How Stuff Works: Anchoring
No, this post is not about something ships do to stay in place. It's about a psychological effect that everyone should know about - because it may make you accept lowball pay offers, pay too much for food, and otherwise be at a disadvantage against savvy negotiators and marketers. I will explain more about that further down, but first, a brief explanation of what anchoring is:
Anchoring refers to a psychological effect that means a choice/option you are presented with, even if it is not taken, even if you immediately discard it as spurious, will affect how you evaluate other options. Wikipedia has a good writeup, but as an example, there was an experiment where two groups were asked to guess the age at which Mahatma Gandhi died. Before they were asked to make their own choice, however, both groups were asked a binary choice - group A was asked if he died before or after the age of 9, group B was asked if he died before or after the age of 140. Both ages were obviously far from the truth and everyone got these right. So far, so good.
But when they made their own guess, the average for group A was much lower than group B (50 vs 67). And this is where the anchoring effect comes in - because group A was initially presented with a very low number, their own guess was affected and they guessed lower than group B that was initially presented with a very high number. Incidentally, Gandhi lived to the age of 78 so both groups guessed too low.
So how does this affect me?
The Anchoring effect is commonly used in marketing, negotiations and politics. Offering up an option - whether a price offer, a product choice or a political opinion - that the presenter does not expect their target to actually accept, they nonetheless change how their actual offer will be perceived. Here's a couple of examples:
Pay Negotiations
Most people understand, at least in principle, that if their pay is not raised by at least the rate of inflation, it is actually going down. If you get paid the same now you got paid last year, that's actually a pay cut unless you live in a place with negative inflation (which is extremely rare and usually a bad sign). So, when your pay gets renegotiated, and you are not willing to take a pay cut, you need to get at least the rate of inflation. If the inflation rate is 2%, and you get offered 1%, that would not, and should not, be acceptable.
But of course you won't be offered 1% - odds are you get offered nothing at first. "Unfortunately, due to the current economic environment / recent budget cuts / the CEOs urgent need for a new Yacht, we're not in a position to offer any pay increases at this time. How about pizza Fridays?".
You, of course, reject this offer, and after several more rounds of back and forth, the company finally relents and offers you a pay rise of 1% ("but don't tell anyone about this, it's confidential!"). And because of Anchoring, at having started at a 0% offer, this seems like a great achievement and you better take it, right? At this point you completely forgot that the offer is still a pay cut that you would never have accepted if it had been the opening offer - and that's Anchoring.
Marketing
There are many ways in which Anchoring is used in marketing. One of the classics is fake or perpetual sales - where an item is displayed as being heavily discounted, but the "normal" price was either never charged, or only for a very short time period, or the product is on sale so regularly that people very rarely buy it at "full" price. Despite the "full" price rarely getting used, it makes the "sale" price look like a good deal, even when it wouldn't be on its own.
A related tactic is when there are multiple products, product grades or sizes on offer, with the "top" product (usually first listed) being significantly more expensive than the next one down (often the "middle" of three) - this makes the second product appear as a much better deal than it otherwise would. For example, there might be three sizes of coffee on offer, with a "large" for $10, a "medium" for $6 and a "small" for $4. A customer who would go for a small if only the last two were offered may go for a medium when all three are there, because it looks like a better deal.
Politics
In politics, the Anchoring Effect is often related to the Overton Window and the concept of False Balance, where a particularly radical proposal or completely false idea can make other "only" moderately radical proposals become more palatable. The radical proposal may come from a candidate / major party themselves, an ally, or a seemingly unconnected third party. For example, members of one party may suggest completely withdrawing from or nullifying a treaty that the country is bound by, making a later renegotiation and/or partial withdrawal appear like a moderate position when it would otherwise have been considered a radical and unacceptable idea. Similarly, when a total ban on abortion is floated, it makes slightly less extreme restrictions like a Heartbeat Bill seem like a more moderate compromise. On the other side of the political spectrum, having a candidate propose doubling the minimum wage may make a lesser increase that would otherwise still have seemed extreme more appealing.
It is important to note that when it comes to political topics, this often affects the media and even other political actors as much as the voting public. News media often feels obligated to present a "balanced view", and other political parties may consciously or otherwise accept a "compromise" or even adjust their own position in response to a radical anchoring position.
So how do I avoid getting taken in?
Here's the bad news: It's very, very difficult to avoid being affected by the anchoring effect, even when you know about it - although that helps (which is part of why I am writing this post). Your best bet is usually knowing what you want or are prepared to accept before going into a position where an anchor can be presented, and sticking to it, or at least carefully evaluating any changes based on independent, objective information.
It is important to note that sometimes an "anchor" proposal can just be a sign that there is a legitimate difference in starting positions for a negotiation, especially when the object of the negotiation is something with widely varying or purely subjective value (like a one-of-a-kind work of art or a loosely defined employment opportunity) - there may not be any malicious or deceptive intent behind it. And in some cases, the position that another party takes may actually be a relevant factor - a potential employer or seller of a house may know more about the demands of the work or the value of the property than the other party. Even then, it is important to understand the psychology behind the Anchoring Effect to avoid falling prey to your own subconscious.
Published at NZDT