How to Lift the Anchor of Faulty Logic - THINKERS Notebook

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How to Lift the Anchor of Faulty Logic

You've heard the old saying, "You never get a second chance to make a first impression."

Heck, it was the centerpiece of an entire ad campaign for Heads & Shoulders back in the day.

But do you know the cognitive bias that underpins this truism?

It's called the anchoring effect -- which occurs when "an individual depends too heavily on an initial piece of information offered (considered to be the "anchor") to make subsequent judgments during decision making."

As with most cognitive biases, it can have an insidious effect on your logic if you don't maintain vigilance about the impact it is having on your thinking.

The clearest examples of the anchoring effect often come from financial negotiations. This could be a high-stakes boardroom negotiation, buying a car, or something as simple as negotiating with a contractor doing work on your house.

The first number that enters the negotiation usually anchors the discussion.

  • So if you're on the seller side, you want the initial number to be higher, as any compromise will end up higher than it otherwise might.
  • But if you're on the buying side, you want the initial number to be lower, so that any compromise will come in lower. 

From the Harvard Law School blog:
"For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth."

And this is where your mental vigilance comes in.

You have to understand that the mental anchoring is going to happen whether you like it or not. So you need to have prepared ways to combat it.

To continue the car example, it is helpful to enter the negotiation with your own well-researched and considered value for the car. Doing so allows you to use anchoring to your advantage, because you anchor the price to your own personal interpretation of the value rather than allowing the dealer to do the anchoring on their terms.

This way, if the compromise numbers still exceed what you think the car is worth, you can follow sound logic and walk away rather than falling prey to faulty logic and paying more than you otherwise would have.

In this week's THINKERS Roundup, you will find three more articles that go in-depth about how you can avoid the negative impacts of the anchoring effect and instead use it to your advantage.

3 steps for beating anchoring at its own game

"Being aware of your bias is the first step. Know the weaknesses of your mind and anticipate prejudiced judgement. If you approach each sales negotiation with caution, frequently reflecting on your judgement, you are less likely to fall into the traps of your own mind.​"

Read: Outsmart the Anchoring Bias in Three Simple Steps (Psychology Today)

The importance of acknowledging how irrational we really are

Hat tip this Business2Community blog post:

"To take one of Dan’s examples, let’s say as a holiday company you provide potential customers with the option to go on a holiday of their choice, with one option being Rome and the other being Paris. These holidays are both free, and that includes everything – flights, hotels, the lot.

"For most people, this would be a pretty difficult decision. Both cities have interesting cultural backgrounds, good food, monuments etc. and the customer must choose between the two.

However, as Dan says in his talk (about 12 minutes in) if you add in a third option – Rome without free coffee in the morning – this means that the customer then anchors their choice against this third, less appealing option. The idea of going to Rome, and having free coffee, is superior to going to Rome and having to pay for coffee in the morning.

Moreover, and perhaps most importantly, Rome with free coffee also becomes superior to Paris with free coffee. Rome without free coffee became a point relative to which a decision could be made.

Watch/Read: Are We In Control of Our Own Decisions (Dan Ariely TED Talk)

Anchoring impacts our relationships too 

"So whenever you notice yourself confused or upset by something that you did not expect, stop and think: what is the origin of your confusion? Is it coming from some sort of cached pattern, where you think something is the only “right way” of doing things? Think about whether there are any alternative ways of achieving your desired outcome. (This is part of a broader strategy of dealing with common thinking errors by considering alternatives, which research shows is a very effective way for avoiding thinking errors.)

"Try listing at least 3 alternatives, and describe why each of them can be valid and right, at least for other people if not for you. Remember, relationships are a two-way street, and you need to respect the other person and their preferences in order to communicate well."

Read: Protect Your Relationships by Cutting Off Your Anchors (Intentional Insights)

Quote of the week

"Knowing that one may be subject to bias is one thing; being able to correct it is another."

-- Jon Elster