What Is Anchoring Bias? How Does It Help to Make Decisions?

Have you seen people in your daily life making decisions based on the information they get first? If so, you would easily understand the phenomenon of anchoring bias. Humans tend to make decisions about something when they have an initial knowledge of it.

Easily put, when people have perceived an idea or concept of something, they use that information prior to the decision-making. In this process, they neglect the opinions and perceptions of others which significantly influences the decision-making process.

Due to anchoring bias, people end up making poor decisions because it takes away the different options from them. They just use the initial piece of information as a reference point and make decisions according to that reference point.

Anchoring bias also leads to research bias in the research process when researchers make decisions based on the initial information they get.

What is Anchoring Bias?

Understanding the process of anchoring bias significantly helps in making decisions in daily life. Whenever you take a step in your life or make an important decision, you rely too much on the existing information about that related step or decision.

Rather than exploring and researching new information, people rely heavily on the information they get first and use it as an anchor point. As a result, they make poor decisions in their lives because they have limited relevant knowledge.

Anchoring Bias Definition

Anchoring bias is a type of cognitive bias that causes people to use the information they get first in their decision-making process. They use it as an anchor. When one anchor is set, then all the judgements are made according to that anchor.

Types of Anchor

Anchors can be of two types:

• External Anchor: External anchors are those reference points that are provided by others such as price tags you see on many products.

• Internal Anchors: Internal anchors are those reference points that are based on beliefs, experiences and contextual cues such as decision-making due to childhood habits and beliefs.

Anchoring Bias Example in Real Life:

Causes of Anchoring Bias

There are no clear causes of anchoring bias according to psychology, but here are two mechanisms which will help you to understand the phenomenon of anchoring bias:

• Anchoring and Adjustment Bias

This mechanism explains how people answer questions using their common sense instead of knowing the full correct answer. Their answer is influenced by an existing anchor in their brain. In short, they use their common knowledge to make a guess.

• If their answer is not correct, then they adjust their anchor according to the correct information.
• The more people guess, the more their anchor point gets adjusted.

Sometimes, they don’t get the correct information to adjust their anchor point, and then it results in a biased estimation. In short, they only have the answer that is close to their anchor point.

Anchoring and Adjustment Example:

Imagine you’re supposed to answer this question in your theoretical exam: ‘How long does it take for Mars to orbit around the Sun?’ You’re not allowed to use online sources, and you don’t know the correct answer. The only thing that you know is that Mars is between Earth and Jupiter. It takes Jupiter 12 years to complete its orbit around the sun.

Now, based on this, your correct answer should be close to 12. But when you think further, you understand this is too high, then you make a new quess which is that it takes 6 years for Mars to orbit the Sun. As it turns out both the answers are wrong. It takes approximately 1.88 years for Mars to orbit the sun.

• Confirmatory Hypothesis Testing

This mechanism tells how external factors influence the decision-making process. When people are presented with an anchor to enhance their knowledge, they think that maybe it is the correct information because they haven’t had the information about this before this anchor. Their internal anchor also gets activated.

They compare both the information of internal as well as the external anchor to derive a correct answer. This process is called selective accessibility.

Confirmatory Hypotheses Example:

Let’s imagine a situation in which students in a class are asked whether Mahatma Gandhi died when he was 86 years old. In this situation, people will engage in Confirmatory Hypothesis Testing. Their internal anchor will be influenced by this external information.

This will confuse most of the people. Even if they know the correct answer, it will be influenced by the presented question.

• Some people will make a guess that Gandhi was 50 years old when he died.
• On the other hand, some people will estimate that Gandhi was 95 years old when he died.

Anchoring Bias Examples

These examples of anchoring bias help you to understand this concept thoroughly.

• Anchoring Bias in Finance

Anchoring bias is very prominent in finance. When individuals predict the future price based on the present value of the commodities. For instance, when people are asked about where will be the stock of Apple in three months, they will make an assumption based on where the stock is today.

• Anchoring Bias in the Workplace

Imagine you’re negotiating with your boss for a raise. Initially, you will more likely to hesitate to make an offer. When you will do, it will become an anchor point. This anchor point will be a starting point for further negotiations.

• Anchoring Bias in Healthcare

Anchor bias in healthcare is seen in how doctors ask you questions. When doctors explain the diagnosis process to you, they will ask if you have any questions. By anchoring the questions, they assume that the patient has questions, which encourages honest and open conversation.

• Anchoring Bias in Medicine

In medicine, anchoring bias significantly influences the decision-making of a physician. When physicians focus on a single piece of information provided by the check-up of another physician, it causes information bias that significantly impacts their clinical process. Due to this, physicians ignore the subsequent information that can help to understand the condition of patient better.

• Anchoring Bias in Negotiation

This bias deals with the tendency of presenting a first number to the seller or buyer during a buying process. After setting a starting point, the number is adequately adjusted until it reaches at a point where both pirates agree. This is how anchoring bias works in negotiation.

• Anchoring Bias in Restaurants

The menu of he restaurants is designed in way that customers think the restaurant to be inexpensive. The lower-priced items are listed first and subsequently the price is increased as the list goes down. By starting menus with lower-priced items, restaurants create an impression of value.

Frequently Asked Questions