ANCHORING - Definitions, Causes, Risks, Advantages & Debiasing
The anchoring effect occurs when we rely too heavily on an initial reference point or 'anchor' while making a decision (Furnham & Boo, 2011). For example, in an experiment, participants were first asked to write the last two digits of their social security number. They were then asked to consider whether they would pay this number of dollars for items whose value they did not know, such as wine, chocolate and computer equipment. Later, they were asked to actually bid for these items. Participants with higher two-digit numbers submitted bids that were almost double than those with the lower numbers. Therefore their social security numbers had become their anchors, even though they were completely unrelated to the value of items they had to bid for (Ariely et al., 2003).
These anchors may either be self-generated from memory and knowledge, or they may be acquired from the immediate external environment. Subsequent information is not as impactful on the decision as the initial anchor. Even completely irrelevant and uninformative anchors can also impact our decisions (Furnham & Boo, 2011).
Firstly, studies have found that judges anchor their sentencing decisions on sentencing demands, even when these demands come from irrelevant sources or are randomly generated by judges themselves with a throw of dice (Englich et al., 2006).
Anchoring has also been found to have a powerful impact on negotiation, such as salary negotiations, whereby the first offer becomes the anchor and the final agreed value often does not stray too far from it. Therefore the person who makes the first offer in a negotiation gains an advantage over others (Guthrie et al., 2006).
Anchoring effects are so pervasive that they've even been observed in estimating the magnitude of physical stimuli such as length, weight, or loudness. For example, if we first encounter a light weight object and then judge the weight of a heavier object, our estimates are likely to be lower than our estimates when we encounter a heavier object first and then judge the weight of the same object (LeBoeuf & Shafir, 2006).
Another domain where strong anchoring effects are observed is perspective-taking. To estimate the point-of-view of others, we first anchor on our own perspective, assuming that others will share it. This is called egocentric anchoring. Subsequently, in scenarios where others are known to be in different situations, from different backgrounds, or in possession of different knowledge, we modify or adjust the anchor. But often this adjustment is insufficient and therefore we are unable to fully understand other's perspective (Epley et al., 2004).
Cognitive causes are the psychological mechanisms that explain the bias. It is likely that no one of the multiple explanations can explain every instance of the bias, and each explanation is valid in some cases and invalid in others.
Firstly, when the answer to a question is unknown or is difficult to accurately determine, we often try to approximate it by substituting the question with an easier question whose answer is known and is likely to be close to the right answer (Epley & Gilovich, 2005; Ni et al., 2019). This substitute answer becomes the anchor which is then adjusted until it seems close enough to the right answer. E.g. to estimate the distance between two towns, we may anchor on the number of train stations between the towns. This process is known as anchoring and adjustment, and it mostly comes into play when the anchor is self-generated (Simmons et al., 2010; Furnham & Boo, 2011). The problem with this approach is that we often stop adjusting when the answer seems close enough rather than continuing to adjust to get a more accurate answer. This insufficient adjustment is a result of us trying to minimize mental effort and attention required for adjusting (Epley, 2004; Epley & Gilovich, 2006).
Sometimes adjustment process may also be triggered by anchors acquired from external sources, if the anchor is perceived to be a hint towards the answer but it seems too extreme to be the right answer, and therefore needs some adjustment (Ni et al., 2019; Ioannidis et al., 2020)
But in most cases where the anchor is provided by an external source, we engage in a kind of hypothesis testing to evaluate whether the external anchor is the right answer. But as we have seen in the case of confirmation bias (link to the video in the ticker, if you've not seen it), we automatically tend to test hypotheses by looking for evidence that confirms it, rather than evidence that disconfirms it. This means that we will pay more attention to information that is consistent with the anchor, and thus be biased towards the anchor. This is referred to as the selective accessibility model (Chapman & Johnson, 1999; Strack & Mussweiler, 1997). The confirmatory hypothesis testing process is largely automatic and unconscious, so we are often completely unaware of the impact of external anchors on our decisions (Epley, 2004).
And lastly, study of attitude change has contributed to our understanding of anchoring by integrating the adjustment and selective accessibility models. An attitude change occurs when a relatively stable attitude is modified to meet the demands of a particular situation or new information. This process resembles anchoring and adjustment, wherein existing attitude is the anchor, and adjustment is based on evaluation of the situation and relevant knowledge in our memory, which can be consistent or inconsistent with the anchor (Wegener et al., 2001; Cohen & Reed, 2006).
A study found that activation of VMPFC was correlated with the extent of adjustment from the anchor. This brain region integrates information from risk and reward centers of the brain as well as from memory, and informs decision making. Activation in VMPFC seems to lead to more adjustment and lesser overall anchoring (Tamir & Mitchell, 2010). VmPFC also plays a role in confirmatory hypothesis testing.
For the bias to be passed down genetically or culturally to us from our ancestors, it must be beneficial in certain conditions.
Firstly, our susceptibility to external anchors may be a product of social exchange within tribes and small communities in which our ancestors lived. In such groups where trust and cooperation between members is high, we'd have good reason to believe that people providing us with an anchor would do so only if the anchor conveys meaningful information (Guthrie et al., 2006).
Next, some researchers argue that we often adjust insufficiently because we adapt the number of adjustments to rationally allocate mental effort. When errors can have severe impact, we invest more time and are more accurate, our adjustments are larger, and our anchoring bias is smaller. But when we feel that time and mental effort can be put to better use, then judgements are faster and less accurate, adjustments are smaller, and anchoring bias is larger (Lieder et al., 2018).
And lastly, anchoring and adjustment help us make decisions in face of uncertainty. When our knowledge is insufficient to make an accurate judgment, anchoring and adjustment enables us to put forth our best guess, which in many situations, is a better strategy than indecision or delayed decision.
And finally, let’s look at some strategies to manage the undesirable aspects of impact and to use it to our advantage.
When insufficient adjustment is the primary cause of anchoring effects, strategies that increase mental efforts are effective in reducing anchoring (Epley & Gilovich, 2005; 2006). One such strategy is prompts and warnings that inform decision-makers that they may be susceptible to anchoring effects and that they should try to adjust further away from such anchors (Chapman & Johnson, 1999). Another strategy is to offer incentives for accuracy, so decision-makers are motivated to spend more time and effort while adjusting (Epley & Gilovich, 2006).
Also, we adjust more when we're certain of the direction in which to adjust from the anchor. Where possible, guidance about direction of adjustment can be provided to decision-makers, along with incentives and prompts (Simmons et al., 2010).
Next, characteristics of anchors can also impact the magnitude of anchoring. Anchors that just precede decision-making are more effective than those that are presented either earlier or subsequently (Whyte & Sebenius, 1997; Guthrie et al., 2006). Numerical anchors that are precise lead to smaller anchoring effects than anchors that are rounded. This is because precise anchors lead to adjustments that are on a scale with finer resolution, while rounded anchors lead to big jumps while adjusting (Janiszewski & Uy, 2008). Also, anchors work within a range where the are likely to be the right answer. But if the anchor is too extreme, it may be completely ignored by decision-makers (Furnham & Boo, 2011).
Next, characteristics of decision-makers also impact anchoring eefects. Expertise and familiarity with the subject matter of an anchor reduce anchoring effects in some cases, but not always, as even experts are susceptible to automatic confirmatory hypothesis testing (Furnham & Boo, 2011; Bergman et al., 2010). Egocentric anchoring in perspective taking has been found to reduce with age (Epley, 2004). Also, certain personality traits make individuals susceptible to larger anchoring effects. Individuals with high conscientiousness engage in more thorough thought processes before judgments are made, those with high agreeableness take the provided anchors seriously, and individuals with high openness to experience are more sensitive to anchor cues. These tendencies lead to the activation of confirmatory search and selective accessibility mechanisms of anchoring (Furnham & Boo, 2011; McElroy & Dowd, 2007).
Next, the state of the decision maker also impacts anchoring effects. Cognitive load and stress compete with mental effort required for adjusting, and therefore lead to larger anchoring effects (Furnham & Boo, 2011; Blankenship et al., 2008). Also, emotions that lead to more thorough thought processes, such as sadness, activate confirmatory search (Bodenhausen et al., 2000)
And finally, when presented an external anchor in form of the first offer during a negotiation, a few steps we can take to minimize anchoring effects are to consider whether the opponent has any other alternative to negotiation, think about what the minimum value acceptable to the opponent might be and think about your own target value rather than the minimum value acceptable to you (Galinsky & Mussweiler, 2001).
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