We like thinking we can assess the surrounding world rationally and objectively, making sane judgments whenever we have to. The phenomenon of cognitive biases challenges this belief and proves what we think is true is in fact far from truth.
What is truly surprising about cognitive biases is they are fundamental to the way we think and perceive the world around us, yet for one reason or another they’re always left unnoticed.
There’s a whole variety of these biases, each of them dealing with a specific aspect of cognition and perception. In this article we will focus on the one called the anchoring effect.
Overestimating Significance of Random Facts
Anchoring means a tendency to refer to or rely too much on a single specific fact, opinion, etc. (it’s sometimes referred to as focalism.)
It means that before making a decision we keep returning to the fact or opinion articulated previously and try to adjust our decisions to it. In other words, a bias towards that fact emerges.
This is what we usually think
: we are rational and analyze all factors carefully before making a final decision.
This is what’s really happening: that very first fact just sticks to your mind and inevitably influences your further choices.
Scientists D. Kahneman and A. Tversky were the first to launch research on this bias. Later, various studies confirmed it really works and is very hard to avoid.
For instance, in one of the studies a group of students was asked if Mahatma Gandhi died before or after 9 years of age; the 2nd group was given the options of before or after 140 years of age. While both options were clearly senseless we can see visible trace of the anchoring effect in the answers. The 1st group answered 50 years on average and the 2nd one answered 67 years. That is students to whom a smaller number was told gave the smaller figure and vice versa.
Do Anchors Mean Reliability?
We tend to use anchors as proof to our decisions and judgments which is clearly wrong. The anchors can be wrong, can deceit and mislead us and cause dramatically false outcomes. Yet we are unable to get rid of them completely and this is exactly what’s the most dangerous about them.
Likewise, the anchoring effect impacts our emotional side. We usually judge things depending on the mood we are currently in, that is our current emotion is an anchor which influences decision-making.
One possible explanation of this cognitive bias is it stems from our desire to simplify things we are unfamiliar with or facilitate decision-making with any facts available, regardless of how fragile and unreliable they might be.
Anchors in Negotiations
Negotiations and commerce are the areas in which the anchoring effect is most striking.
Imagine one negotiating party is bringing the price of $500 to the table. It sticks to everybody’s mind, it’s like a starting point for negotiating. Obviously, it would depend greatly whether $500 is beneficial for both parties – not too low, but not too high either. That’s why negotiating parties are usually extremely reluctant to be the first to reveal the number.
The same effect is true for salary negotiations and large purchases where the price can be negotiated (estates, jewellery, cars, etc.). No matter what the final price is both buyer and seller will bear the initial figure in mind all the time.
BATNA, Best Alternative to a Negotiated Agreement, is a technique used in negotiations to produce a solution that will help not to lose more than the bottom line allows.
How exactly does BATNA work in terms of its connection with the anchoring effect? Basically iit means you should have several options discussed before the negotiations – some critical figures, both higher and lower than your most desirable outcome. So if the other party makes the offer you can quickly decide if it’s acceptable to you.
A logical question then arises: is it better to speak first or wait for another party to speak? Negotiating parties often hesitate to speak out their figures first (afraid of aiming too low or too high). The best option is to be the first to make an offer. Evidence shows the final figure is usually close to the very first number.
What we can learn from this is that taking initiative and not being afraid of speaking out first works better than taking a wait-and-see attitude which eventually can result in poorer negotiating terms.
*It’s better not to try out this approach (i.e., making the first move) in situations when you really lack information and the other party clearly has the advantage.