The anchoring bias, or anchoring heuristic, is when our exposure to an initial piece of information influences our perception of subsequent information.
The initial exposure can then affect our decision-making. It sets the tone for how we process information that follows.
One explanation involves the primacy effect (Stewart, et al., 2004). We remember things that come first better than things that come later. So, the first bit of data we encounter is more powerful than what comes afterward.
The anchoring bias is widely used in marketing and the price points of a very wide array of consumer products and services.
Definition of Anchoring Bias
The anchoring heuristic was first identified by Tversky and Kahneman (1974) in a series of clever experiments.
In one of those studies, they asked research participants to estimate the answer to either 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1, or, 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8. The answers to both are the same (you can check if you like).
However, the results showed that the group of participants asked to estimate the answer to the first string of numbers was much higher (median estimate of 2,250) than the group estimating the answer to the second string of numbers (median estimate of 512).
Here, we can see that this is a form framing bias.
The first numbers created an anchor that was higher in the first string (the number 8) than the second (the number 1) and affected estimates accordingly.
Examples of Anchoring Bias
1. Asking Price for a New Home
If the homes in a suburb are priced highly, then a sale at a slightly lower price will feel like a bargain, even though it is still very high.
Buying a house is one of the top 3 most important decisions a person will make in their lifetime. It is a big commitment and a lot of money. Even so, the final purchase price of a new home can be influenced by the anchoring bias.
If we first look at houses in the neighborhood that are on the high-end of the range, then those priced in the middle of the pack will seem low. This can influence are perceptions of their value. We will think they represent good deals because we are comparing them to houses that cost much more.
A more objective analysis however might lead to a different conclusion. Perhaps the higher-priced houses we looked at first actually have exaggerated value because the owners want to receive higher bids. Or, maybe those houses have just been renovated and so they are qualitatively different than others in the neighborhood.
Related Article: 15 Affinity Bias Examples
2. In Restaurant Menus
Restaurant menus are curated to make prices appear affordable. For example, the lowest price dishes are listed first to give a sense that the restaurant is affordable.
When people eat in a restaurant they are subjected to a lot of strategies to get them to spend more. This includes the infamous “special of the day”, which are usually items that are about to go bad so the chef puts the meals on sale or makes a new dish and calls it a “special”.
The menu is also designed with some strategic elements. One strategy involves listing lower-priced items first and then steadily increasing the price-point of offerings as you go down the list.
This is an attempt to get the customers to perceive the restaurant as inexpensive. By starting with lower-priced items it creates an initial impression of value; a clever use of the anchoring heuristic.
3. Subscription Packages
By listing subscription options from most expensive to least expensive, people will perceive the less expensive options as a bargain.
Cable companies, online services, and various forms of membership packages also utilize anchoring to create impressions. There are two different strategies that can be implemented, depending on the marketing team’s strategy.
Sometimes the options will be listed from most to least expensive. By listing the most expensive option first, the subsequent options will be seen as good values. Even though it might seem that the highest priced option is what the company should hope for, in many circumstances it can represent the lowest profit margin.
In fact, those other options may contain the highest profit margin for the company and are really the favored choices the marketing team wants customers to choose. This is a clever strategy of leading the customer through a thought process that has been devised very carefully.
4. In the Courtroom
Prosecutors who demand long sentences from judges have the capacity to influence a judge into giving a long sentence. This is because the prosecutor has set that long sentence as the anchor point.
The anchoring bias certainly plays a role in minor circumstances such as menu options in a restaurant, but it also exists in much more serious situations. For example, Englich and Mussweiler (2002) examined the sentencing lengths of judges in the legal system.
Their research discovered that when presented with exceptionally long sentencing demands from prosecutors, judges tended to give longer sentences. Moreover, even judges with a great deal of experience were also influenced by the anchoring bias.
These results are quite surprising. One would think that judges with more experience would not be swayed by something so simple as anchoring. Criminal sentencing should be free from such influences and instead be based on objective analysis and consideration of relevant factors.
5. Buying a Used Car
Used car salesmen put highly-priced cars out on the lot in order to make their slightly more affordable cars out the back appear to be great deals. Otherwise, consumers might fall into a negativity bias mindset.
Given that a new car can lose up to 20% of its value as soon as it is driven off the lot, purchasing a used car seems like a wise move. Unfortunately, it too is subject to the influence of the anchoring bias.
For example, by showing a prospective buyer a higher-priced option that is obviously not a good deal, the salesman is actually setting the stage for the cars shown next. The cars that follow will seem like much better deals when compared to the over-priced junky car shown first.
This is a classic strategy that utilizes the anchoring bias to manipulate the decision-making process of unwitting customers. And, it is highly effective.
6. The “Suggested Retail Price”
A recommended retail price is often placed on items that are then sold for a lower price. This is an attempt by the salesperson to make the product appear to be a bargain.
Have you ever seen a price tag with a “suggested retail price” listed at the top that has been marked through? A lower price is listed just below. Although this might seem like an honest disclosure from the company, admitting what the real price should be, that is actually not the case.
It is in fact a clever trick to create an impression of getting a bargain. By listing a high price at the top, followed by a lower price, the company is manipulating the customers’ perceptions of value. The lower listed price may actually be higher than what the manufacturer suggested. But, because of the anchoring bias, customers will perceive the price listed below as a great deal.
Setting a price at 9.99 creates the ‘anchor’ at 9 instead of 10, making the product appear cheaper.
There certainly are a lot of consumer goods and services that end with .99. Ever wonder why?
Let’s take a look at one example. Suppose the desired price point of a product is 10. That could be 10 dollars, or 10 pesos, or just about any currency.
The reason it is instead listed as 9.99 has to do with the anchoring bias. Because the first number the customer processes is 9, it instantly creates an impression that is lower than 10. Of course. Nine is lower than ten, so, this is not rocket science. However, the real trick is in the numbers that follow (i.e., 99). Those 99 cents actually raise the price to be just about 10.
So, instead of listing the price as 10, the price is listed as 9.99 to create the perception of a lower price. There really is no difference between 9.99 and 10, it just seems that way.
8. First Impressions
Our first impression sets the anchor for future interactions. For example, if you set a great first impression, you can cause a ‘halo effect’ where someone has a long-term positive impression of you, all based on that first interaction!
The anchoring bias is not just limited to situations involving numbers and price points. It also affects our thought processes involving relationships. Take for example the effects of first impressions.
When being introduced to a new individual, we might be given some flattering information about them. This first impression then alters how we process subsequent information about that person. On the one hand, this favorable impression can serve as a filter that only allows us to see the good in that person.
On the other hand, however, this can be a double-edged sword. If the initial introduction is too flattering it can create expectations that are far too high to meet. This will result in a contrast effect when processing their actions afterwards.
The high expectation set early on can’t be met and so our impression of them drops considerably.
9. Purchasing Limits
Creating a purchasing limit can actually encourage people to buy multiple items of a product because the limit (e.g ‘5 per customer’) becomes the cognitive anchor.
Occasionally a supermarket will put-up a display of a selected item with a sign above that reads “Limit 12 Per Customer”. That creates the impression that the item is special, there is a limited supply, and there will likely be a rush of customers purchasing that item. Most likely, none of that is true.
By using the number 12, the store is hoping to increase sales of that particular item over the usual average. Our minds our set with the anchor of the number 12, and then adjusts downward. The end result is that most customers will buy more of that item than they typically would without the anchor.
Yet another example of the power of the anchoring bias in sales.
10. Portion Sizes
Setting a small portion size as ‘normal’ (e.g. by using smaller plates), you can trick yourself into eating less.
There is a way to get the anchoring heuristic to work in your favor. Since eating healthily involves not overeating, we can utilize anchoring to make our portion sizes more appropriate.
So, next time at the dinner table when thinking about how much to eat, try to visualize a smaller plate with smaller portions. This will create a benchmark for your serving sizes and will help you place smaller, and healthier, portions on your plate.
If you do the opposite and envision a large plate with big portions, then you are much more likely to use that as a benchmark. Then, when you select serving sizes, they will be closer to those you visualized and be much larger.
11. Cultural Bias and Ethnocentrism
Our own cultural biases, attitudes, habits, and beliefs are our anchor. We see ourselves as normal. When we go out and meet new cultures, we judge them against our own culture.
For example, many people assume they don’t have an accent. When they hear someone from another country they say, “wow, your accent is so noticeable!” In these situations, we are using our accent as the neutral anchor and judging all accents as strange as compared to our own.
Similarly, different cultural norms and social practices are judged as different to our own, which is always the anchor to our thinking and behavior. We also tend to naturally believe our ways of thinking and our cultural behaviors as the best way of doing things (we call this ethnocentrism).
12. Older Siblings Setting the Standard
Growing up, I had a very smart older sister who always got better grades than me. It was always the anchor for my parents: I was expected to meet the standard she had set.
This also made me feel a little inferior even when I got objectively excellent grades. My grades were always considered okay, but nowhere near as good as my sister’s.
Here, my sense of self was influenced by an anchor that had been created. Ironically, my teachers tended to think I was very smart because their anchor was different: their anchor was the other students in my class, most of whom I would beat in every exam!
Into adulthood, the standard is no longer grades, but income. As a professor, I tend to lose that anchoring bias battle as well.
13. A Teacher Being Strict at the Beginning of the Year
As a teacher, I have learned to use the anchoring bias to my benefit. I would be much stricter at the beginning of the year to set a standard or ‘norm’ for my students.
As a result, the students’ anchor for expected behaviors would be very high. When I gave them small leniencies later in the year, they would think it’s ‘cool’ and ‘fun’, despite the fact that those small leniencies were very minor.
But the students saw the small leniencies as a big deal because they’re comparing them to the regular standard, which is quite strict.
This made my students happy while also ensuring there was a consistently high standard in the classroom.
14. Parents Setting Behavioral Standards
Similarly, parents set standards at home be leading by example. Parents who exercise regularly will set an anchor for their children showing that it’s important and normal to exercise regularly.
When young people enter adulthood, they will encounter people who are lazy or don’t exercise. However, because their parents set the anchor of ‘regular exercise’ for them, the person will likely be judgmental of these new people in their lives.
The anchor (parents’ high standards) is the standard against which they judge themselves and others throughout their lives. Thus, it’s incredibly important that parents consider what behaviors they want to model, knowing that these behaviors will set the foundations for a person’s entire life.
15. Wage Negotiations
Often, a potential employer will set an initial wage for wage negotiations that is very low. This is designed to act as an anchor against which the employee will bargain.
For example, if an employer sets the wage at $50,000, then negotiating up to a wage of $55,000 feels like a win. You gained 10%! But in reality, the boss likely would have been able to offer $60,000. In this situation, the boss has used the anchoring effect wisely to suppress your wage while also making you feel like you got a great deal out of the negotiation.
For all negotiators, setting an anchor is extremely important because it significantly affects not only the outcome, but also how everyone perceives it.
16 Confirmation Bias
Confirmation bias is also an effect of the anchoring heuristic. Essentially, once we have an idea in our head, we try to find information to support the original idea.
For example, many people have a political view that they start with as their ‘anchor’. They may think that a politician is a terrible person. So, all future articles they read will be clouded by this anchoring point.
If the article is positive toward the politician, then the person will accuse the writer of bias. If the article is negative, then they will agree with it and bank it as more information to confirm the person’s original perspective.
The end result of this is that people live in their own highly biased information bubbles and people become detached from reality, all because they started with an absurd anchor rather than a neutral and curious orientation.
The anchoring bias may be one of the most common sales techniques in the history of sales. It has applications in an incredibly wide range of scenarios.
It can affect how we perceive the value of a new home, the subscription package we select, or the meals offered on a restaurant’s menu. Judges can have their sentencing decisions swayed by anchoring and supermarkets can subtlety alter the number of items customers purchase.
The anchoring bias is yet another implicit bias identified by the team of Tversky and Kahneman. Two researchers which have taught us all at least one thing: we are not objective thinkers.
Wansink, B., Kent, R. J., & Hoch, S. (1998). An anchoring and adjustment model of purchase quantity decisions. Journal of Marketing Research, 35, 71-81.
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131.
Stewart, D. D., Stewart, C. B., Tyson, C., Vinci, G., & Fioti, T. (2004). Serial position effects and the picture-superiority effect in the group recall of unshared information. Group Dynamics: Theory, Research, and Practice, 8(3), 166.
Englich, B., & Mussweiler, T. (2001). Sentencing under uncertainty: Anchoring effects in the courtroom. Journal of Applied Social Psychology, 31(7), 1535-1551.