From the small decisions you make on a daily basis, to the big ones you make less frequently, you and your thinking process are often subtly influenced by cognitive phenomena. One of these, anchoring bias, plays a crucial role in steering your judgments and choices, even if you don’t notice its influence.
Effective product managers consider the ways cognitive biases affect marketing and pricing to steer user interactions with their product. This information is also important for estimating effort, creating timelines, and crafting budgets.
In this article, you’ll learn what anchoring bias is, how it affects your judgment and decision-making, as well as how to use it to your advantage.
Anchoring bias refers to the human tendency to rely too heavily on the first piece of information offered when making a decision. This first piece of information is called the anchor and it influences every other belief or decision that follows.
In other words, an anchoring bias impacts your judgments and decisions by moving them closer to the anchor. When you encounter a new situation or decision, the first information you receive sets the mental benchmark for everything that follows. Subsequent information and decisions are then interpreted in relation to this benchmark.
Anchoring bias heavily influences the decision-making process. At its core, anchoring bias affects you by creating a reference point that might not be relevant or accurate. As a result, you tend to overvalue said reference point, which can lead to:
Now, let’s look at the effects of anchoring bias on product management. Anchoring bias affects you in several specific ways.
You might think that anchoring bias is something you can easily avoid, but there are plenty of examples in your daily life where you’re confronted with anchoring bias. Here are some examples:
You often see the “original price” when you shop online. For example, before Black Friday companies often raise the prices only to lower the price back down and advertise this as a significant discount off the “original price.” Consumers then see the higher price first, which becomes the anchor and the reduced price becomes more attractive to the buyer.
In salary negotiations often the first set salary becomes the anchor for the subsequent negotiations. If the candidate is offered a starting salary, this starting salary becomes the anchor. On the other hand, if the candidate formulates his salary expectations first. These expectations become the anchor and the company has to respond to it.
In annual budgeting, the prior year’s budget often serves as an anchor for the new budget. The department may adjust their requests up or down from this figure, rather than analyzing the actual needs for the next year. This may lead to insufficient planning and more costs.
In dating, as well as in hiring, the initial impression of a person serves as an anchor for the following talk. This can influence the success of the date or the hiring process. Unfortunately, it can be hard to predict what a good first impression would be. For example, one might like the outfit of the other person, whereas someone else might think they overdressed.
Although you can’t avoid anchoring bias entirely, you can mitigate it with the following strategies:
Anchor bias is a subconscious effect that’s very difficult to avoid. However, you can minimize the risks of it by making yourself aware of it and using targeted techniques. When it comes to important decisions, you should take your time and think the decision through carefully.
Now, you can use anchoring bias to your advantage in product development, marketing, and negotiations.
Featured image source: IconScout
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