Stop Anchoring!

Last week a friend and I were discussing Internet plans and she mentioned that she was paying Rs.1000 a month for the same plan for which I was paying Rs.800. On pointing this, she reasoned by saying that she was paying less than the others in her society and so she it was a steal.

So what’s exactly happening here?

This is a classic case of anchoring bias.

As pointed out by Dan Ariely and many other guys we have a lot of cognitive biases. These biases are nothing but mental shortcuts which our brains take to simplify the world around us, sometimes not for the better.

Let me explain.

Just glance at the following two equations and without actually doing the math try predicting which will give a larger output:

1*2*3*5*6*4*7*8*7*9*4*2 
 or 
9*8*7*6*5*4*3*2*7*1*2*4

If you are like most other people, at the first glance you selected the second equation to be the larger one. If you look closely both the equations are exactly the same. What’s happens is when you see a larger number at the start your brain takes a mental shortcut and creates an impression that the second one is the larger one. This impression will stick till you consciously take a decision to look and analyze the numbers.

This happens all the time in everything you do.

When you are out shopping the shopkeeper quotes a higher number which you use as base to bargain and buy groceries.
When you are planning a project, your team might start with a higher effort estimate which you hold as base and negotiate.
Your friend gets a deal online and you hold that as a base and delay your purchase looking for the same or better deal.

We rely heavily on the first piece of information that we receive and base our decisions heavily on that. This is primarily because the following increments of information that help us fine tune our decisions are very small and so our brain conveniently ignores them.

We as humans base majority of our decisions on comparisons. A lot of things/decisions don’t have their own objective value and value is often decided by comparisons with what others have done in similar cases.

It is very difficult to avoid the bias and all we can do is consciously try and increase the input data points before setting our mind on a fixed number as the anchor.

So as the title said, “Stop Anchoring!” or atleast TRY.