Weighted Down by Decisions? (Anchoring Bias)

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Here’s the transcript for episode 3 season 3 of our podcast How to Choose: ‘Weighted Down by Decisions? (Anchoring Bias)’. You can listen to it here on our website or on your favourite podcast player.

Tessa: Hi, there. This is ‘How to Choose’, the show that helps you make better decisions and improve your judgment. Thanks for joining us. I’m Tessa.

Ken: And I’m Ken. In this, our third season of How to Choose, we’re exploring the topic of thinking problems or biases that impede our decision making.

Tessa: Now Ken, Rusty Cartwright is a fictional character from the noughties TV show Greek. Did you ever watch that one?

Ken: No, I am afraid I have never heard of that one.

Tessa: Look, it’s fair enough, and I’m actually a little bit embarrassed that I have watched it. It’s a very low brow show about US sororities but Rusty came to mind while I was researching this episode because he gets the nickname Anchor in the show. He was a super smart kid, but he starts to bomb at university because he’s having too good a time. Do you know why they might have given him the nickname Anchor?

Ken: Was he pulling down the show’s ratings perhaps?

Tessa: Look, highly possible. But in the show, he’s known as Anchor because he brings down the bell curve. Anchors are heavy and they literally drag things down. We’ve seen in many movies, a body is anchored to the bottom of the sea by a heavy weight.

Ken: Where are you going with this analogy Tess?

Tessa: Well, our topic today is actually a heuristic known as the anchoring bias. And just like physical anchors, they weigh us down and they influence our decisions. And just like being stuck at the bottom of the ocean in a body bag, this is something we should all try to avoid if we can.

Ken: I have to say, I feel a bit like Tony Soprano is teaching me about cognitive biases. That sounds more like a threat, Tess, than a friendly warning.

Tessa: Look, it’s a very weighty theory, and that’s the last bad pun, I promise. I’m going to try and influence people’s answers by anchoring them during our vox pop a bit later, and then we’re going to chat about how this affects us in our day to day lives.

Ken: Excellent. Well, that sounds a little less intimidating. I’m very interested to see how you get on with your effort to anchor other people, but should we first of all explain what anchoring bias is?

Tessa: Yeah, for sure. Anchoring bias occurs when we rely too heavily on pre-existing information or the first piece of information, the anchor, when making a decision. And this impairs our decision making and judgments in so many ways, sometimes inadvertently, and sometimes it’s used against us to try and influence our decision making, as I will do to some of our listeners later on. Now, the first mention of anchoring bias was in 1958, but it wasn’t popularised until 1974, when Tversky and Kahneman, who we have already mentioned this season, and I’m sure will get many more mentions, because of their seminal work in behavioural psychology.

Ken: Anchoring bias is one of the most robust effects in psychology. The bias also holds up even when the anchor is obtained by something completely random like rolling dice. And amazingly, it even works when researchers remind people that the anchor is irrelevant and shouldn’t be considered – we are that easy to influence.

Tessa: Yeah, I think that’s why this one is so insidious, Ken. You have to go to such a lot of mental effort to combat its effects. And Tversky and Kahneman theorise that when people try to make estimates or predictions, they begin with some initial value or starting point and then they adjust from there. So the anchoring bias happens because the adjustments just aren’t big enough, leading us to incorrect decisions. And this has been known as the anchor and adjust hypothesis.

Ken: So what is actually going on in our minds when someone else gives us an anchor?

Tessa: So for an external anchor, there is a theory known as selective accessibility. So when we’re given that anchoring piece of information, the first thing we do is see if it’s plausible. We build a picture in our mind. For example, if I were to ask you whether the Murray River is longer or shorter than 3000 km, you might try to imagine the length of the states it crosses and then use that to try to figure out the answer. As we’re building this picture and testing the anchor on it, we end up activating other bits of information that are consistent with that anchor and as a result, all of this information becomes primed and more likely to affect our decision making.

Ken: Right. So our tendency then is to compare the reference point of 3000 kilometres to other things that we might notice, just to see how accurate the anchor is. But apart from the fact that we tend not to adjust enough, what are the other problems with the anchoring bias?

Tessa: It’s a problem because we don’t always update our assessment when new information comes in. This was seen in a 2020 study where patients presenting with COVID symptoms anchored their doctors, who then didn’t always correctly diagnose future issues as they were anchored by that initial COVID-19 diagnosis. Everything was seen through that lens of that very first consult.

Ken: I was reading about that today, actually. There was a study done by some Japanese scientists who were looking at the fact that in Japan many doctors were seeing a lot of COVID and when they were coming across cases of Scrub Typhus, which is transmitted by a mite and is fairly common in Asia, they weren’t seeing it for what it was. They were anchored on the thought that this is COVID, even though the symptoms were quite different.

Tessa: It’s amazing, isn’t it? And you think these are professionals, but it affects all of us, experts and laymen alike. There’s another study with mock jurors and they found that the more you ask, the more you get in personal injury cases showing that jurors are anchored by the initial amount asked for. I mean, not super surprising that a mock juror would be so easily influenced. But what about judges? Do you think they would be as susceptible to anchoring Ken?

Ken: I kind of feel like the right answer is yes.

Tessa: Look, a very good prediction. A group of judges were given a hypothetical case where prosecutors were charging a defendant with theft. The judges were then told to get a random sentencing demand by rolling a dice. So obviously they know that this dice rolling had no effect or should have no effect on their actual judgment. But the dice was rigged so as to land on high numbers for one group and then low numbers for the other group. And as you imagine, the dice rolling did influence the judges sentencing decisions.

Ken: So really this was a situation, just to clarify, the judges were told, roll the dice, but just ignore it because that’s got nothing to do with the decision you’re about to make? Ignore the number, don’t think about it when you’re making up your sentence?

Tessa: Yeah. So they knew that this random roll should not be used to impact their future decision. However, despite being told that, it did in fact impact their judgment. Low anchors, so that ‘low roll’ on the dice, resulted in an average of five months’ sentence, whereas the high anchor, the high number on the dice, resulted on an average of eight months. So a 60% difference, which is just wild!

Ken: Yeah, it’s bizarre, isn’t it? It defies all logic.

Tessa: So expertise and experience do not reduce this effect. And sadly for judges, there are many studies on the fallibility of their judgment, but this is no indictment on the profession, but rather it’s just a really clear example of how fallible we all are, even those of us whose job it is to make really clear-headed decisions.

Ken: And this is the reason we’re looking closely at this topic this season. We are more vulnerable to these biases than we realise, aren’t we?

Tessa: Yeah, exactly. Now, I went out and talked to some of our listeners to see if they were as susceptible to an anchor as some of these studies have argued we are. Now, for those of you not from Australia, we talked about the Murray river earlier. This is the longest river in Australia and it goes through multiple states. Now, for some people, I asked if it was longer or shorter than 500 km. For others, 3000 km. For your information, it’s actually 2508. Just for your awareness while you’re listening to the responses, let’s listen to the group who I anchored with the 500 kilometre question.

Vox pop 1: I’m going to say 1500 km. It goes between South Australia and New South Wales Victoria, and it’s a very long border, about two and a half, 1232 km.

Tessa: Do you think it’s longer or shorter than 500?

Vox pop 2: Longer.

Tessa: And exactly how many kilometres do you think it might be?  

Vox pop 2: I don’t know.

Tessa: You can have a guess. Nobody knows exactly.

Vox pop 2: 30 km.  

Tessa: All right. 30 km longer than 500. So you think 530 km. That’s a good guess. Thank you. Now let’s listen to the group who are anchored with the 3000 km. Is the Murray River longer or shorter than 3000 km?

Vox pop 3: Shorter. 

Tessa: Exactly. How long is the Murray River?

Vox pop 3: 2286. 

Vox pop 4: Don’t know. 7000.

Tess: For my second anchoring test, I gave people 5 seconds to answer a very complicated math question. I want you all to play along at home as well. So I’m going to give you the question, and you’ve got 5 seconds to come up with the answer. What is 1x2x3x4x5x6x7x8? Now, in an actual scientific study, the medium guess is 512. Let’s hear what our listeners had to say. 

Vox pop 5: About 468.

Vox pop 6: 4000.

Vox pop 7: I’m getting lost. 50.

 Vox pop 8: There is a math equation to this which I don’t know. 10,000.

 Tessa: What is 1x2x3x4x5x6x7x8?

 Vox pop 9: That’s easy.

Tessa: What’s the answer?

Vox pop 9: 2000

Tessa: You’re pretty confident about that one. Now, time to play along at home again. What is 8x7x6x5x4x3x2x1? The medium guess for that one was 2250. Let’s see how close you are to the other listeners that we interview.

Vox pop 10: Oh, well, I’ll say 5000.

Vox pop 11: 3422.

Vox pop 12: 1050.

Vox pop 13: 14006.

Ken: Wow. That’s a very interesting response from one of our younger listeners there, Tessa.

Tessa: Yes, he was four years old and he was extremely confident on his maths abilities, wasn’t he?

Ken: Wow. Four years old. Good Lord. He’s very smart for four. Hopefully he’s telling all his friends about us too.

Tessa: Yeah, exactly. Now, listeners, if you had two different answers, then you have been anchored because the answer to both is 40,320. So I think this is a great example of how easy it is to anchor someone.

Ken: Yeah, absolutely. And just like in the scientific study, everyone that you spoke to was anchored. So those who were given the smaller number first actually came up with a smaller total, whereas those when you started with eight came up with a higher number. It’s really fascinating.

Tessa: This question is not supposed to be answered. I don’t expect any of our listeners (there could be a few savants out there) to be able to answer this within 5 seconds. So the idea is that we do a heuristic, we do a shortcut in our brain of just looking at those first few numbers and then extrapolating. So it’s, I think, a really clear example of how our brain works to try and work quickly to come up with answers that sometimes actually don’t help us. Now, this is a bias that is used against us all the time, particularly in marketing. Companies have sales regularly. And as an avid bargain hunter and op shop lover, I generally can’t bring myself to pay full price for anything. So I know that I’m very susceptible to a price anchor. You know, by having $100 crossed off and $60 written down instead, you have been anchored by that original price. So you now see $60 as a bargain. Whereas maybe if you’d seen the $60 first, you might have thought it wasn’t even worth that amount, let alone $100. Have you ever been sucked in by this?

Ken: Tessa I was sucked in by this less than two weeks ago, I received an email from a company advertising some sales. It was an outdoor clothes company, and when I got on and had a look, I thought, oh gee, that’s really expensive. And then I saw next to the price a second price that was crossed out, which was the original price, and suddenly the sales price looked a lot more affordable! I thought, this is actually not too bad. So the price had not changed, but my anchor had changed.

Tessa: And did you make the purchase?

Ken: Tessa I did. It should be arriving in the next couple of days. I’ll wear it next time we record, and you can have a guess what you think this jacket was worth.

Tessa: Oh, that’s great. I’ll try and guess the anchor and I’ll guess how much you actually paid for it. That’ll be a fun game.

Ken: Yeah.

Tessa: Another example of anchoring was when I was living in the US. A lot of places had shifted tipping to be done via a screen rather than the old on the receipt option. And so they would actually have a suggested tip amount, generally 20, sometimes as high as 22% as the suggested amount, and then a much teeny tinier option of, say, 18%. And to make it change, you actually had to click a little button or you’d have to enter in a different amount. So it took an action. And this is actually a really clever anchoring technique as it was getting people to pay higher amounts, particularly for things like takeaway food and coffees, where traditionally you would never have tipped 20% a few years ago. So I think that’s an example of how a really quick change and anchoring so clearly has shifted the behaviour of so many consumers.

Ken: Yeah, look, it helps businesses make more money, particularly those businesses that are not paying their staff very well. They can keep the wages low. But it’s also useful for charities, isn’t it? I’ve seen a shift from asking for any donation to actually suggesting an amount to people who might be thinking of donating. And they’re not only suggesting an amount as a one off donation, but suggesting that you should donate that regularly, weekly or monthly. So maybe your original intent to give $20 has turned into you succumbing to that anchor and giving a $10 monthly donation, which is likely more than you would have given if you hadn’t seen the anchor. And this is interesting, it aligns with the concept of the nudge that Richard Thaler, the Nobel Prize winner, talks about in the book of the same name. He gives an example of how in Europe, some European countries, the default for organ donation is that you are an organ donor unless you choose to nominate otherwise. He contrasts this with Australia and America, where you are not an organ donor unless you choose to be. And he notes that the difference between the two is remarkable. The percentage of organ donors in those European countries, I believe, is greater than 80%. It is quite low in countries where it is not the default.

Tessa: We don’t move very much once we’ve had that initial anchor. So whether it’s changing our prediction of something or actually changing opting in or out of something, we get really locked into that first thing that we’re given. So, Ken, I think that demonstrates that we’re all susceptible, but how do we actually avoid it? There’s a few strategies, and a simple one is just to come up with reasons why that anchor is inappropriate for the situation. In one study, car experts were asked to judge whether a resale price of a certain car, the anchor, was too high or too low, after which they were asked to provide a better estimate. However, before giving their own price, half of the experts were asked to come up with arguments against that anchor price, and those participants showed a weaker anchoring effect.

Ken: Yeah, that’s actually an excellent tip. So you can reduce the anchoring effect by doing some thinking after you’re presented with the anchor, but not just thinking of what the price should be, giving some reasons why the anchor might not be appropriate. So it’s a bit more reflecting, isn’t it, on the anchor?

Tessa: Yeah, exactly. It’s really dissecting that anchor rather than responding to it. Another example would be just a pause before making that decision, do some research and then come up with a new anchor. So if you’re negotiating for, say, a raise with your boss and they give you a really low amount, don’t respond immediately to that offer because you will definitely be anchored. Take your time, go away, research the industry standard, reflect on your own skills and experience, and then come back with that as your new anchor to guide your negotiations.

Ken: Yeah, and I’ve even noticed this when I was living in North Africa, where haggling over prices of goods is a really common experience. Just because the seller sets a really high anchor doesn’t mean that you can’t then set your own anchor of a very low price, so that there’s now two anchors pulling the two parties, and those who are really masterful at haggling sometimes do this really well. But the key is having a good sense of what a reasonable price is, or in your example, what a reasonable pay rise would be. The more ignorant that we are on a particular topic, the more susceptible we are to the pull of the anchor.

Tessa: Oh, it’s so true, Ken. Knowledge is power in this, and if you don’t know what’s reasonable, then you’re not going to be able to negotiate or adjust enough from that anchor point. So Ken, what’s your key takeaway from this episode?

Ken: Well, I think this is one example where knowing about this particular bias does make it easier to spot it. It’s a tangible thing. But I really like that idea, bouncing off that point that you made that we tend not to adjust enough after we see an anchor to really be thinking about what’s my adjustment and what are some reasons why that anchor might not have been an appropriate reference point.

Tessa: Yeah, I’m quite similar to you, Ken. For me, it’s just that idea that knowing about it is not enough. And Kahneman said this before in an interview, that he’s no more immune than the average person, despite knowing about all of these different heuristics and biases. So you have to really actively intervene to try and stop the anchor from working. So it’s got to be a deliberate practice.

Ken: So Tess and I have reflected on our key takeaways. I wonder what your key takeaway is? Whatever it is, we’d encourage you to go and talk with someone about it. It’s really helpful if you want to remember these lessons that we’re going through in this podcast. It’s a great way to reinforce those lessons in your mind. And if you have enjoyed this episode, please make sure to subscribe to How to Choose and visit us at goodbetterright.com.au where we have some more resources that you might find helpful.

Tessa: Be sure to tune in next week where we explore the impact of availability bias.

Ken: Bye for now.

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