# Anchoring

Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments 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.

## Focusing effect

The focusing effect (or focusing illusion) is a cognitive bias that occurs when people place too much importance on one aspect of an event, causing an error in accurately predicting the utility of a future outcome.[1]

People focus on notable differences, excluding those that are less conspicuous, when making predictions about happiness or convenience. For example, when people were asked how much happier they believe Californians are compared to Midwesterners, Californians and Midwesterners both said Californians must be considerably happier, when, in fact, there was no difference between the actual happiness rating of Californians and Midwesterners. The bias lies in that most people asked focused on and overweighed the sunny weather and ostensibly easy-going lifestyle of California and devalued and underrated other aspects of life and determinants of happiness, such as low crime rates and safety from natural disasters like earthquakes (both of which large parts of California lack).[2]

A rise in income has only a small and transient effect on happiness and well-being, but people consistently overestimate this effect. Kahneman et al. proposed that this is a result of a focusing illusion, with people focusing on conventional measures of achievement rather than on everyday routine.[3]

Anchoring and adjustment is a psychological heuristic that influences the way people intuitively assess probabilities. According to this heuristic, people start with an implicitly suggested reference point (the "anchor") and make adjustments to it to reach their estimate. A person begins with a first approximation (anchor) and then makes incremental adjustments based on additional information. These adjustments are usually insufficient, giving the initial anchor a great deal of influence over future assessments.

Daniel Kahneman, one of the first researchers to study anchoring.

The anchoring and adjustment heuristic was first theorized by Amos Tversky and Daniel Kahneman. In one of their first studies, participants were asked to compute, within 5 seconds, the product of the numbers one through eight, either as $1 \times 2 \times 3 \times 4 \times 5 \times 6 \times 7 \times 8$ or reversed as $8 \times 7 \times 6 \times 5 \times 4 \times 3 \times 2 \times 1$. Because participants did not have enough time to calculate the full answer, they had to make an estimate after their first few multiplications. When these first multiplications gave a small answer – because the sequence started with small numbers – the median estimate was 512; when the sequence started with the larger numbers, the median estimate was 2,250. (The correct answer was 40,320.) In another study by Tversky and Kahneman, participants observed a roulette wheel that was predetermined to stop on either 10 or 65. Participants were then asked to guess the percentage of the United Nations that were African nations. Participants whose wheel stopped on 10 guessed lower values (25% on average) than participants whose wheel stopped at 65 (45% on average).[4] The pattern has held in other experiments for a wide variety of different subjects of estimation.

As a second example, in a study by Dan Ariely, an audience is first asked to write the last two digits of their social security number and consider whether they would pay this number of dollars for items whose value they did not know, such as wine, chocolate and computer equipment. They were then asked to bid for these items, with the result that the audience members with higher two-digit numbers would submit bids that were between 60 percent and 120 percent higher than those with the lower social security numbers, which had become their anchor.[5]

### Difficulty of avoiding anchoring

Various 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 can be correct, but the two groups still guessed significantly differently (average age of 50 vs. average age of 67).[6]

Other studies have tried to eliminate anchoring much more directly. In a study exploring the causes and properties of anchoring, participants were exposed to an anchor and asked to guess how many physicians were listed in the local phone book. In addition, they were explicitly informed that anchoring would "contaminate" their responses, and that they should do their best to correct for that. A control group received no anchor and no explanation. Regardless of how they were informed and whether they were informed correctly, all of the experimental groups reported higher estimates than the control group. Thus, despite being expressly aware of the anchoring effect, participants were still unable to avoid it.[7] A later study found that even when offered monetary incentives, people are unable to effectively adjust from an anchor.[8]

## Causes

Several theories have been put forth to explain what causes anchoring, although some explanations are more popular than others, there is no consensus as to which is best.[9] In a study on possible causes of anchoring, two authors described anchoring as easy to demonstrate, but hard to explain.[6] At least one group of researchers has argued that multiple causes are at play, and that what is called "anchoring" is actually several different effects.[10]

In their original study, Tversky and Kahneman put forth a view later termed anchoring-and-adjusting. According to this theory, once an anchor is set, people adjust away from it to get to their final answer; however, they adjust insufficiently, resulting in their final guess being closer to the anchor than it would be otherwise.[11] Other researchers also found evidence supporting the anchoring-and-adjusting explanation.[12]

However, later researchers criticized this model, because it is only applicable when the initial anchor is outside the range of acceptable answers. To use an earlier example, since Mahatma Gandhi obviously did not die at age 9, then people will adjust from there. If a reasonable number were given, though, there would be no adjustment. Therefore this theory can, according to its critics, not explain the anchoring effect.[13]

Another study found that the anchoring effect holds even when the anchor is subliminal. According to Tversky and Kahneman's theory, this is impossible, since anchoring is only the result of conscious adjustment.[14] Because of arguments like these, anchoring-and-adjusting has fallen out of favor.

### Selective accessibility

In the same study that criticized anchoring-and-adjusting, the authors proposed an alternate explanation regarding selective accessibility, which is derived from a theory called "confirmatory hypothesis testing". In short, selective accessibility proposes that when given an anchor, a judge (i.e. a person making some judgment) will evaluate the hypothesis that the anchor is a suitable answer. Assuming it is not, the judge moves on to another guess, but not before accessing all the relevant attributes of the anchor itself. Then, when evaluating the new answer, the judge looks for ways in which it is similar to the anchor, resulting in the anchoring effect.[13] Various studies have found empirical support for this hypothesis.[15] This explanation assumes that the judge considers the anchor to be a plausible value so that it is not immediately rejected, which would preclude considering its relevant attributes.[citation needed]

### Attitude change

More recently, a third explanation of anchoring has been proposed concerning attitude change. According to this theory, providing an anchor changes someone's attitudes to be more favorable to the particular attributes of that anchor, biasing future answers to have similar characteristics as the anchor. Leading proponents of this theory consider it to be an alternate explanation in line with prior research on anchoring-and-adjusting and selective accessibility.[16][17]

## Factors that influence anchoring

### Mood

A wide range of research has linked sad or depressed moods with more extensive and accurate evaluation of problems.[18] As a result of this, earlier studies hypothesized that people with more depressed moods would tend to use anchoring less than those with happier moods. However, more recent studies have shown the opposite effect: sad people are more likely to use anchoring than people with happy or neutral mood.[19]

### Experience

Early research found that experts (those with high knowledge, experience, or expertise in some field) were more resistant to the anchoring effect.[20] Since then, however, numerous studies have demonstrated that while experience can sometimes reduce the effect, even experts are susceptible to anchoring. In a study concerning the effects of anchoring on judicial decisions, researchers found that even experienced legal professionals were affected by anchoring. This remained true even when the anchors provided were arbitrary and unrelated to the case in question.[21]

### Personality

Research has correlated susceptibility to anchoring with most of the Big Five personality traits. People high in agreeableness and conscientiousness are more likely to be affected by anchoring, while those high in extroversion are less likely to be affected.[22] Another study found that those high in openness to new experiences were more susceptible to the anchoring effect.[23]

### Cognitive ability

The impact of cognitive ability on anchoring is contested. A recent study on willingness to pay for consumer goods found that anchoring decreased in those with greater cognitive ability, though it did not disappear.[24] Another study, however, found that cognitive ability had no significant effect on how likely people were to use anchoring.[25]

## Anchoring in negotiations

In negotiations, anchoring refers to the concept of setting a boundary that outlines the basic constraints for a negotiation; subsequently, the anchoring effect is the phenomenon in which we set our estimation for the true value of the item at hand.[26] In addition to the initial research conducted by Tversky and Kahneman, multiple other studies have shown that anchoring can greatly influence the estimated value of an object.[27] For instance, although negotiators can generally appraise an offer based on multiple characteristics, studies have shown that they tend to focus on only one aspect. In this way, a deliberate starting point can strongly affect the range of possible counteroffers.[11] The process of offer and counteroffer results in a mutually beneficial arrangement. However, multiple studies have shown that initial offers have a stronger influence on the outcome of negotiations than subsequent counteroffers.[28]

An example of the power of anchoring has been conducted during the Strategic Negotiation Process Workshops. During the workshop, a group of participants is divided into two sections: buyers and sellers. Each side receives identical information about the other party before going into a one-on-one negotiation. Following this exercise, both sides debrief about their experiences. The results show that where the participants anchor the negotiation had a significant effect on their success.[29]

Anchoring affects everyone, even people who are highly knowledgeable in a field. Northcraft and Neale conducted a study to measure the difference in the estimated value of a house between students and real-estate agents. In this experiment, both groups were shown a house and then given different listing prices. After making their offer, each group was then asked to discuss what factors influenced their decisions. In the follow-up interviews, the real-estate agents denied being influenced by the initial price, but the results showed that both groups were equally influenced by that anchor.[30]

Anchoring can have more subtle effects on negotiations as well. Janiszewski and Uy investigated the effects of precision of an anchor. Participants read an initial price for a beach house, then gave the price they thought it was worth. They received either a general, seemingly nonspecific anchor (e.g. $800,000) or a more precise and specific anchor (e.g.$799,800). Participants with a general anchor adjusted their estimate more than those given a precise anchor ($751,867 vs$784,671). The authors propose that this effect comes from difference in scale; in other words, the anchor affects not only the starting value, but also the starting scale. When given a general anchor of $20, people will adjust in large increments ($19, $21, etc.), but when given a more specific anchor like$19.85, people will adjust on a lower scale ($19.75,$19.95, etc.).[31] Thus, a more specific initial price will tend to result in a final price closer to the initial one.

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