Anchoring Bias

The Story

Maya is browsing a flea market on a Saturday morning. She spots a vintage watch that catches her eye. The seller has placed a price tag on it: £800. Maya thinks that's too expensive, but after some friendly haggling, she gets it for £500. She walks away delighted — she saved £300!

But did she? Maya has no idea what the watch is actually worth. It might be worth £100. The £800 price tag anchored her perception of value, and everything that followed was judged relative to that anchor.

What Is Anchoring Bias?

Anchoring is the tendency to rely heavily on the first piece of information you encounter when making decisions. That first number becomes a mental reference point — an anchor — and all subsequent judgements are made in relation to it.

This isn't a character flaw. It's how human brains work. We need reference points to make sense of unknown quantities, and we're drawn to whatever information is most readily available.

Anchoring in Finance

This bias shows up constantly in financial decisions:

• Property prices: "It was listed at £350,000. We got it for £320,000 — a bargain!" (But was it worth £320,000?)
• Stock prices: "The share price was £50 last year and now it's £30. It must be cheap!" (The previous price tells you nothing about current value.)
• Sale prices: "Was £100, now £60!" — the original price is the anchor, even if the item was never worth £100
• Salary negotiations: The first number mentioned tends to dominate the entire negotiation

In a classic experiment, Tversky and Kahneman (1974) asked participants to estimate the percentage of African nations in the UN. Before guessing, a random number was generated by spinning a wheel. Those who saw a high number guessed significantly higher than those who saw a low number — even though the wheel spin was obviously random.

How to Protect Yourself

1. Do your own research first — before looking at prices, form your own estimate of what something is worth
2. Question the anchor — ask yourself: "Is this reference point relevant, or is it just the first number I saw?"
3. Use multiple data points — don't rely on a single price or valuation
4. Be wary of "was/now" pricing — retailers exploit anchoring deliberately
5. In negotiations, set your own anchor — the first number matters, so make sure it's yours

Reflection Questions

1. Can you think of a purchase where the original price influenced how "good" a deal felt?
2. When checking your investments, do you compare current prices to what you originally paid? Why might that be misleading?
3. How could you research a major purchase differently to avoid being anchored?

Research Note

Anchoring was first described by Amos Tversky and Daniel Kahneman in "Judgment Under Uncertainty: Heuristics and Biases" (Science, 1974). Subsequent research by Furnham and Boo ("A Literature Review of the Anchoring Effect", Journal of Socio-Economics, 2011) confirmed its robustness across dozens of studies and real-world settings.