Brain Food #679
Anchoring
Thoughts of the day
Good morning, and happy Friday. A quick and lighter thought for today, and one of my favourite cognitive biases: anchoring.
Anchoring refers to how humans tend to use an adjacent piece of (often irrelevant) information, usually the first piece of information we receive, as a reference point to make a decision.
For example, looking at a more expensive and more high-end TV model next to the one you are thinking of buying, and deciding the one you are considering is a (potentially overpriced) bargain. When imagining how long something will take to complete, you might use the last time you worked on another project as an anchor, although the circumstances were wildly different. Teachers anchor their expectations of students based on their early performance, not their potential. Investors often anchor their valuation of a company to the stock price, although sometimes that may be irrelevant to profit or growth. When negotiating a price, a salesman might start with a higher price than the one they need to nudge the consumer towards offering what they are after.
And, of course, on days like Black Friday, when you are given a much higher price as a reference point, which may or may have not been artificially inflated over time, to trick you into thinking the lower price represents good value.
In short, we tend to set our benchmarks against reference points which can often be untrue. We compare. When we compare against the wrong anchor, we may be setting ourselves up for failure.
Daniel Kahneman said, “We can be blind to the obvious, and we are also blind to our blindness.” Better decision-making, but also a better attitude towards life, can start with being aware of our biases, approaching decisions with caution, and acknowledging what pieces of information to take into account.
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