When faced with uncertain information or the need to make estimations, our minds seek reference points to guide us. These reference points, known as anchors, play a crucial role in shaping our judgments and decisions. From estimating historical events to valuing real estate, anchors have a profound impact on our thought processes. In this article, we will explore the concept of anchoring and its effects on our cognitive biases and decision-making abilities. Prepare to delve into the intriguing world of anchors and discover how they shape our perceptions.
The Use of Anchors in Estimating Abraham Lincoln’s Birth Year
When confronted with the task of estimating when Abraham Lincoln was born, most people may not immediately know the answer. Instead of relying on a simple recall of the exact date, we often use what we know as a reference point — in this case, the 1860s, the period during which Lincoln was president. This mental shortcut is known as “anchoring,” where we begin with a known reference point and then adjust from there to make an educated guess about something less certain.
For instance, it is well-known that Lincoln served as president during the American Civil War in the 1860s, and his life was tragically cut short when he was assassinated in 1865. If we know that Lincoln was likely around 50 or 60 years old when he died, we can work backward from that assumption. Estimating that he passed away at about 56, it would be logical to guess that he was born in the early 1800s — around 1805. While this is not the correct answer (Lincoln was born in 1809), it is a reasonable estimate based on the anchor point of the 1860s and his age at the time of his death.
This example illustrates how anchors work: they provide a reference point that helps us navigate through uncertainty. In daily life, this method of estimation is used in countless situations, whether we are guessing the length of a river, the population of a country, or the age of a historical figure. The key is that we rarely arrive at our answers completely from scratch. Instead, we rely on the anchors available to us — bits of information that provide a foundation for our thinking — and then adjust from there, often arriving at a plausible but imperfect guess.
The Hidden Influence of Anchors
While the use of anchors might seem straightforward in cases of simple estimation, their impact extends far beyond that. Anchors subtly shape our judgments and decisions, even when they seem entirely irrelevant to the task at hand. One famous experiment by psychologist Amos Tversky involved a random spinning wheel. After spinning, participants were asked to estimate the number of member states in the United Nations, which requires some knowledge. The twist, however, was that the number the wheel landed on influenced their guesses.
Those who spun high numbers on the wheel tended to give much higher estimates of the number of UN member states, while those who spun low numbers gave correspondingly lower estimates. The key insight here is that the number on the wheel, which had no logical connection to the actual number of countries in the UN, anchored their thinking. In other words, the arbitrary number served as a reference point that led participants to adjust their estimates toward it, even though it was unrelated to the question.
This effect is not isolated to trivia or random facts. In another experiment, participants were asked about the year Attila the Hun was defeated in battle. Again, the last digits of their social security numbers were used as anchors. Those with higher digits of their social security numbers estimated that Attila’s defeat occurred later, while those with lower digits estimated it happened earlier. The presence of a number — one that has no real bearing on the historical event in question — served to anchor participants’ estimates, guiding them toward answers that were influenced by the anchor rather than based purely on knowledge of history.
This reveals a critical aspect of how we use anchors: they influence not only the specific information we retrieve from memory but also the very way we process that information. Anchors shape our thoughts and decisions in ways that are often invisible, causing us to make judgments based on irrelevant factors.
The Power of Anchors in Real-World Decision Making
Anchors are not only at play in experiments but also in our everyday decisions, where they can have significant, real-world consequences. One of the clearest examples of how anchors influence decision-making occurs in the realm of real estate. When potential buyers are shown a property, they are often given an initial asking price, which can set the tone for how they evaluate the property’s value. This price, even if it is completely arbitrary, becomes a mental reference point — or anchor — that influences how buyers perceive the home’s worth.
In a study conducted with real estate agents and students, both groups were told the asking price of a house before they were asked to estimate its value. Despite their varying levels of expertise, both students and real estate professionals were influenced by the initial price they were given. The higher the initial asking price, the higher the home’s estimated value. Even real estate experts, who might be expected to make objective evaluations based on factors like location, square footage, and condition, were still swayed by the initial price anchor.
This effect is not limited to real estate. In any market where the true value of an item is uncertain or hard to determine — whether it’s stocks, art, or even the value of a business — the use of anchors can significantly influence the outcome. The more uncertain the value, the more likely it is that a random figure can serve as a powerful reference point, guiding decisions and judgments in subtle but impactful ways.
For example, when buying a car or negotiating a salary, an initial offer or listed price can serve as a mental anchor, influencing how we perceive subsequent offers or figures. In these situations, anchors can be both consciously and unconsciously used to steer the negotiation process. Understanding this dynamic allows both buyers and sellers to recognize when an arbitrary starting point may overly influence them, helping them make more informed decisions.
Anchors in Sales and Everyday Life
Anchoring isn’t just a tool used by psychologists or researchers; it is deeply woven into the fabric of everyday life, especially in sales and marketing. One of the most common examples of anchors in the marketplace is the “recommended retail price” (RRP) printed on products. Even though most consumers never pay the RRP, this price acts as an anchor. The idea is that by providing a higher, initial price, the product appears to be on sale when it is offered at a lower price.
This principle is used frequently during sales events. When retailers advertise items at “50% off,” they are not just offering a discount; they are leveraging the anchor effect. The original price — which may be inflated to begin with — serves as the reference point, making the discounted price seem more attractive, even if it still represents a significant markup from the actual cost.
Sales professionals understand the power of anchoring and often use it strategically in negotiations. For instance, a salesperson might set a high opening price when discussing a potential deal. This high price, though often far beyond the actual cost or market value, serves as an anchor from which all subsequent negotiations are based. Even if the final agreed-upon price is lower, the initial anchor makes the transaction seem more reasonable by comparison. This tactic is common in both high-end sales (such as luxury cars or real estate) and more everyday transactions, where setting an initial price can guide the negotiation toward a desired outcome.
Furthermore, the anchor effect influences how we view promotions, discounts, and even a product’s perceived value. In many instances, the mere presence of an anchor—whether in the form of a retail price, an initial offer, or a first impression—shapes how we evaluate the rest of the available information. Retailers and marketers have honed this tactic to perfection, using anchors to influence our purchasing decisions without us even realizing it.
The Psychological Impact of Anchoring on Our Perceptions
The power of anchors extends far beyond pricing and estimation. Anchors also influence how we perceive people, situations, and outcomes in our everyday lives. One of the clearest examples of this is in the realm of education. Teachers, for instance, are often influenced by past performance when grading students. Teachers are more likely to expect good performance on subsequent assignments if a student has previously scored well on tests. This “anchor” — the student’s prior grades — shapes the teacher’s expectations, even when new work is being assessed independently of past results.
This phenomenon doesn’t just apply to education. In any context where someone has a prior impression of another person, that initial perception can anchor future judgments. For example, a person who is known for being highly competent in one area may be judged more favorably in an unrelated area simply because of their established reputation. Similarly, someone who has previously performed poorly might be judged more harshly, even if their later work shows significant improvement.
This bias extends into many aspects of life. In job interviews, for example, a candidate’s past work experience or educational background may serve as an anchor, influencing how the interviewer assesses their suitability for the role. Similarly, in relationships, initial impressions — whether positive or negative — can serve as anchors that color future interactions.
In these cases, the anchor effect can be either beneficial or detrimental. It can help solidify relationships and build confidence for individuals who are initially viewed favorably. However, it can also hinder people from overcoming past failures or stereotypes, creating unfair biases in judgment. Recognizing the impact of these anchors is crucial for making more objective and fair assessments, whether in education, the workplace, or personal relationships.
Anchors in Negotiations and Business Strategies
Anchoring plays a central role in negotiations, particularly when setting the terms of a deal. In business, anchors are often used to guide the discussion toward a favorable outcome. For instance, in my early career, I worked for a consulting firm where we employed anchoring as a key negotiation tactic. During the first conversation with a potential client, my boss would make sure to set an initial high price — often far above the actual cost of delivering the service. By introducing this figure early on, he established a reference point that would serve as an anchor for the rest of the negotiations.
This tactic works because once an anchor is set, it becomes the benchmark against which all subsequent offers are evaluated. Even if the client is aware that the initial price is high, they will likely adjust their expectations and offers around that anchor. This gives the negotiator a strong starting point, making it easier to settle on a price that is still favorable to the seller, even if it’s lower than the original anchor.
Anchoring in negotiations isn’t just about setting high prices; it’s also about controlling the flow of information and shaping expectations. Whether in salary negotiations, business deals, or pricing for products, the initial number mentioned can have a profound effect on the final outcome. The key to leveraging anchoring effectively is understanding that the first offer — or the first piece of information — often sets the tone for the rest of the negotiation.
Anchors are pervasive forces that influence our judgments and decisions subtly and profoundly. Whether we are making estimates, negotiating a deal, or evaluating products, anchors play a critical role in shaping our perceptions and guiding our choices. Understanding the psychology of anchors allows us to recognize when irrelevant reference points are influencing us and take steps to make more informed, objective decisions.
Conclusion
Anchors hold immense power over our decision-making processes, shaping our estimations, judgments, and valuations. While they can serve as valuable reference points, anchors can also lead us astray, introducing biases and distorting our perceptions. Awareness of the influence of anchors is crucial in mitigating their potential negative effects and promoting more rational decision-making. By understanding the dynamics of anchoring and recognizing its presence in various domains of life, we can strive for more informed and objective assessments. So, the next time you find yourself relying on an anchor, remember to question its influence and explore alternative perspectives for a more accurate understanding of the situation at hand.
This article is part of The Art of Thinking Clearly Series based on Rolf Dobelli’s book.