Series 2, Episode 4: Anchoring Bias
Here we are on episode 4 of series 2, and the next behavioural bias - and that bias is anchoring. Let’s get the definition out of the way now, so we can focus on examples that bring this to life.
In a nutshell, anchoring is where we rely too much on existing information or the first piece of information we find, or we see, when making decisions.
So for example, imagine you walked into a clothes shop and you see two very similar cashmere jumpers that you like the look of. The first on you see is priced at £80 and the other is priced at £200. Now, because you’ve seen both prices alongside each other like this, you are more likely to see the first jumper (£80) as a bargain, compared to the other jumper which costs £200. However, if you had ONLY seen one jumper for sale, and it was the £80 jumper, you may have made the decision that actually, £80, it was rather expensive.
The anchor – the first price that you saw, the £80, had an influence on your “is this value for money or not’ thought process.
We see anchoring being used all over the place, but it really comes into its own on the big sales days - Black Friday and Cyber Monday. Turn the TV on and you will see a ton of adverts showing reduced price goods, alongside their original price.
The new sofa that was £999 is now £359.
Or the 55” TV that was £899 but has been reduced to £599.
Both seem to be genuine bargains, right, and they might be, but anchoring impacts our judgement, and we decide if something is deal simply based on a reduced price point (the anchor), without considering if you’re still getting real value for money.
ANCHORED TO TIME
But it isn’t only buying goods like a sofa or a TV where anchoring has an impact. We an use another example of visiting a restaurant. You and your partner turn up at a restaurant and are told that there is a 15 minute wait. Another couple turn up just after you and are told that there is now a 30 minute. You all go over to the bar to wait for your tables to come free.
25 minutes pass, and still no table, for you and your partner or the couple who turned up afterwards. You and your partner may be getting a bit annoyed at the extra 10 minutes delay - checking the time, complaining to each other... “They said 15 minutes”. At that point, the waiting staff come over and seat you all.
You and your partner have started your meal with a bit of downer. 25 minutes wait when you were told it would be 15. The other couple however, different story. They were expecting a 30 minute wait, but here they are, being seated earlier than that. You both arrived at a similar time, you were both seated at a similar time, and yet, because of the different anchors, your experience becomes different.
Now these are just a few examples but it’s worth pointing out that anchoring is more dominant, more prevalent, with things that are new to you, or that you interact with very rarely, and less dominant when you are dealing with something you know a lot about or interact with frequently.
For example, we don’t typically buy a new car frequently, so can easily be anchored by showroom prices. But we do buy takeaway coffee frequently, so know that £5.50 for a coffee is expensive.
Now, I’m going to try and explore anchoring with you by playing a little game, and I hope this works across a podcast.
I’m going to ask you two questions, so let’s see how this pans out!.
Argentina is the 8th largest country in the world. Do you think that its population is bigger or smaller than 80 million?
Have a think about that for a few seconds. Is the population of Argentina bigger or smaller than 80 million?
Answer either bigger or smaller.
OK. Question 2. Give this your best shot…
What do you think the actual population of Argentina is? I’ll give you 5 seconds of silence to think about the answer to that question.
What is the actual population of Argentina? 5 seconds…
OK - we’re done.
Now, the actual population of Argentina is 45 million, and I’m guessing - actually I’m hoping - that your answer was a lot higher than 45 million - and all because I anchored you to that 80 million figure earlier. My gut feel is that this will have worked on many of you, maybe you said 70m, maybe you said 90m, but there is a strong chance that my 80 million figure unconsciously influenced your thought process, even when you know we are talking about anchoring bias. That’s how powerful anchoring can be.
TIPS AND TRICKS
So what about tips or tricks to deal with this bias? Well, there are two great tips for dealing with anchoring bias: (1) Be prepared to seek further information. Now that's similar to the last episode and framing - that tip works here too - seeking further information, by which I mean is that 55” TV that was £899 but has been reduced to £599 really a good deal? Especially when you compare it to other 55” TVs. We need to dig a little deeper and find out more. Most importantly - tip number 2 - have your own anchor. If you’re looking for a new cashmere jumper and you’ve done your research, and know they are typically £50, then use your own anchor of £50 to determine whether what you’re about to buy is good value or not. Have your own anchor.
Hopefully that’s given you some insight into what anchoring bias is all about, how to spot it, and how to hopefully not let it be so dominant in the decisions you make.
Next time on Bitesize Behaviours when we explore another behavioural bias that escapes no-one. We’ll be looking at over-confidence.