Anchoring

What we see first affects our judgement of everything thereafter

How we work out a fair price and ultimately what to choose is greatly dictated by the first piece of information we see.

Tversky, A.; Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science 185 (4157): 1124–1131.

The study

Setup

Participants were asked to quickly estimate - within 5 seconds -  the answer to one of two same calculations, anchored either low or high.

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Results

Those with the low anchor guessed 512 on average, whereas the high guessed a much higher 2,250. The correct answer was 40,320.

np_read_2490885_000000

Tversky, A.; Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science 185 (4157): 1124–1131.

During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgements are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor.

For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth.

Studies have shown that anchoring is very difficult to avoid. For example, in one study students were given anchors that were obviously wrong. They were asked whether Mahatma Gandhi died before or after age 9, or before or after age 140. Clearly neither of these anchors are correct, but the two groups still guessed significantly differently (choosing an average age of 50 vs. an average age of 67).

Key Takeaways

Put your highest price first in a list to make subsequent prices appear cheaper in comparison and increase sales. For instance, on the wine list shown, instead of putting the expensive items at the foot of the list, rearrange them in descending price. 

Don’t set your anchor price too high or the natural inclination to anchor other options against this price will diminish. Be realistic and keep it within an appropriate region of your other prices.

Audience matters. Anchoring effects  weaken for those with higher cognitive ability (Bergman et al., 2010) and those with prior product-buying experience (Alevy et al., 2011).

Anchoring

What we see first affects our judgement of everything thereafter

How we work out a fair price and ultimately what to choose is greatly dictated by the first piece of information we see.

Tversky, A.; Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science 185 (4157): 1124–1131.

The study

Setup

Participants were asked to quickly estimate - within 5 seconds -  the answer to one of two same calculations, anchored either low or high.

Results

Those with the low anchor guessed 512 on average, whereas the high guessed a much higher 2,250. The correct answer was 40,320.

Key Takeaways

Put your highest price first in a list to make subsequent prices appear cheaper in comparison and increase sales. For instance, on the wine list shown, instead of putting the expensive items at the foot of the list, rearrange them in descending price. 

Don’t set your anchor price too high or the natural inclination to anchor other options against this price will diminish. Be realistic and keep it within an appropriate region of your other prices.

Audience matters. Anchoring effects  weaken for those with higher cognitive ability (Bergman et al., 2010) and those with prior product-buying experience (Alevy et al., 2011).

Anchoring

What we see first affects our judgement of everything thereafter

How we work out a fair price and ultimately what to choose is greatly dictated by the first piece of information we see.

The study

Setup

Participants were asked to quickly estimate - within 5 seconds -  the answer to one of two same calculations, anchored either low or high.

Results

Those with the low anchor guessed 512 on average, whereas the high guessed a much higher 2,250. The correct answer was 40,320.

np_read_2490885_000000

In detail

During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgements are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor.

For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth.

Studies have shown that anchoring is very difficult to avoid. For example, in one study students were given anchors that were obviously wrong. They were asked whether Mahatma Gandhi died before or after age 9, or before or after age 140. Clearly neither of these anchors are correct, but the two groups still guessed significantly differently (choosing an average age of 50 vs. an average age of 67).

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Anchoring

is included in Box One of our physical workshop tool.
is included in Box Two of our physical workshop tool.
Box One