Anchoring Bias: What It Is and How It Influences the Human Mind

Anchoring bias is the psychological process by which we rely too much on our first impressions.

When we use the word bias, we mean something that is inaccurate or illogical, biased information, information of which we only know part of the truth. Cognitive biases are described as psychological processes that lead us to interpret information received in an irrational way, 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 of our way of thinking, cognitive biases are present in our daily lives; we use them in our social interactions and in decision-making, anchoring bias is the bias through which it is difficult to get rid of the first impression. In this article we will see what is the anchoring bias and we will explain its main consequences in decision-making.

    What is anchoring bias?

    As we have seen, there are different types of cognitive biases, which sometimes lead us to make bad decisions, including anchoring biases.

    The anchoring bias is the tendency we have from a specific fact (the anchor) to make a decision or give an answer. When we don’t have enough information, we usually look for an anchor to guide us, even if it means going against logic. For example, when we determine an amount that we are unsure of, we take the most recent figure that we have heard of as a reference, whether it is relevant or not.

    Anchoring bias is important in sales. To decide if a T-shirt is cheap or expensive, we do not do an in-depth study on: the quality of the fabric, the manufacturing process, the production cost of the country in which it was made, etc. but we judge whether a t-shirt is cheap or expensive based on the price it had before it was discounted.

    Anchoring bias is the principle of marketingg that underpins all sales campaigns, including Black Friday, as we see, is to tell consumers how much a particular product costs before ultimately offering a deep discount. That’s why some companies are said to raise their prices just before the sales. Perception of product value, in this case, is the result of anchoring bias and nothing 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 may be announced before the official data, take the end result for granted.

    When one focuses on a first piece of information, a first value, or a first item, it is more difficult for the mind to consider new information, new values, or consider other options. Anchoring bias doesn’t just exist in sales, and furthermore, we ourselves are more aware of its existence than we believe; It is much more important for us to be punctual the first days of work because we know that if we arrive late on the first day of work, we will probably earn the qualification of punctual and this label will be very difficult to remove.

      Anchoring bias studies

      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, for which they conducted several studies. His works and books on cognitive biases, including the famous Fast Thinking, Slow Thinking, have become references in the field of cognitive psychology, and many researchers are now following his path. The idea of ​​anchoring biases first appeared in a 1974 paper titled Judgment under Uncertainty: Heuristics and Biases.

      One of the patterns discovered by Kahneman and Tversky was the persistence of anchoring bias, even when people are told that the data they have just provided is completely wrong or irrelevant. they keep them in mind when making a decision or evaluating a number.

      An experiment by James Montier, author and behavioral finance specialist, highlighted the influence of anchoring bias in estimating numbers. A group of people were asked two questions that were obviously unrelated, involving numbers. In the first, they were asked to say the last 4 digits of their phone number. They were then asked if 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 digit (telephone number) on the estimate. Participants with phone numbers ending above 7000 responded that there must be around 8000 physicists in London. Those with telephone numbers below 3,000 estimated that London had around 4,000 physicists.

      James Montier also looked into the study of this bias in the world of trading, and how financial analysts are strongly influenced by past events or opinions in their current investments; how to trust others in stocks with which they have already obtained profits, even if their investment conclusions contradict objective market data.

        Why does anchoring bias occur?

        Having understood what it is, we can expose that the anchoring bias is caused both by the anchors that we have just encountered, for example, in impulse purchases on sale, and the anchors that have occurred there a long time ago, these are first impressions or past good luck in the trading world.

        A plausible explanation for first impressions is the primacy effect. According to this effect, people tend to remember better things they learn first, and they tend to forget more easily information they receive later. For example, remembering a list makes it easier to remember the first and last item than those in the middle. This phenomenon has several reasons:

        1. Repetition

        People tend to repeat items on the list when given the information, if people are told not to repeat the items, the primacy effect disappears. If you arrive late on the first day of class, this story may repeat itself in the teacher’s mind or become an anecdote; however, if the delay occurs on a Tuesday in May, the story may not matter much to anyone.

        2. Attention span

        Attention and concentration play an important role in memorizing elements. Usually pay more attention to the beginning and end of a monotonous presentationas a list of items, so they are more likely to be better remembered.

        3. Memory

        We are not a powerful computer and our memory capacity is quite limited; if you think about it we forget most of the things that happen to us. Only a few pass into our long-term memory and we may store others in our short-term memory, but most are not stored anywhere.

        If people remember the first piece of information better than the next, they are more likely to assume this is more relevant than information that comes to us lateroften 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 proposed by Tversky and Kahneman in their original study, by the adjustment people make between it and the final answer. People’s intention is to get away from the anchor, but when they want to get away from it, it’s still too close.

          However, this theory is only valid if the anchor closer to the final answer. If we estimate the luxury price of a house in one euro and then ask for its real value, this price will have no influence on the answer.

          An alternative explanation for the anchoring phenomenon is the “confirmatory hypothesis test”. Humans we constantly judge and evaluate 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, we will evaluate if it is a possible answer, if not we will think how far or how far how far away 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, which makes responses closer to the anchor.

          The anchor can also be used consciously: If you ask us, for example, how much we think a car that has 20 horsepower more than ours will cost, we will use the value of ours as an anchor to estimate the price. However, we have no idea of ​​the real cost of another horse.

          However, for some questions having a starting point can help us filter and simplify information, we cannot always start from scratch.

            Can anchoring bias be counteracted?

            Anchoring bias seems difficult to counter, as other biases respond to an evolutionary need, sometimes one 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 don’t have time to process all the information.

            Therefore, it is important not to make hasty decisions and try to gather information before giving an answer or taking action when new information is received.

            It seems obvious that the more we know about a subject, 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 biases do not affect us.

            Kahneman proposes to counteract the effect of the anchor, by arguing with it, for example, one can wonder if it is real data, if there is some kind of prejudice, if there are interests behind them. Also, creating another anchor can help reduce the effect of the first one.

            Bibliographic references

            • Judgment under uncertainty: heuristics and biases (Tversky and Kahneman, 1974).
            • Anchor accuracy influences amount of adjustment – Chris Janiszewski and Dan Uy
            • Behavioral Investing: A Practitioner’s Guide to Applying Behavioral Finance – James Montier
            • The Contributions of Daniel Kahneman and Amos Tversky – Meir Statman, Hersh Shefrin

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