Anchoring Bias (DP IB Psychology): Revision Note

Anchoring bias

• A cognitive bias is a faulty or distorted way of perceiving or understanding the world

• Biases act as heuristics (mental shortcuts) that help us make decisions quickly, but often at the cost of accuracy

• Those aware of biases can exploit them:

  • Salespeople use them to persuade customers to spend money

  • Politicians present information in biased ways to appear more favourable

  • Media/social media rely on biased framing (e.g., clickbait) to grab attention

• Anchoring bias occurs when decisions are made based on the first piece of information presented - the anchor

  • This 'locks down' a specific idea in someone's mind

Examples in consumer behaviour

• If a laptop is first presented at £800, people view this as its “true” value — even though no product has an inherent value

• A “discount” price of £700 feels like a saving of £100, when in reality, the laptop might only cost £200 to manufacture

• Some retailers manipulate this effect by creating artificial anchors (e.g., marking an item as “reduced” from a price that never existed)

• Anchoring gives consumers a false sense of getting a bargain, reinforcing feelings of being “savvy” shoppers

Faulty adjustments

• Anchoring bias leads to inaccurate estimates since people adjust insufficiently from the initial anchor

  • E.g., a dress “reduced” from £75 to £50 feels like a £25 saving, but in reality, the consumer spent £50 they may not have spent otherwise

• When using anchoring bias, people make higher estimates when the initial value is higher and lower estimates when the initial value is lower

Research support for anchoring bias

Kahneman & Tversky (1974)

Aim:

• To investigate anchoring bias in terms of estimation of a final product

Participants:

• High school students aged 16-18 years

Procedure:

• The participants were randomly allocated to one of two groups and asked to estimate the answer a mathematical question

  • The ascending condition: Participants were asked to estimate the product of 1x2x3x4x5x6x7x8

  • The descending condition: Participants were asked to estimate the product of 8x7x6x5x4x3x2x1

• Participants had 5 seconds to give their estimation

Results:

• The group with the low anchor (ascending condition) estimated the final product as 512 (mean value)

• The group with the high anchor (descending condition) estimated the final product as 2,250 (mean value)

• The correct answer for both ascending and descending conditions is 40,320

Conclusion:

• Participants’ estimates were strongly influenced by the starting value (anchor)

• A low anchor led to lower final estimates, while a high anchor led to higher final estimates — demonstrating the power of anchoring bias in decision-making

Evaluation of anchoring bias

Strengths

• One strength of anchoring bias is its application to several sectors (particularly in sales/retail)

  • This means that it has good external validity

• Awareness of anchoring bias can prevent people from making expensive mistakes

  • Some research suggests that being in a good mood is a protective factor against succumbing to anchoring bias

    • The 'take-home' from this finding is: don't shop when you're feeling down!

Limitations

• Research in this field is predominantly lab-based, which means that it lacks mundane realism

  • Mundane realism is the extent to which the tasks/procedures in a study reflect everyday experience

• People are prone to cognitive biases but they are also more sophisticated than this theory suggests

  • Most consumers are wise to the tricks and manipulation of retailers and may buy a product in the full knowledge of what the retailer has put in place to draw their attention to it

Link to concepts

Perspective

• Anchoring bias is a cognitive construct, operating through mechanisms of information processing and sometimes involving deliberate, conscious thought

• However, it does not fully explain decision-making that occurs without much cognitive effort

  • For example, impulse purchases based on “bargains” may be better explained by the scarcity principle from the evolutionary approach

    • Humans are thought to be biologically hardwired to compete for scarce resources

    • Marketing tactics such as “early bird specials”, “while stocks last”, or “last chance to own” exploit this evolutionary mechanism, creating urgency and pushing buyers to act quickly

Change

• Today’s consumers are generally more educated and aware of marketing strategies than in past decades

• But increased awareness does not make people immune to manipulation through anchoring

• Retailers adapt by using strategies such as the “dummy offer”: presenting one poor-value option, one high-value option, and one “amazing” offer — nudging the consumer towards the choice that benefits the retailer most (often the higher-priced plan)

• Despite rapid social and technological change, these classic persuasion techniques remain highly effective