatments, or missed opportunities for accurate diagnosis.

• Medication Prescriptions

Anchoring bias can impact the prescribing of medications. For example, suppose a patient has been on a certain medication for a long time. 

In that case, the healthcare provider may anchor their decision and continue prescribing it, even if the patient’s condition or newer evidence suggests alternative treatment options may be more appropriate.

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