Anchoring

Anchoring in a Nutshell

Anchoring plays a critical role in negotiation and conflict resolution, so the party making the first offer will usually have an advantage. When the first offer establishes strong anchors, the other side will be more likely to accept the numeric (such as price) and other elements anchored in the first offer. One way to ensure little adjustment from the anchor is to use very specific numbers that will lead the other side to think in smaller denominations.

Research on Anchoring

Research shows that anchors are crucial for decision-making; in the decision-making process, anything, even an arbitrary number, can serve as an anchor.

In the classical experiment by Amos Tversky and Daniel Kahneman (1974) participants had to guess the percentage of African nations that were members of the United Nations. Some people were asked whether it was more or less than 10%; others were asked whether it was more or less than 65%.

The question that participants heard served as the anchor – an initial and unconscious suggestion from which participants would adjust their answer. Thus, the participants who were asked whether it was more or less than 10% answered on average 25%; the participants who were asked whether it was more or less than 65% answered on average 45%.

In a relatively more recent experiment by Fritz Strak and Thomas Mussweiler (1997), the researchers asked participants to guess how old Gandhi was when he died. Some people were asked whether Gandhi died before or after age of 140; although the question was obviously off the mark with his possibly real age when died, this group was still influenced by the question – they answered on average that Gandhi died when he was 67 years old. Others were asked whether he died before or after age of 9; the estimates of this group were on average lower 17 years, i.e. that Gandhi died when he was 50 years.

Anchoring and Adjustment: Power of Precise Numbers

People’s ultimate decisions are based on anchors but do not match them. Instead, people normally use anchors to adjust their answer. So one of the most important things is to create strong anchors (from which people adjust little).

One way to create stronger anchors is to use precise numbers. In a study by Janiszewski and Uy (2008), home sellers received more when they used precise numbers (e.g. “$282.600”) instead of rounded numbers (e.g. “$280.000”). The main reason for this effect is that precise numbers encourage people to think in smaller denominations – hundreds instead of thousands. Therefore, the buyers were willing to pay more for the property because they were adjusting less from the initial anchor.

Sources

  • Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1130
  • Strack, F., & Mussweiler, T. (1997). Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73, 437–446.
  • Janiszewski, C., & Uy, D. (2008). Precision of the anchor influences the amount of adjustment. Psychological Science, 19, 121-127.