Why Anchoring Works

This article was written by Neil Patton of Pre-Think Inc and first published in his Sept 2008 newsletter. It is being published here with his permission.

ANCHORING – WHY DOES IT WORK?

You receive a mailing from a charity and they suggest the following donation levels: $5,000, $1000, $100, $50, or $10. You receive a second mailing from another charity and they ask you to decide your donation level. On average, which of these two different mailings will result in a higher donation? If you picked the first mailing, with the options from $5,000 to $10, you are correct according to anchoring theory.

Anchoring theory suggests that preliminary data or information will have an “anchoring” effect on how people will make decisions and process information, and will cause a bias towards the anchor. In the case of the charity donations example, the anchoring bias is towards the $5,000.00. While, most of us won’t give $5,000, the presence of that number will make most of us give $100 instead of $50, or $50 instead of $10.

What makes anchoring so fascinating is that quite often we know that the other party is doing it. And they know, that we know, that they are doing it. So why do they do it? Because it works.

Unions start negotiations with sky high demands. TV infomercials sell us products by starting with an inflated price and offering several substantial discounts over the course of 30 seconds (“that’s a 75% discount!“). We even see it in political campaigns. Candidates will attempt to anchor a key idea or belief about themselves (or the other camp) early on in the campaign – regardless of the accuracy or relevance of the claim.

So why does anchoring seem to work? The simple answer is that people are unconsciously lazy and they will rely on the simplest data when it is made available. The study of anchoring evolved from work by Amos Tversky and Daniel Kahneman. Considered pioneers in the fledgling field of behavioural economics, they expanded the concept of heuristics, which are the mental shortcuts, often non-rational, which people employ to make decisions.

Tversky and Kahneman’s seminal study had college students write the last two digits of their social insurance number (SIN) on the top of a piece of paper. They were then asked how much they would be willing to pay for expensive wine, inexpensive wine, chocolates, and a book. The results were fascinating. The students with SIN digits ending in 80 to 99 were willing to spend 3X as much as the students with SIN digits from 00 to 19.

Negotiators will use anchoring to help focus and underscore a particular issue they wish to push to the forefront of the other party’s mind. Even when we know rationally that data provided by the other party is inflated or exaggerated, chances are that the effects of anchoring are working.

With election campaigns this fall in Canada and the United States watch for the use of anchoring. “Stephane Dion’s green shift is a tax grab.” “Stephen Harper has a hidden agenda.” “Obama is not ready to lead.” “McCain is a continuation of George W. Bush.” Remember, they will say these things because they often work.

Tips on Anchoring

  1. By getting your number, data, or information out first you have the advantage of anchoring. When it is important, get your anchored position out before the other party does.
  2. Anchoring needs to be credible. Exaggeration is a perfectly good strategy, but make sure that your anchor is somewhat credible.
  3. When the other party attempts to use anchoring against you, identify it as such, and if need be, let the party know that you know what they are doing.

Neil Patton is a negotiator and co-founder of Pre-Think Inc.

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