When it comes to negotiation, few things are as feared as the infamous anchoring effect. This cognitive bias describes the tendency of first impressions to have a disproportionate impact on future decisions. In this article we’ll introduce you to anchor bias and explain why it has so many different names (e.g., anchoring effect, initial reference point, focal point). We’ll also cover several ways that people can reduce its impact on their decisions and problem solving.

What is Anchoring Bias?

Anchoring bias is a cognitive bias that describes the human tendency to base future decisions on past reference points. In other words, when making decisions, we rely on past experiences, rather than completely rationally weighing the pros and cons of all available options. Specifically, when people make decisions, they often rely too heavily on the first piece of information they have, even if that information is not relevant to the decision being made.This effect is widely studied in psychology and behavioral economics, and it’s been widely used in marketing and sales for decades. It’s even been dubbed the “mother of all biases” by some researchers.

The Psychology Behind Anchoring Bias

The psychology behind anchoring bias is rooted in the fact that people have a limited attention span. It’s impossible for us to focus on everything in the world around us at any given time, so we rely on shortcuts. These shortcuts help us conserve our attention and energy and make decisions faster. When making decisions, we are more likely to focus on cues that are easily available to us: the weather on the day of your job offer, the length of your commute to work, etc. Research has shown that even the order in which you’re presented with options has an effect on your future decisions. For example, imagine you are given two offers for a new car: one for $20,000 and one for $19,800. It’s almost impossible to not say that the second offer is “closer” to your first choice (even if it’s not).

How Does Anchoring Bias Impact Decision Making in Business?

In business, the anchoring bias can cause people to rely too heavily on the first piece of information they have. This can result in decisions that are not necessarily optimal, because the first information is not necessarily relevant to the problem being solved.

Anchoring bias has a number of implications for business and negotiation. First, it informs decision-making: when a price is first mentioned, the person offering that price will have a greater influence on the final deal than he or she should. Second, it can skew your negotiating partner’s decision-making by biasing them toward the first number they hear. The first number that is given in a negotiation is an anchor (and, as you’ll see, it often has nothing to do with the facts). Because of anchoring bias, the other side will often try to steer the deal toward that initial anchor. That’s why it’s so important to come up with an opening offer that doesn’t give away too much of your hand.

How to Use Anchoring Bias To Your Advantage

There are a few ways to leverage anchoring bias to your advantage in negotiation. The most important thing is to use the information from the first offer made by your negotiating partner. The first number they give you should not be the basis of your future negotiations. If the other side starts the negotiation with an extremely high or low figure, use it as an opportunity to establish how reasonable you are. First and foremost, this means not letting their initial offer dictate your next move. Make sure to thoroughly consider all factors (the deal itself, your budget, etc.) before placing your first offer on the table.

Final Words

While anchoring bias is a very real and important phenomenon, it doesn’t mean that negotiating is a lost cause. Rather, it means that you should be aware of its implications and seek to counteract it as much as possible. When negotiating, make sure to use all the information at your disposal to make reasonable decisions and come up with a fair deal for both sides. Beyond that, you should also consider the setting in which you’re negotiating. Anchoring bias is more likely to occur in an informal setting, so make sure to maintain a professional distance.

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When you think of the word “anchor,” what comes to mind? Perhaps a famous song from the 1990s, or maybe something more serious like an anchor holding a ship in place. Either way, you probably do not think about how anchor bias impacts problem solving and decision making. That is unless you work in business, operations, or management consulting. In those fields, anchor bias is a well-known heuristic that can impact problem solving and decision making. But for most people, it’s not something they encounter every day. In this article we’ll introduce you to anchor bias and explain why it has so many different names (e.g., anchoring effect, initial reference point, focal point). We’ll also cover several ways that people can reduce its impact on their decisions and problem solving.