The Power of Anchoring and How It Influences You

The Power of Anchoring and How It Influences You

I’ve been fascinated with the field of behavioral economics ever since I read Predictably Irrational (by Dan Ariely) back in college. The fact that we behave irrationally on a regular basis was both surprising and intriguing.

Since then, I’ve been wanting to revisit the entire idea of irrationality and the broader field of cognitive bias. A field flush with examples of how easily our rationality is manipulated.

With that in mind, I’ve decided to do a deep dive into these various cognitive biases in the coming weeks. Exploring each one and understanding not only how they work, but how we can use them. Hopefully this will not only raise awareness, but also show the incredible value many of these simple techniques offer. We’ll start with one that I’ve been thinking about lately: anchoring.

What is anchoring?

Anchoring is essentially our natural tendency to rely too heavily on the first piece of information we receive when making decisions. This can be a price, an experience, a negotiation, and so on, that we use as an anchor to make decisions.

The natural assumptions is that we rationally use all information available to us to make a decision. Unfortunately, the reality is that the first impression or anchor has a far greater influence than any following it.

You never get a second chance to make a great first impression.

While this quote is often related to meeting new people, it’s just as relevant to other parts of our lives. Let’s see how.

How is it used?

Imagine for a moment that you are out shopping for a new pair of shoes. You walk into a store and find the perfect pair. They’re exactly what you were looking for. You’re going to look so fresh when you wear these next week at that wedding. Then you look at the price tag: $350.

Well that’s just crazy. You’re not about to spend that kind of money on a pair of shoes, so you put the shoes back and start to head out of the store. Of course you’re intercepted by a salesperson who just happened to be waiting for you.

“Did you want to get those shoes?”

“Yeah, but they’re a bit pricey. I’m going to look somewhere else.”

“But wait! These are on sale. 50% off! It’s actually an incredible deal. Only $175!”

At this point our rationality flies out the front door and we can’t help but jump on the deal, simply because it’s a deal.

We’re saving half our money! This is an amazing deal and we really loved the shoes, so it would be stupid of us to NOT get them now. Right?

That’s the power of anchoring. Fifty percent off sounds like a great deal. When we compare $175 to the original $350, how can we not make that purchase?

Let’s re-imagine the scenario a bit. What if the shoes were priced at $175 originally? That’s still expensive. We probably wouldn’t have bought those shoes at that price. What made this purchase happen was the $350 anchor that we first encountered. It completely changed the perceived value of the situation.

This happens ALL. THE. TIME. Just think about how many things you’ve purchased simply because it was on sale from an anchored price point. We tend to buy things just because they were a good deal in our minds, whether we needed them or not.

There are two core ingredients for anchoring to work.

1. You need something

Most importantly, you have to be in the market for something for anchoring to work. If you don’t want to buy or take any action, then an anchor doesn’t have any impact.

2. You remember the anchor

Second, if you don’t remember the anchor, it’s not going to have much impact on your decision. Most anchors are formed at the same time of purchasing because of this condition.

So whether you’re buying a car or a house or groceries or anything, anchoring is often at play. Let’s explore another example, where an anchor actually changes.

Changing the anchor

You’ve been going to the same bar for years. It’s not the best bar, but it’s cheap and it gets the job done. Your anchor at this point is on price. One day you decide to try a new place that just opened in downtown.

It’s got pricier drinks, but everything else about it is better. The atmosphere, the service, the experience, and the people are vast improvements on your normal place. When you leave that night, your wallet is a bit lighter than usual, but you notice how much you enjoyed your night.

The next time you decide to go out, you end up going to the new bar. What changed?

You formed a new anchor. Not on price, but on experience. The anchor shifted to a different attribute that you used to make your decision. The point here is that anchors are also multi-faceted and can shift. Price is important, but it’s not all that matters.

This is exactly what Starbucks does to get new customers. They do everything they can to make your experience a great one, despite the fact that you are paying more for the same cup of coffee you can get across the street. Despite that, the overall positive experience becomes a new anchor. One that overrides any other attribute.

Apple is another example of this at work. Based on price, Apple products are far more expensive and yet they’ve created an anchor on quality that overwhelms everything else. As they say, once you go to Apple, you can’t go back. This is because you then compare everything to that level of quality and nothing else hits the mark.


Anchoring is certainly an interesting idea and one you won’t be able to ignore now that you’re aware of it. If you take the time to be more mindful of these situations, you can overcome this cognitive bias, but it’s easier said then done.

Of course, these are just a few of the use cases, but the idea of anchoring can can be used in a number of different ways. From preferences to prices, try to use anchors to your advantage and hopefully the next time this bias is at work, you’ll notice it.

Image via flickr

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