Lesson 2: Anchoring & Adjustment — The Power of First Numbers
Discover how the first number you hear pulls all your estimates in its direction—whether it's random, irrelevant, or deliberately planted. Learn to recognize and defend against anchoring in negotiations, purchases, and judgments.
Lesson 2: Anchoring & Adjustment — The Power of First Numbers ⚓
Introduction
Imagine you're buying a used car. The seller says, "I'm asking $15,000, but I'm willing to negotiate." Even if the car is only worth $10,000, that $15,000 figure has already infiltrated your mind. Your counteroffer will likely be $13,000 or $12,000—not $8,000. You've been anchored.
Anchoring bias (also called the anchoring effect or anchoring heuristic) is the cognitive tendency to rely too heavily on the first piece of information (the "anchor") when making decisions. Once an anchor is set, our subsequent judgments are pulled toward that number, even when the anchor is arbitrary, irrelevant, or wildly inaccurate.
First documented systematically by psychologists Amos Tversky and Daniel Kahneman (who won the Nobel Prize in Economics for this and related work), anchoring is one of the most robust and powerful cognitive biases. It affects experts and novices alike, operates even when people know about it, and influences decisions in contexts from salary negotiations to medical diagnoses.
🤔 Did you know? In one famous experiment, Kahneman and Tversky spun a wheel of fortune that landed on either 10 or 65, then asked participants to estimate the percentage of African nations in the UN. Those who saw "10" estimated around 25%; those who saw "65" estimated around 45%. A completely random number changed their answers by 20 percentage points!
Core Concepts: How Anchoring Works 🧠
The Anchoring and Adjustment Process
When faced with uncertainty, our brains follow a two-step process:
┌─────────────────────────────────────────────┐
│ ANCHORING & ADJUSTMENT PROCESS │
├─────────────────────────────────────────────┤
│ │
│ Step 1: ANCHOR │
│ ┌─────────────────────────────┐ │
│ │ Initial value established │ │
│ │ (given, suggested, or │ │
│ │ self-generated) │ │
│ └──────────┬──────────────────┘ │
│ │ │
│ ▼ │
│ Step 2: ADJUSTMENT │
│ ┌─────────────────────────────┐ │
│ │ Adjust away from anchor │ │
│ │ toward true estimate │ │
│ └──────────┬──────────────────┘ │
│ │ │
│ ▼ │
│ ⚠️ PROBLEM: Adjustment is │
│ typically INSUFFICIENT │
│ (stopping too close to anchor) │
│ │
└─────────────────────────────────────────────┘
The problem? We consistently under-adjust. We don't move far enough away from the anchor, leaving our final estimate biased in its direction.
Why Anchoring Is So Powerful
1. Automatic Activation 🔄
Anchors work automatically. Your brain processes the initial number before you can consciously evaluate its relevance. Even explicitly random anchors influence judgment.
2. Selective Accessibility 🔍
Once an anchor is set, your mind selectively searches for information that's consistent with values near the anchor. If someone mentions "$500 for a hotel room," you start thinking about luxury amenities, not budget motels.
3. Insufficient Adjustment 📏
We adjust away from anchors, but we stop too soon. This happens because adjustment is effortful, and we stop when we reach a plausible value—even if further adjustment would be more accurate.
4. Numeric Priming 🔢
Mere exposure to numbers primes related concepts. Seeing "high" numbers activates concepts of quality, expense, or magnitude; "low" numbers activate opposite associations.
Types of Anchors
+------------------------+---------------------------+------------------+
| Type | Source | Example |
+------------------------+---------------------------+------------------+
| External/Suggested | Provided by others | Listed price, |
| | deliberately or | opening salary |
| | inadvertently | offer |
+------------------------+---------------------------+------------------+
| Self-Generated | Created by your own | Your initial |
| | initial thoughts or | guess before |
| | calculations | refinement |
+------------------------+---------------------------+------------------+
| Random/Arbitrary | Completely irrelevant | Last digits of |
| | to the judgment | phone number, |
| | | spin of wheel |
+------------------------+---------------------------+------------------+
| Extreme | Deliberately outrageous | "This painting |
| | to expand range | could be worth |
| | | $10 million" |
+------------------------+---------------------------+------------------+
The Anchoring Index
Researchers measure anchoring strength using an anchoring index:
Anchoring Index = (High Anchor Response - Low Anchor Response) / (High Anchor Value - Low Anchor Value)
An index of 0 means no anchoring effect; an index of 1 means complete anchoring (responses perfectly track the anchor). Typical experiments find indices between 0.3 and 0.5—meaning the anchor accounts for 30-50% of the variation in responses.
Real-World Examples: Anchoring in Action 🌍
Example 1: Real Estate Negotiations 🏠
The Scenario:
A house has been on the market for $850,000. The seller, desperate to sell, would accept $750,000. You, the buyer, think it's worth about $780,000 based on comparable sales.
The Anchoring Effect:
The listed price ($850,000) serves as a powerful anchor. Most buyers will make offers like $820,000 or $800,000—adjusting down from the anchor but not enough. The final price often settles around $810,000-$825,000.
Counter-Strategy:
Professional negotiators anchor first and anchor low. An aggressive buyer might offer $720,000, setting a new anchor that pulls the negotiation downward. Even if rejected, this low anchor makes subsequent offers of $760,000 seem "reasonable."
💡 Tip: In negotiations, whoever sets the first anchor often determines the range of the final outcome. If you can anchor first with a reasonable-sounding but favorable number, you've tilted the playing field.
Example 2: Salary Negotiations 💼
The Scenario:
You're offered a job. The recruiter asks, "What's your salary expectation?" or states, "The range for this position is $70,000-$90,000."
The Anchoring Effect:
- If the recruiter mentions $70,000-$90,000 first, your counteroffer will likely be within or near this range, even if the company could pay $110,000.
- If you state a number first (say, $95,000), you've set an anchor that pulls the negotiation upward.
Research Finding:
A study of MBA job negotiations found that those who made the first offer received final salaries averaging $10,000 higher than those who waited for the employer to anchor.
⚠️ Common Mistake: Many job seekers fear "asking too high" and anchor themselves low by stating their current salary or a modest increase. This leaves thousands of dollars on the table.
Example 3: Courtroom Sentencing ⚖️
The Scenario:
A prosecutor requests a 10-year sentence for a defendant. The defense argues for 2 years. The judge must decide.
The Anchoring Effect:
Even experienced judges are influenced by sentencing recommendations. Studies show that:
- When prosecutors request 34 months, average sentences are 28.7 months
- When prosecutors request 12 months, average sentences are 18.8 months
The prosecutor's anchor pulls sentences upward, even though judges should theoretically consider only legally relevant factors.
Disturbing Implication:
Arbitrary factors can affect justice. In one German study, rolling dice before sentencing (appearing unrelated to the case) influenced judges' decisions—those who rolled high gave longer sentences.
Example 4: The "Manufacturer's Suggested Retail Price" 🏷️
The Scenario:
You're shopping for a jacket. The tag says "MSRP: $300, Sale Price: $180."
The Anchoring Effect:
$180 feels like a bargain because it's compared to the $300 anchor, even if:
- The jacket was never actually sold for $300
- The manufacturer inflated the MSRP specifically to create this contrast
- Comparable jackets elsewhere cost $150
The Strategy:
Retailers use reference pricing systematically. The original price is the anchor; the sale price is the "adjustment" that feels like a gain. Your brain focuses on saving $120, not on whether $180 is objectively reasonable.
The Mechanics: Why Extreme Anchors Work 🚀
You might think obviously unreasonable anchors wouldn't work. You'd be wrong.
The Backfire That Isn't
Research shows that even clearly ridiculous anchors influence judgment:
- Asking "Is the average price of a college textbook more or less than $7,128?" (obviously absurd) still raises estimates compared to asking about $128
- Listing a house at twice its market value still increases final sale prices compared to realistic listings
Why Extreme Anchors Are Effective
Anchor Value
│
🚀 │ Extreme Anchor ($5,000)
│ │
│ │ Large adjustment needed
│ │ but insufficient...
│ ↓
💰 │ Final Estimate ($380)
│
🎯 │ Moderate Anchor ($150)
│ │
│ ↓
💵 │ Final Estimate ($210)
│
✅ │ True Value ($200)
│
Extreme anchors expand the range of consideration. Even though you adjust away from $5,000, you end up higher than if you'd started with $150. The adjustment is still insufficient relative to the distance traveled.
💡 Negotiation Tactic: Starting with an ambitious (but not laughable) first offer is mathematically advantageous. Even after adjustment and compromise, you'll end up closer to your target.
Defending Against Anchoring 🛡️
Strategy 1: Pre-Commit to a Range 📊
Before encountering potential anchors, establish your own valuation:
- Research comparable prices/salaries independently
- Decide your walk-away point in advance
- Write down your target range before negotiations begin
Strategy 2: Consider the Opposite 🔄
Actively generate counter-anchors:
- "What if this house were listed at $500,000 instead of $900,000—would I still think $850,000 is fair?"
- "What's the lowest plausible value? What's the highest? Why?"
Forcing yourself to consider extreme alternatives reduces the pull of any single anchor.
Strategy 3: Delay Initial Exposure ⏱️
When possible, form preliminary judgments before seeing others' numbers:
- In job interviews: Research market rates before discussing salary
- When buying: Decide your maximum price before seeing listings
- In negotiations: Prepare your opening offer before hearing theirs
Strategy 4: Focus on Objective Criteria 📋
Ground discussions in independent benchmarks:
- "Comparable homes in this neighborhood sold for $X-$Y last quarter"
- "Industry salary surveys show this role pays $X at the 50th percentile"
- "Three independent appraisers valued this at $X"
Objective anchors based on relevant data are more defensible than arbitrary ones.
Strategy 5: Recognize and Call Out Anchors 🚨
Simply being aware helps, but explicit recognition is better:
- "I notice you're starting at $150K—that feels like an anchor. Let's discuss the role's actual value."
- "The listed price doesn't reflect recent market changes. Here's what comparable properties actually sold for."
Naming the tactic reduces its power and shifts discussion to legitimate criteria.
🧠 Mnemonic for Defense: PRIDE
- Pre-commit to your range
- Reverse the anchor (consider opposite)
- Ignore initial exposure
- Data-driven criteria
- Expose the anchor explicitly
Common Mistakes ⚠️
Mistake 1: Believing Expertise Makes You Immune
The Error: "I'm an experienced negotiator/appraiser/investor—anchors don't affect me."
The Reality: Studies show experts are influenced by anchors almost as much as novices. Confidence often prevents experts from recognizing their own bias.
The Fix: Use systematic de-biasing procedures regardless of experience level.
Mistake 2: Focusing Only on Extreme Anchors
The Error: Only watching for obviously manipulative anchors (like "Was Gandhi more or less than 140 years old?")
The Reality: Subtle, seemingly reasonable anchors are more dangerous because they slip past your defenses.
The Fix: Treat ALL initial numbers as potential anchors—even those that seem carefully calculated or data-driven.
Mistake 3: Adjusting Once and Stopping
The Error: Making a single adjustment away from an anchor and assuming you've corrected for it.
The Reality: Initial adjustments are almost always insufficient. You need to adjust, then ask "Should I adjust more?" repeatedly.
The Fix: Use a structured process: adjust, check against independent data, adjust again if needed.
Mistake 4: Ignoring Self-Generated Anchors
The Error: Only defending against others' anchors while letting your own initial guesses bias subsequent reasoning.
The Reality: Your first thought often becomes your anchor, limiting how much you update with new information.
The Fix: Deliberately generate multiple initial estimates; avoid committing to your first thought.
Mistake 5: Trying to Eliminate Anchoring Completely
The Error: Believing you can make judgments without any anchors at all.
The Reality: Anchoring-and-adjustment is a fundamental cognitive process. Some anchoring is inevitable and even useful for making quick estimates.
The Fix: Accept that anchors will influence you; focus on using GOOD anchors (data-driven, relevant) and adjusting sufficiently from BAD ones (arbitrary, manipulative).
Practical Applications 🔧
In Negotiations
✅ Do: Make the first offer when you have good information
✅ Do: Start ambitious (but defensible) to set a favorable anchor
✅ Do: Bring data to support your anchor
❌ Don't: Accept the first number as a reasonable starting point
❌ Don't: Reveal your bottom line early (it becomes an anchor against you)
In Purchasing Decisions
✅ Do: Research prices before shopping
✅ Do: Decide your maximum price in advance
✅ Do: Compare multiple options to avoid fixating on one anchor
❌ Don't: Let "original price" or MSRP influence your valuation
❌ Don't: Start negotiations from the seller's asking price
In Professional Judgments (Medical, Legal, Financial)
✅ Do: Form independent judgments before seeing others' estimates
✅ Do: Use structured decision protocols that require multiple perspectives
✅ Do: Actively seek disconfirming information
❌ Don't: Let initial diagnoses/valuations constrain your analysis
❌ Don't: Assume your expertise makes you immune to anchoring
In Evaluating Probabilities
✅ Do: Generate estimates from multiple starting points
✅ Do: Use base rates and statistical data as anchors rather than anecdotes
✅ Do: Consider both optimistic and pessimistic scenarios
❌ Don't: Anchor on memorable examples or recent events
❌ Don't: Stop at your first plausible estimate
Key Takeaways 🎯
Anchoring is automatic and pervasive. The first number you encounter pulls all subsequent estimates toward it, even when that number is arbitrary, irrelevant, or random.
Adjustment is insufficient. We adjust away from anchors, but not far enough. This systematic under-adjustment leaves our final judgments biased.
Extreme anchors work. Even obviously unreasonable anchors influence judgment by expanding the range of consideration. In negotiations, ambitious first offers are mathematically advantageous.
Expertise provides limited protection. Professionals—judges, real estate agents, physicians—remain susceptible to anchoring effects despite their experience.
Strategic anchoring is everywhere. Retailers (MSRP vs. sale price), employers (salary ranges), lawyers (sentencing recommendations), and negotiators (first offers) all use anchoring strategically.
Defense requires active effort. Pre-commit to ranges, consider alternatives, use objective criteria, and explicitly recognize anchors. Passive awareness is insufficient.
Who anchors first often wins. In negotiations, the first number sets the range. If you have good information, anchor first; if not, delay and prepare.
Self-generated anchors matter. Your own initial thoughts can become anchors that limit subsequent adjustment. Generate multiple initial estimates to avoid premature commitment.
🔧 Try this: Over the next week, notice every initial number presented to you in a decision context—list prices, salary ranges, project timelines, probability estimates. Ask yourself: "Is this number pulling my judgment in its direction?" Practice explicitly adjusting away from these anchors.
📚 Further Study
Tversky, A., & Kahneman, D. (1974). "Judgment under Uncertainty: Heuristics and Biases." Science, 185(4157), 1124-1131.
The foundational paper introducing anchoring and adjustment heuristic.
https://www.science.org/doi/10.1126/science.185.4157.1124Ariely, D., Loewenstein, G., & Prelec, D. (2003). "Coherent Arbitrariness: Stable Demand Curves Without Stable Preferences." Quarterly Journal of Economics, 118(1), 73-106.
Demonstrates how arbitrary anchors create coherent but arbitrary pricing preferences.
https://academic.oup.com/qje/article/118/1/73/1917051Galinsky, A. D., & Mussweiler, T. (2001). "First Offers as Anchors: The Role of Perspective-Taking and Negotiator Focus." Journal of Personality and Social Psychology, 81(4), 657-669.
Explores how and when first offers in negotiations serve as powerful anchors.
https://psycnet.apa.org/record/2001-11229-009
📋 Quick Reference Card
╔══════════════════════════════════════════════════════════╗
║ ANCHORING & ADJUSTMENT CHEAT SHEET ║
╠══════════════════════════════════════════════════════════╣
║ ║
║ DEFINITION: Relying too heavily on the first piece of ║
║ information (anchor) when making decisions ║
║ ║
║ THE PROCESS: ║
║ 1. Anchor established (given or self-generated) ║
║ 2. Adjustment attempted (usually insufficient) ║
║ 3. Final estimate biased toward anchor ║
║ ║
║ KEY FACTS: ║
║ • Works even with random/irrelevant anchors ║
║ • Affects experts nearly as much as novices ║
║ • Extreme anchors expand range of consideration ║
║ • Awareness alone provides limited protection ║
║ ║
║ DEFENSE STRATEGIES (PRIDE): ║
║ P - Pre-commit to your range before exposure ║
║ R - Reverse/consider opposite anchors ║
║ I - Ignore/delay initial exposure when possible ║
║ D - Data-driven objective criteria ║
║ E - Expose anchors explicitly ║
║ ║
║ IN NEGOTIATIONS: ║
║ ✓ Anchor first with good information ║
║ ✓ Start ambitious but defensible ║
║ ✓ Use data to support your anchor ║
║ ✗ Never accept first number as reasonable ║
║ ✗ Don't reveal your bottom line early ║
║ ║
║ COMMON CONTEXTS: ║
║ • Salary negotiations ║
║ • Real estate transactions ║
║ • Legal sentencing ║
║ • Retail pricing (MSRP anchors) ║
║ • Medical diagnoses ║
║ • Financial valuations ║
║ ║
║ REMEMBER: The first number sets the range. Control ║
║ the anchor, or it will control you. ║
║ ║
╚══════════════════════════════════════════════════════════╝
Building on Lesson 1: While availability and representativeness cause us to misjudge probabilities based on memory and stereotypes, anchoring shows how arbitrary numbers hijack our numerical estimates. Together, these biases reveal how our intuitive thinking—though fast and often useful—systematically leads us astray in predictable ways. Next, we'll explore how these initial errors compound through confirmation bias and motivated reasoning.