Daniel Kahneman might be best known for his book “Thinking Fast and Slow,” which I haven’t read, but I’ve read and heard a lot about Kahneman’s views over the years. Along with his collaborator Amos Tversky, Kahneman challenged a lot of opinions about how we think.
I’m going to do a series of podcasts on some of Kahneman’s ideas. Today I’m going to address anchoring bias.
Anchoring bias says the first thing you judge influences your judgment of all that follows. Another way to put it is that you rely too heavily on the first data you hear. For example, if the salesman says the car is worth $50,000, that number sticks in your head. You might negotiate below that and think you got a great deal at $46,000, while the actual value of the car might be $43,000.
Here are eight ways to avoid anchoring bias.
1. Get information from multiple sources. When the salesman says the car is worth $50K, check that against Kelley Blue Book and prices listed at other dealerships.
2. Set expectations ahead of time. This way the “anchor” doesn’t have as much impact on you. If you know what kind of car you’re going to buy, get some price comparisons before you go to the dealership.
3. Actively consider the opposite. When someone presents a fact, intentionally consider why that fact might not be relevant to the decision at hand. For example, if someone says 4 out of 5 dentists recommend a particular gum, think of reasons why dentists might not be experts on chewing gum.
4. Dispute the assumption behind the number. If someone is arguing that the minimum wage should be $25 an hour, ask whether there should even be a minimum wage. In other words, the anchor doesn’t only fix your mind on a certain number, it also fixes your mind on the idea that a number is the correct answer to the question. Don’t accept that assumption without evaluating it.
5. Set your own anchors. Since you’re aware of the effect of an anchor, use it to your advantage. Set your own anchor before your negotiating partner does.
6. Make analogies. Although this has the potential danger of cementing the number even further into your thinking, it can provide context. When the salesman says $50K, put that number in another setting, such as the percentage of your monthly income. You can also think of alternatives. How many Uber rides can you get for $50K? And is this one car better than two $25K cars?
7. Make the concrete relative. To avoid fixating on a specific number, think of the deal in a broader context. In the case of a car, that might be depreciation and resale value, the cost of financing, or incentives and rebates offered on that car or on other cars.
8. Slow down. Salesmen want you to buy now, now, now, because they know that if you think about it for a while, that will dilute the impact of the pitch.
Links
Remembering Daniel Kahneman: 7 theories that can help you understand how you think
