Step 4: Make Smarter Decisions using the Anchoring Effect

Step 4: Make Smarter Decisions using the Anchoring Effect

One cognitive bias that affects decision making is that of anchoring. We depend on anchoring every day to predict outcomes of events. When you need to estimate or predict an outcome, you have a starting point – that’s your anchor. If you’re familiar with the negotiation tactic of starting high, then you’re familiar with anchoring. I remember a college friend once said she was failing a class and was scared to tell her parents, so she concocted a story to tell them that she was pregnant and getting married. Then, after her parents would go into a tailspin, she would tell them she was joking, but she was failing Chemistry. I now realize that my friend’s anchor, or starting point, was high (pregnant and getting married) and winning the parental negotiation by bringing their tempers down on failing a class. This tactic is also used in retail every day – the MSRP makes the sale price seem more attractive. When you’re making a decision, be aware of the anchor you’re using, or in many cases you need to be aware of the anchor that’s being used against you.

How do you overcome the anchoring effect?

  1. Be aware of the anchoring effect, watch for it, and leverage it to your advantage.
  2. Provide, or ask to be provided, a range—not a single point value for a reference point to make a decision. Work with multiple anchors. For example, if you are forecasting the ROI of a learning investment, build multiple models. Start with a model based on current data, and then build one based on previous data only (retrospective), another based on the best-case scenario of projected data (pro forma), and one based on worst-case scenario of projected data (pro forma). This way you can make an informed choice on a range of options.
  3. Avoid considering only incremental anchoring scenarios. We have a tendency to adjust only marginally off a reference point. Change happens sporadically. Remain open to new data and eliminate reference points that are outdated and no longer effective.
  4. In business, an organizational insider will anchor based on prior data/information, especially if he or she has made a public decision. An insider cannot offer an accurate judgment because he or she has already committed to prior decisions. An outsider expert is not anchored to prior organizational judgments and can offer unbiased decisions.
  5. Employ unbiased, third-party experts. Outsiders bring a fresh perspective. They do not have the same reference points or emotional attachments to investments and projects. They also lack your preexisting hypotheses and the political egocentrism.

Smarter People Planning protects you from the anchoring effect by building custom solutions. We start within your comfort zone and help you to see beyond it when decisions benefit from a wider perspective.

How are you going to change your organizational anchoring tactics?

 

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