Cognitive Biases

Anchoring

Our minds move in mysterious ways…

Yesterday, I posed the following question on X:

The following time durations are all approximately equal and equal in duration to the average human lifespan.

Which “feels” the LONGEST?

1️⃣ 73 years
2️⃣ 876 months
3️⃣ 3,809 weeks
4️⃣ 26,663 days

The results were interesting.

Most people either picked Option 1, or else Option 4.

Poll on X

The same poll on LinkedIn garnered very similar responses.

Poll on LinkedIn

Why was this the case? There could be many reasons, but one likely candidate is a cognitive bias known as “Anchoring”.

A cognitive bias is a systematic pattern in our behaviour, where we tend to diverge from what might appear to be rational.

The anchoring effect or simply anchoring, is a psychological phenomenon where our judgements or decisions are influenced by some reference point or “anchor” which is completely irrelevant.

For example, let’s consider our poll.

As I explained, all the options are of approximately equal time duration. This is obvious, when we convert all the values into a common unit, say, seconds. All the answers are roughly 2.3 billion Seconds.

Note, with each option, we arrive at 2.3 billion, by multiplying two numbers. The first is the time duration (e.g. 73) in a particular unit (e.g. Years). The second is the number of seconds, in that time unit (e.g. 31,557,600 seconds/year).

And this is where we can see “anchoring” in play. The people who picked Option 1 (“years”), probably anchored on “Year” because it is the largest time duration, consisting of over 31 million seconds.

And people who picked Option 4 (“26,663”) picked it because it is the largest numerical value.

Why is Anchoring both important and interesting?

Here are some practical examples where you’d see it in everyday life.

• Real Estate Pricing: When potential home buyers are given a list price for a property, their offers and perceptions of the property’s value are heavily influenced by that initial price, regardless of the actual market value.

• Salary Negotiations: In job interviews, the first number mentioned for salary, whether by the candidate or the employer, often serves as an anchor that strongly influences the final agreed salary.
• Retail Sales: Retailers often use anchoring by showing a “regular price” alongside a discounted price. Customers perceive the discounted price as a better deal because they anchor on the higher regular price.

• Jury Sentencing: In legal settings, the severity of the suggested punishment can anchor jury members’ decisions. If prosecutors suggest a particularly harsh sentence, jurors may be more likely to give a harsher sentence, even if it’s less than what was suggested.
• Charitable Donations: When fundraising, charities might suggest different amounts to donate. Donors often anchor on these suggested amounts and choose donations based on the options provided, rather than coming up with their own amounts.

• Negotiating Purchases: When negotiating the price of a car or other large purchase, the initial price offered by the seller can anchor the entire negotiation process, leading to a final price that is closer to the initial offer.

• Menu Pricing: Restaurants often use anchoring by including very high-priced items on the menu. This makes other items seem more reasonably priced in comparison, influencing what customers order.

• Price Estimation: When asked to estimate quantities or prices, people’s estimates are influenced by the first number they hear, even if it is arbitrary. For example, if asked whether the population of a country is more or less than a given number, people’s subsequent estimates are anchored by that number.
• Medical Decisions: In healthcare, the first diagnosis or treatment option presented can anchor a doctor’s thinking, potentially affecting subsequent decisions and judgments.
• Stock Market Predictions: Investors may anchor on the initial price of a stock when making predictions about its future performance, even if new information suggests a different valuation.
• Auction Bidding: In auctions, the starting bid can serve as an anchor, influencing the final bid amounts. Higher starting bids often result in higher final prices.
• Product Evaluations: When evaluating products, consumers might anchor on initial attributes presented, such as the first feature mentioned, which can bias their overall evaluation of the product.

• Educational Settings: Students’ performance expectations can be anchored by teachers’ initial comments or grades, which can influence their subsequent performance and self-assessment.
• Forecasting: In business and economics, the first forecasted number presented in a discussion can anchor subsequent forecasts and decisions, even if other data contradicts it.
• Time Estimates: When estimating how long a task will take, people often anchor on the first estimate given, which can lead to underestimating or overestimating the actual time required.
• Political Negotiations: In political debates or negotiations, the first proposal or demand can anchor the subsequent discussion, influencing the final agreements and compromises.
• Loan Offers: When banks offer loans, the initial interest rate presented can anchor borrowers’ expectations, even if they negotiate for a different rate.