We generally tend to base our decisions based on the first piece of information we are put in front of (otherwise known as ‘the anchor’). An example of this may be using it as a reference point to assess possible future options when making decisions. One example of this may be when if you first see a sweater you like that costs $500, then you stumble across a second one that costs $50, or less – you’re more likely to perceive the second sweater as cheap. Anchoring bias is known as a cognitive bias that influences us to place a greater weight on the first piece of information we are presented with on a particular topic. When we are making future plans or calculating estimates on something, we generally interpret the most up-to-date information from the reference point of our anchor, as opposed to judging it objectively.

Anchoring Bias Can Also Influence How Much You Are Willing to Spend On Something

One example of this is if you were to imagine that you are purchasing a new car. You read that the average price of the type of car you are particularly interested in is $25,000. When you are head down to the local car showroom, the car salesman offers you the same vehicle for $24,500, which you are more than happy to accept due to it being $500 less than had originally planned to pay. However, you then find another car garage or showroom is selling the exact same make and model of car for just $23,000 a massive $1,500 less than what you ended up paying and a massive $2,000 less than the average prices you found when you browsing the internet.

After seeing this, you might kick yourself for making such a hasty decision and not shopping around more and getting that better price. You end up questioning as to why you were happy to accept the $500 discount when you may have got an even cheaper price?

Through your initial research, you found that the average car was $25,000, the first offer that the salesman made to you felt like a bargain. You turned a blind eye to any additional information, such as the slight possibility that other car dealers might also be selling their cars at lower prices too, and  and as a result made a somewhat hasty decision based on the information you had at hand, which served as an anchoring point in your mind and guided your subsequent actions.

Anchoring Can Influence Much More Than Just Money

The anchoring effect also has an impact on many other areas of our lives beyond simply financial or purchasing decisions. Here are some examples:

You may ask yourself the question as to how old your children should be before you allow them to have a mobile or cell phone? Your child may argue that their school friends all have mobile phones at 12 or 11 or younger, but you were brought up with either not mobile phone or believe that children shouldn’t really have or need a mobile or cell phone. The anchoring effect leads you to believe that children should have no need for a cell phone and if they absolutely must, they should have one a lot later in life.

Another example may be the question you post to yourself as to how long you expect to live? If your parents both had long lives, you might automatically presume that you too will also live a long and healthy life. This is due to the anchoring point being that your parents have lived a long life but you may be tempted to ignore the fact that your parents lived a healthier, more active lifestyle when they were younger and as a result that probably contributed to the living to an old age whereas you eat unhealthy food and rarely do much exercise.

Much like the example before regarding cell phones, another question that you may ask yourself iis how much television it’s appropriate for your children to watch each day. If, in your childhood, you barely watched any television then you may also expect your, children, to spend more time playing outside, reading books or avoiding watching TV.

Another example may be based on healing and sickness you encounter. If you were brought up with the doctor prescribing medication, this may be the default reaction to you being unwell but people raised more holistically may look to a nutritional therapist of changing their diet or lifestyle as a means to heal themselves.