Anchoring Bias: What It Is And How It Influences The Human Mind
Anchoring bias is the psychological process by which we place too much trust in our first impressions.
When we use the word bias, we are referring to something that is inaccurate or lacks logic, biased information, it is information where we only know part of the truth. Cognitive biases are described as the psychological processes that cause us to irrationally interpret the information received. This lack of logic or bias when thinking can lead us to make erroneous judgments and make meaningless or illogical interpretations.
Although they are a distortion in our way of thinking, cognitive biases are present in our daily lives; We use them in the framework of our social interactions and in decision making, anchoring bias is the bias by which it is difficult to get rid of the first impression. In this article we will see what anchoring bias is and we will expose its main consequences in decision making.
As we have seen, there are different types of cognitive biases that sometimes cause us to make poor decisions, including anchoring bias.
The anchor bias is the tendency we have to start from a specific piece of information (the anchor) to make a decision or give an answer When we don’t have enough information we tend to look for an anchor that serves as a guide, even when it means going against logic. For example, when determining an amount that we are not sure about, we take as a reference point the most recent figure we have heard, regardless of whether it is relevant or not.
Anchoring bias is important in markdowns. To decide if a t-shirt is cheap or expensive, we do not do a thorough study on: the quality of the fabric, the manufacturing process, the production cost of the country in which it was made, etc. Instead, we estimate whether a t-shirt is cheap or expensive based on the price it had before being discounted.
Anchoring bias is the principle of marketing g that underlies all sales campaigns, including Black Friday, as we see, is based on telling consumers how much a certain product costs before finally offering a significant discount. That’s why, it is said, some companies raise prices just before sales. The perception of the value of the product, in this case, is the result of anchoring bias and little else.
This bias can also be used in the world of politics, for example, if it is known that unemployment is going to be higher than expected, an even higher figure can be announced before the official data, to approve the final result
By focusing on a first piece of information, a first value or a first element, it is more difficult for the mind to take into consideration new information, new values or consider other options. Anchoring bias not only exists in sales and, in addition, we ourselves are more aware of its existence than we think; We care much more about being punctual on the first days of work because we know that if we are late on the first day of work, we are likely to earn the label of unpunctual and this label will be very difficult to remove.
Studies on anchoring bias
The anchoring effect was first theorized in the 1970s by behavioral, financial, and cognitive psychologists Daniel Kahneman and Amos Tversky. Kahneman and Tversky were interested in how people form judgments when they are unsure of the facts, so they conducted several studies. His works and books on cognitive biases, including the well-known Think fast, think slow, have become references in the field of cognitive psychology and many specialists follow their path today. The idea of anchoring bias first appeared in a 1974 article titled Judgment under Uncertainty: Heuristics and Biases.
One of the patterns Kahneman and Tversky discovered was the persistence of anchoring bias, even when people are told that the data they have just been given is completely false or has no relevance. They continue to be taken into account when making a decision or estimating a figure
An experiment by James Montier, author and specialist in behavioral finance, highlighted the influence of anchoring bias when estimating a figure. A group of people were asked two clearly unrelated questions involving numbers. In the first they were asked to say the last 4 digits of their phone number. They were then asked whether they thought the number of physicists in London was more or less than that figure, and then asked for an estimate.
The results confirmed the influence of the first figure (the telephone number) on the estimate. Participants with a telephone number ending above 7000 responded that there must be about 8000 physicists in London. Those with a telephone number below 3,000 estimated that London had around 4,000 physicists.
James Montier also delved into the study of this bias in the world of trading, and as financial analysts are strongly influenced by past events or opinions in their current investments; how to trust too much in the actions with which they have already obtained profits, even if their investment conclusions contradict the objective data of the market.
After understanding what it is, we can state that anchoring bias is produced both by anchors that we have just met, for example, in impulsive purchases on sales, and by anchors that happened a long time ago, these are first impressions or good luck. past in the world of trading.
One plausible explanation for first impressions is the primacy effect. According to this effect, people tend to remember better the things they learn first, and tend to forget information they receive later more easily. For example, when remembering a list, it is easier to remember the first and last items than the middle ones. This phenomenon responds to different reasons:
1. Repetition
People tend to repeat list items when given information, if people are told not to repeat items, the primacy effect disappears. If you arrive late on the first day of class, it is likely that that story will repeat itself in the teacher’s mind or become an anecdote; However, if the delay occurs on a random Tuesday in May, the story may not matter much to anyone.
2. The attention span
Attention and focus play an important role when remembering items. Usually, we will pay more attention to the beginning and end of a monotonous presentation like a list of items, so these are more likely to be remembered better.
3. Memory
We are not a powerful computer and our memory capacity is quite limited; if we think about it, we forget most of the things that happen to us Only some make it into our long-term memory and we can store others in our short-term memory, but most are not stored anywhere.
If people remember the first information more than the later, they are more likely to assume that this is more relevant than the information that comes to us later often without even realizing this psychological process.
Its effects on the human mind
In cases where the anchor directly influences the answer given below. Anchoring bias could be explained, as Tversky and Kahneman proposed in their original study, by the adjustment that people make between this and the final response. People’s intention is to move away from the anchor, but when they want to move away from it, they still stay too close
However, this theory is only valid if the anchor is close to the final answer. If we estimate the luxury price of a home in one euro, and then ask about its real value, this price will not have any influence on the answer.
An alternative explanation for the anchoring phenomenon is “confirmatory hypothesis testing.” The humans We are constantly judging and evaluating the information we receive ; Obviously, this will also happen with the anchor. As soon as someone gives us an anchor and then asks us something else, even if it has nothing to do with it, we will evaluate if this is a possible answer, if it is not we will think about how far or close it is. Therefore, the anchor will always influence the response.
Recently, attitude change has been exposed as a possible explanation for the anchoring phenomenon. According to this proposal, the anchor influences people to be more favorable to it, this makes responses more like the anchor.
Anchoring can also be used consciously: If they ask us, for example, how much we think a car that has 20 more horsepower than ours will cost, we will use the value of ours as an anchor to estimate the price. Although, we have no idea of the real cost of one more horse.
However, for some questions having a starting point can help us filter and simplify the information; we cannot always start from scratch.
Can anchoring bias be counteracted?
Anchoring bias seems difficult to counteract, since like other biases it responds to an evolutionary need, sometimes we cannot interpret all the data to respond to stimuli in the most rational way possible. The bias will be more pronounced in quick decisions or in stressful situations where we do not have time to process all the information.
Therefore, it is important not to make hasty decisions and try to gather some information before giving a response or taking action when receiving new information.
It seems evident that the more we know about a topic, the less this bias will affect us. If we know that Istanbul is the largest city in Europe and has 14.6 million inhabitants, it is very possible that cognitive bias does not affect us
Kahneman proposes to counteract the effect of the anchor, discussing with it, for example, we can ask ourselves if it is real data, if there is some type of prejudice, if there are interests behind it. Also, creating another anchor can help reduce the effect of the first one.
