The Anchoring Effect in Decision Making
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Making decisions is a part of life. We have to make decisions every day, both big and small. The way that we make these decisions can be affected by our biases.
In this blog post, we will discuss a type of bias that can impact our decision-making process. Understanding biases can help you make better decisions and improve your life!
One type of bias that can impact our decision-making process is the anchoring effect.
The anchoring effect is when we rely too heavily on one piece of information to make a decision.
This information is called the "anchor." For example, let's say you are trying to decide how much to spend on a new car. You may Anchor on the price of the most expensive car you have ever seen and then use that as a reference point for making your decision. This Anchor may be completely unrelated to the car you are actually trying to buy, but it can still have a significant impact on your decision.
Kahneman, D 2011, undertook an experiment where subjects were primed with an anchor before being asked a question. There was a significant difference between responses in the High anchor group and those in the low anchor group and also where no anchor was provided.
The anchoring effect can lead to suboptimal decisions because it Anchors us to a particular piece of information, even if that information is not relevant. In the example above, Anchoring on the price of the most expensive car you have ever seen may lead you to spend more money than you need to on your new car.
Anchoring can also lead us to make decisions that we later regret because we Anchored on the wrong piece of information. A salesman exploits this!
If you want to avoid the anchoring effect, it is important to be aware of it. Anchoring can happen unconsciously, so it is important to be mindful of the Anchors that you are using when making decisions.
When you are Anchoring on a piece of information, ask yourself if it is actually relevant to the decision you are trying to make. If it is not, then Anchoring on that information is not going to help you make a better decision.
The anchoring effect is just one of many biases that can impact our decision-making process. Have you experienced these tactics by salespeople?
References (Example)
[1] Kahneman Daniel, Thinking Fast and Slow, 2011
[2] BULB, 'Write to Earn. Read to Earn' (online, 2022) <https://www.bulbapp.io/>
