Anchoring is a cognitive bias where people tend to rely too heavily on the first piece of information they receive (the "anchor") when making decisions or forming opinions. This initial information serves as a reference point, and subsequent information is often evaluated in relation to it, even if the anchor is irrelevant or unrelated to the decision at hand.

Here are two simple examples to help you understand anchoring:

1. Shopping example: Imagine you're shopping for a new shirt. The first store you visit has a shirt you like for $50. You think it's a bit pricey but decide to keep looking. In the next store, you find a similar shirt for $40. Even though $40 might still be more than you originally wanted to spend, you feel like you're getting a good deal because it's cheaper than the first shirt you saw. The initial price of $50 serves as an anchor, influencing your perception of the $40 shirt's value.

2. Salary negotiation example: When negotiating a salary for a new job, the employer may offer you an initial salary of $60,000 per year. This figure becomes your anchor, and you might counter with a request for $65,000 per year. If the employer had initially offered you $70,000 per year, you may have countered with a higher figure, say $75,000. In both scenarios, the initial offer served as an anchor that influenced your subsequent expectations and negotiation strategy.

Anchoring, also known as the anchoring heuristic, is a cognitive bias first identified by psychologists Amos Tversky and Daniel Kahneman in their groundbreaking 1974 paper, "Judgment under Uncertainty: Heuristics and Biases." Anchoring refers to the tendency of individuals to rely excessively on an initial piece of information (the "anchor") when making judgments and decisions.

Anchoring can be understood in the context of various scientific fields, including behavioral economics, cognitive psychology, and decision-making. The anchoring effect has broad implications for many real-life situations, such as negotiations, pricing strategies, and financial forecasting.

Anchoring is closely related to other cognitive biases and heuristics, such as:

Confirmation bias: The tendency to seek, interpret, and remember information that confirms one's pre-existing beliefs, while ignoring or dismissing information that contradicts them. Anchoring can lead to confirmation bias by causing people to search for or favor evidence that supports their initial anchor.

Availability heuristic: The tendency to overestimate the likelihood of an event based on the ease with which relevant instances come to mind. Anchoring can be influenced by the availability heuristic, as the ease of recalling an anchor can make it more influential in the decision-making process.

Adjustment heuristic: The tendency to make estimates or decisions by starting with an initial value (the anchor) and then adjusting it insufficiently. This can lead to anchoring effects, as people may not adjust their judgments enough from the initial reference point.

In research, anchoring has been demonstrated in various experiments. One classic study by Tversky and Kahneman (1974) involved participants being asked to estimate the percentage of African countries in the United Nations. Before answering, participants spun a wheel with numbers from 0 to 100. The wheel was rigged to always stop at either 10 or 65. Participants who landed on 10 estimated a lower percentage of African countries in the UN, while those who landed on 65 estimated a higher percentage. The arbitrary anchor (the number on the wheel) influenced their estimates.

To mitigate the anchoring effect, it's essential to gather and consider a wide range of information, question initial assumptions, and seek diverse perspectives. Being aware of the anchoring bias can also help individuals make more informed and unbiased decisions.

References

Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131.