From Daniel Kahneman “Thinking, fast and slow”
Beware of the Anchoring effect!
- Whenever you see a number before making a decision, this number will influence your decision unconsciously!
- “you should assume that any number that is on the table has had an anchoring effect on you, and if the stakes are high you should mobilize yourself (your System 2) to combat the effect.” (p.128)
- People deny that seeing numbers can affect their decision making, but studies show they are wrong.
Examples of Anchoring Effects:
- Participants were asked to spin the wheel of fortune. Then they were asked, “what is your best guess of the percentage of African nations are in the UN?”
When the wheel landed on a 10, people on average guessed 25%!
When the wheel landed on a 65, people on average guessed 45%! (The wheel was rigged to land only on a 10 or 65) - Judges read a case about shoplifting. Then they rolled a dice.
Then they gave a sentence to the shoplifter.
When the dice rolled a 9, the judge gave the shoplifter a sentence of 8 months (on average)!
When the dice rolled a 3, the judge gave the shoplifter a sentence of 5 months (on average!
The anchoring effect was 50%! (p. 126)
(By the way, the dice was rigged to land only on a 3 or 9) - A group of people were asked to guess the height of the tallest Redwood tree.
“Is the height of the tallest Redwood tree more or less than 1,200 feet?”
The groups on average answered 844 ft.
“Is the height of the tallest Redwood tree more or less than 180 feet?”
The groups on average answered 282 ft. - A group of environmentally sensitive people were asked how much they would donate to save 50,000 seabirds from a big oil tank spill.
When there was no suggested donation amount, the average donation was $64.
When $5 was suggested as a donation, the average donation was $20.
When $400 was suggested as as a donation, the average donation was $143! - “supermarket shoppers in Sioux City, Iowa, encountered a sales promotion for Campbell’s soup at about 10% off the regular price. ” (p. 126)
When the sales sign said no limit per person, people bought on average 3.5 cans.
When the sales sign put a limit of 12 cans per person, shoppers bought on average 7 cans! - “If you consider how much you should pay for a house, you will be influenced by the asking price. The same house will appear more valuable if its listing price is high than if it is low, even if you are determined to resist the influence of this number; and so on—” (p. 120)
- A group of students were asked to estimate an answer quickly.
What is 8x7x6x5x4x3x2x1 ? Median answer was 2250. (Notice the numbers started high, that’s the anchor)
What is 1x2x3x4x5x6x7x8 ? Median answer was 512. ( Notice the number started low, that’s the anchor) - “the list of anchoring effects is endless. Any number that you are asked to consider as a possible solution to an estimation problem will induce an anchoring effect.” (p. 120)
How Can You Lessen the Anchoring Effect?
- “My advice to students when I taught negotiations was that if you think the other side has made an outrageous proposal, you should not come back with an equally outrageous counteroffer, creating a gap that will be difficult to bridge in further negotiations. Instead you should make a scene, storm out or threaten to do so, and make it clear—to yourself as well as to the other side—that you will not continue the negotiation with that number on the table.” (p. 126)
- “They instructed negotiators to focus their attention and search their memory for arguments against the anchor. The instruction to activate System 2 was successful.”
“For example, the anchoring effect is reduced or eliminated when the second mover focuses his attention on the minimal offer that the opponent would accept, or on the costs to the opponent of failing to reach an agreement. In general, a strategy of deliberately “thinking the opposite” may be a good defense against anchoring effects, because it negates the biased recruitment of thoughts that produces these effects.” (p. 126)
Other Good Anchors:
Was Gandhi more or less than 144 years old when he died? How old was Gandhi when he died?
“The participants who have been exposed to random or absurd anchors (such as Gandhi’s death at age 144) confidently deny that this obviously useless information could have influenced their estimate, and they are wrong.” (p. 127)
“The “estimate” in fine-art auctions is also an anchor that influences the first bid.” (p. 125)
Participants were asked what the last 4 digits of their Social Security number was. Then they are asked to estimate the number of physicians in their city. The Social Security number is the anchor.