Anchoring And Adjustment

Anchoring and Adjustment Anchoring and adjustment is a cognitive heuristic in which people rely heavily on an initial piece of information—the anchor—when making estimates or decisions, then adjust away from that anchor to arrive at a final value. Adjustments are often insufficient, so judgments remain biased toward the anchor. When the anchor is close to the true value the bias is minimal; when it is far off, outcomes can be systematically wrong. Key points
* The anchor is any initial number or reference point (a suggested price, model output, random number, etc.).
* Subsequent estimates tend to stay too close to that anchor even after new information is considered.
* Awareness, incentives, expertise, and cognitive ability can reduce—but rarely eliminate—the effect.
* Anchoring is widely used (and abused) in negotiations, sales, hiring, and forecasting.
How anchoring works
* People use the first available number as a starting point and make iterative adjustments to reach a decision.
* Adjustments are typically insufficient because people underestimate how far they need to move from the anchor.
* Anchors can be externally provided (a quoted price, model forecast) or self-generated.
* Irrelevant numbers can unintentionally serve as anchors (classic experiments show random numbers can influence unrelated estimates).
Factors that influence anchoring
* Awareness: Telling people about anchoring reduces the effect but does not remove it.
* Incentives: Monetary rewards lower anchoring impact but don’t eliminate bias.
* Expertise and experience: Domain knowledge and professional skill tend to reduce anchoring in that domain.
* Cognitive ability and style: Higher general cognitive ability helps; personality traits and mood (e.g., depression) can increase susceptibility.
Applications and examples
* Negotiations: Opening offers serve as anchors. A very high initial asking price can pull the final agreement upward; an aggressive low offer can push it downward.
* Hiring: The first salary figure mentioned often shapes subsequent negotiations.
* Sales: Asking for a high list price biases buyers’ counteroffers upward.
* Finance and forecasting: Model outputs, analyst forecasts, or one prominent scenario can anchor subsequent assessments. Relying on multiple models or diverse perspectives reduces this risk.
Mitigation strategies
* Seek independent estimates before seeing others’ numbers.
* Consider multiple, diverse models and scenarios rather than a single forecast.
* Deliberately identify and challenge the anchor: ask “What if this anchor is wrong?” and quantify alternative outcomes.
* Use structured decision rules or checklists that force consideration of disconfirming evidence.
* Encourage collaborative forecasting that aggregates independent judgments (the “many eyes” approach).
* Train decision-makers about anchoring and promote critical thinking—this helps but doesn’t fully remove the bias.
Practical tips
* In negotiations, set your own anchor deliberately when it benefits you; be cautious when others set the first number.
* In analysis, produce an initial blind estimate, then compare it with model outputs.
* When evaluating forecasts, compare multiple models, time horizons, and assumptions to avoid single-anchor dependence.
* Document reasoning and counterarguments to make adjustment processes more explicit and measurable.
Further reading: "A Literature Review of the Anchoring Effect"; "The Anchoring Effect and How it Can Impact Your Negotiation"; "Expert Political Judgment." Explore More Resources