Before we dive into examples where anchoring bias, let’s do a quick refresh of the definition of anchoring bias. Put simply, anchoring bias is the tendency of humans to disproportionately rely on existing information or the first information they come across when making decisions. Now, let’s look at 7 examples of anchoring bias to develop a better understanding of the concept in case the definition is not enough to clear the concept.
Anchoring Bias in Shopping
Imagine you enter a retail store and they have t-shirts placed on one long aisle. Towards the beginning of the aisle, they have t-shirts worth $50, and the prices go down as you move along the aisle. When you reach the end of the aisle, you find the last batch of t-shirts priced at $10.
Now since you would have the t-shirts priced at $50 at the beginning of the aisle as your reference point, you would think that the $10 priced t-shirts are available at a steal price.
In order to avoid anchoring bias in shopping, one should always keep in mind that this is a trick often employed by retailers and try to make the buying decision consciously. One should always try to take the decision objectively and try to save ourselves from unconsciously playing into the hands of anchoring bias.
Anchoring Bias in Salary Negotiation
Making an offer based on the candidate’s last salary is a classic example of anchoring bias. Suppose you are drawing $50k in your current job but your skills and experience are good enough to be able to draw $100k.
However, whether you choose to negotiate your salary with your current employer to a new one, they will most probably try to anchor you down to your current salary of $50k to deny the raise to $100k.
In many situations, employers also deliberately offer less than they would eventually settle for to make sure they don’t have to pay a lot even after negotiation.
To avoid letting anchoring bias creep into negotiations, you can start by overshooting your expectation by a realistic amount to make sure you get what you want. For example, if you are willing to settle at a salary of $75k, tell the company your expectation is $80k.
Anchoring Bias in the Courtroom
In the courtroom, there have been many instances where judges have given different jail sentences for similar crimes. The length of the prison sentences demanded by the prosecutor or probation officer has a demonstrable impact on the final verdict given by the judges. The Courtroom examples show that even those who are experts in their own fields are likely to fall into the anchoring bias trap.
To make sure judges don’t become a victim of anchoring bias, they should ensure their judges don’t get clouded by the suggestion of the prosecutor or probation officer. Rather, they should objectively give sentences basis the severity of the crime.
Anchoring Bias in Marketing
A famous example of anchoring bias is an economist magazine subscription in which the three options given were as follows:
Web-only for $59, Print only for $125, and Both Print and Web for $125.
Now, looking at the pricing breakup, one might think that the second and third options are the same. But the second option served as an ostensibly unnecessary yet important anchor, making most people select the third option. When the third option was removed, most people chose the web-only option.
Anchoring Bias in Finance & Stock Market
If I were to ask you what will the price of Google stock be in 1 year, the first question you would ask me is what is the stock price is today and make an assumption basis that. However, that would be like playing right into the hands of anchoring bias as you are using today’s price to give a judgment of where the stock price will be in a year’s time.
Anchoring bias in Medicine
Anchoring Bias manifests in the field of medicine when doctors mistakenly prioritize information that aligns with their first impressions of the patients, even when first impressions are wrong. This often occurs when the doctor replies too heavily on the first piece of information to arrive at a conclusion. To give an example, a doctor might attribute a patient’s back pain to known osteoporosis without ruling out other possible causes.
Anchoring Bias in Bidding
Dan Ariely, a professor of psychology and behavioral economics, has also demonstrated the impact of anchoring bias in bidding. In an experiment he conducted, he asked participants to make a mental note of the last two digits of their passcode. He then found that those with higher digit passcodes bid higher in the bidding and those with lower digit passcodes left the bidding earlier.
