Have you ever been in a position where you are asked a question and have no idea what the answer is? Sometimes you may grasp onto the first estimate you hear from a friend or a coworker. This is the essence of the anchoring bias or the adjustment bias. The anchoring bias is extremely powerful both in your personal life and also your professional life. Especially in consulting, the anchoring bias is critical such that you manage stakeholders’ expectations effectively.
This article will share the definition of anchoring bias as well as examples of anchoring bias and tactical ways to avoid it.
Anchoring Bias Definition
You may be asking yourself “What is the anchoring bias?” Well, the definition of anchoring bias centers around the ability to influence a counter-party’s estimate of a value by providing a starting point that your counter-party will “anchor” on. In Lewis’s and Simmons’s “The Directional Anchoring Bias,” anchoring bias is defined as: “When people estimate an unknown quantity after previously considering a high candidate value (or “anchor”), they estimate higher values than they would have done after considering a low candidate value” (read more here).
Anchoring Bias Examples
There are several examples of anchoring bias in the real world and also in consulting. Notably, you can use the anchoring bias in any negotiations to hint at a potential “starting point” of a value. For example, if you are negotiating rent with a landlord, and you are willing to pay up to $2,750 a month, it may be better to anchor them at around $2,500 rather than a little less than $3,000 for the monthly rent payment.
Examples of the anchoring bias in the workplace are included below.
Anchoring Bias In The Workplace
Anchoring bias in the workplace and anchoring bias in consulting is very prominent. Anchoring bias can help shape conversations with your co-workers and with your clients. Some examples of anchoring bias include:
- When speaking with your engagement manager: Every day, your engagement manager will ask when you think you will finish your deliverables by. Actively shaping the discussion and moderating expectations through anchoring will help your position. For example, if you think you will get your deliverables done by 3:30pm, it is a lot better to say you will get it done by 4pm than by around 3pm.
- When speaking with a client: Clients may ask you how much value you’ve identified to date. Here, it is important to be mindful with your wording and the initial estimates you provide. For example, if you initially say you expect to deliver $10M in value, the client is likely expecting $8-12M of value creation. However, if you say something along the lines, we have identified $2M to date and have x, y, and z additional areas to further explore, the client will have much lower expectations. Either approach can work, but you need to be thoughtful regarding the level on which you are anchoring others.
Types Of Anchoring Bias
There are several types of anchoring bias, including:
Anchoring Bias In Negotiation
Anchoring is most prominent in negotiations where the starting offer influences the level at which the final offer / value will end up.
Anchoring Bias In Investing
Anchoring bias is very prevalent in investing. Specifically, anchoring bias is evident in the starting offer you give for an investment. The process to decide what value you anchor your counter-parties at is really more of an art than a science. If you start too low, you risk the chance of the target walking away. However, if you start too high, you may run the risk of minimizing your upside.
Anchoring Bias In Healthcare
Anchoring bias in healthcare may be prevalent in how doctors ask you for questions. For example, inside of asking a patient if you have any questions, a doctor can ask what questions you do have. By anchoring the questions with the assumption the patient has questions, you can better encourage an open and honest dialogue.
How To Avoid Anchoring Bias
You may be asking yourself now “How do I avoid anchoring bias?” The main way to avoid anchoring bias is to have an independent estimate of what the value of your “number” is. Therefore, regardless of the initial estimate, you are covered and properly hedged. In addition, it is important to realize that anchoring bias exists and that your counter-parties may be using it to their advantage (especially in negotiations)!
Therefore, anchoring bias is a powerful tool to use in your personal and professional life. Anchoring bias serves as a starting point that can influence others’ perceptions of what an unknown quantity can be. While it is always important to set expectations effectively, you should also be careful with anchoring on a value that is too low. For example, if you anchor your value creation estimates at a number that is too low, you risk upsetting your client. Given the prevalence of anchoring bias, it is important to be mindful and have your own individual estimate of the unknown quantity.