Anchoring

Anchoring (syn. anchoring effect, anchoring heuristic) — is a trait of human thinking that manifests as the tendency to access the unknown value to the previously presented or obtained numbers. The effect is manifested even if the original numbers are significantly exaggerated, and a person knows about the "anchor".

This trait appears because humans make decisions submitting both reason and emotions. Moreover, sometimes emotions prevail because money and wealth are very sensitive topics. Wealth is the desired state of numerous people that’s why it is hard to act rationally when it comes to money. To become unbiased, it is better to realize various psychological patterns that are related to the effect of anchoring. 

Anchoring and the decision-making

First, the effect of anchoring was described by two psychologists Daniel Kahneman and Amos Tversky. Scientists have proven that human psychology has two spheres of decision-making. The first sphere is subconscious. It includes all our automatic factors like habits, emotional reactions, attitudes, and beliefs. A human mind remains in this state 90-95% of the time.     

The second sphere is conscious. It is responsible for rationalism, logic, and reason. Also, this sphere controls the first one. However, the conscious processes take only about 5-10% of the total work of the mind because it requires much more energy. 

The main function of the first system is the automatic search for causal relationships. It creates a correlation between various facts in the absence of information based on the already known data. During prehistoric times, this system had been saving our ancestors numerous times, but now it only distances us from rational thinking. 

When a human wants to make a decision, they start with the already known fact even when it is false. Then, the second rational system helps them to justify the decision. This effect is called anchoring. Humans tend to focus on the events that seem familiar. The anchoring effect means the ability to look at things taking into account their environment and relations with other things.

Application of Anchoring

The effect of anchoring is widely used in marketing and merchandising. The knowledge of human psychology allows marketers to manage the target audience and increase sales. They plan the advertising campaigns and merchandise displays considering the patterns and biases of the thinking.

For example, if a marketer wants buyers to choose an option between A or B, they need to enter the “A bait”, an option that is a little worse than A. In this case, the inclusion of the undesirable option “A bait” will make the buyers select option A.     

Here are the main tricks where the anchoring effect is used:

• Prevent a significant price increase and then increase it slightly. The buyers will think that the danger has passed, and they will agree with the increase in prices.
• Indicate the price for several items of goods. The buyer will suppose that they are beneficial to acquire many goods for a low price and buy it. But they won’t suppose, is there any real benefit because they don’t know the price for one item, and they can’t calculate the real total price of goods. 
• Indicate the former high price near the new lower price. The buyer will think that they will take the expensive product with benefit.
• During the negotiations concerning the price, the seller offers a too high or too low price and all negotiations will be started from this number. The key factor is to be the first one who offers a certain price.
• When the buyer enters the showroom, the seller demonstrates the most popular product with the highlighted price. This effect will show the buyer how much they can spend. 

Anchoring and additional factors

The usage of the anchoring effect may be quite beneficial. However, it isn’t the only success factor. If the seller applies this effect thoughtlessly, it will lead only to the short-run positive effect and nothing more. After this, the clients may change their opinion, if the product doesn’t meet their expectations. For the stably high sales, the anchoring effect isn’t enough. You need a qualitative product, good customer service, and the elaborated concept of positioning.