The Anchoring effect, first studied by Tversky & Kahneman (1974), is a cognitive bias that causes people to rely too heavily on the first piece of information they receive as a point of reference. The human mind does not consider the value of something based on its intrinsic value but rather compares different things against one another, making decisions based on these comparative values. Anchoring therefore occurs when individuals use an initial piece of information in order to make subsequent judgements. Once an anchor is set, judgements are made by using this anchor as a point of reference and are more often than not biased by whatever this anchor happens to be. In other words, through the anchoring effect, we use ‘anchors’ or reference points to make decisions, rather than thinking rationally and objectively to make the best decision overall.

The Anchoring effect will affect the way we negotiate, the prices we consider to be acceptable, the quality or value we perceive goods to hold, etc. Many experiments have shown that it is difficult to avoid the Anchoring effect, as it affects our thinking even when we’re unaware of it. In one study, two groups of students were asked to guess at what age Mahatma Gandhi died. The first group were asked whether they thought he died before or after age 9, and the second group before or after age 140 (both anchors far removed from reality as Gandhi actually died at 87 years old). The experiment showed that the two groups gave significantly different answers – of 50 and 67 respectively – precisely because they had been influenced by the anchoring age values initially given.

Numerous examples of the Anchoring effect can be found in the commercial sector: during sales, it is common practice to show the original price crossed out with a sale price right below it in order to give customers the anchorage point of the higher pre-sales price and make it seem like a good deal comparatively. People tend to judge the value of the product in relation to the discount they get off the anchor price rather than the actual cost, as they will be more naturally interested in the difference between the anchor and the sale price rather than the absolute value of the product in question.