Cognitive biases - anchoring heuristics

Heuristics

• Mental short-cuts used to make decisions which usually focus on one aspect of a complex problem

• Mental “rule of thumb”

• Based on past experiences

• Plays a role in our reasoning about the world.

• Can easily lead us to faulty conclusions.

ANCHORING HEURISTICS

• The anchoring and adjustment heuristic is a mental short-cut used in decision making where an initial, or “anchor” point is set, and adjustments are made until an acceptable value is reached.

• The anchor, once set has a strong influence, often leading to bias because adjustments are typically insufficient shifts from the initial anchor, resulting in estimations skewed towards to anchor.

• Anchoring bias (also known as anchoring heuristic or anchoring effect) is a type of cognitive bias that causes people to favour information they received early in the decision-process.

Jacowitz & Kahneman (1995) - aim

test the influence of anchoring bias on decision making

Jacowitz & Kahneman (1995) - procedure

• Researchers told participants in San Francisco exploration about the environmental damage caused by oil tankers in the Pacific Ocean and asked about their willingness to make an annual contribution to:

  • “Save 50,000 offshore pacific coast seabirds from small off shore oil spills, until ways are found to prevent spills or required tanker owners pay for the operation”

• They were then asked one of three questions:

  • It would be great if you would be willing to contribute at least $5. how much would you be able to contribute? (Low anchor condition)

  • It would be great if you would be willing to contribute at least $400. How much would you be able to contribute? (High anchor condition)

  •  It would be great if you would be willing to contribute. How much would you be able to contribute? (control, no set amount mentioned)

Jacowitz & Kahneman (1995) - results

• No anchor condition: visitors on average said they were willing to contribute $64.00

• Low anchor condition: visitors on average said they were willing to contribute $20.00

• High anchor condition: visitors on average said they were willing to contribute $143.00.

Jacowitz & Kahneman (1995) - findings

• The “anchor” had a major effect on the individuals’ decisions making.

• When the anchor was low, the contribution was low – but not in comparison to the anchor. Since the anchor was only 5, 20 dollars is four times the value of the original request.

• The high anchor was clearly too high for the participants, but they based their decision on the original anchor, with a much higher value that they were willing to donate when compared to either the control or low anchor group

Jacowitz & Kahneman (1995) - strengths

• randomly assigned to different conditions (high or low anchors), which helps control for individual differences and biases, enhancing the internal validity of the findings.

• employed quantitative measures to assess participants' estimates, allowing for statistical analysis and clear comparisons between groups. This approach strengthens the reliability of the results.

• have significant implications for various fields, including marketing, negotiation, and behavioral economics, highlighting how initial information can influence decision-making in practical contexts.

• Field experiment - high ecological validity

Jacowitz & Kahneman (1995) - Limitations

• The study primarily focused on anchoring effects without considering other potential influencing factors (e.g., individual differences in generosity or prior knowledge about donation causes), which could provide a more nuanced understanding of donation behavior.

• The study assessed immediate willingness to pay rather than long-term commitment or actual donation behavior over time, raising questions about the sustainability of anchoring effects in ongoing charitable giving scenarios.

Tversky and Kahneman (1974) - aim

to demonstrate that people rely heavily on the first piece of information they encounter when making decisions, even if that information is arbitrary or irrelevant.

Tversky and Kahneman (1974) - procedure

• Sample: high school students

• Participants in the “ascending condition” were asked to quickly estimate the value of 1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 in five seconds.

• Those in the “descending condition” were asked to quickly estimate the value of 8 X 7 X 6 X 5 X 4 X 3 X 2 X 1.

• Since we read from left to right, the researchers assumed that group 1 would use "1" as an anchor and predict a lower value that the group that started with "8" as the anchor.  The expectation was that the first number seen would bias the estimate of the value by the participant.

Tversky and Kahneman (1974) - results

• The researchers found that the median for the ascending group was 512; the median for the descending group was 2250. The actual value is 40320.

Tversky and Kahneman (1974) - strengths

• easily replicated, allowing us to establish the reliability of the results. 

• The study is highly controlled and has high internal validity. 

• It can be inferred that the anchor was the cause of the higher (or lower) estimates by the students.

• The researchers used the median to report the data.  This allowed the researchers to diminish the influence of outliers on the reporting of the data.

Tversky and Kahneman (1974) - weaknesses

• low ecological validity.  The situation is very artificial.  It is not too often in life that we have only five seconds to estimate the value of something

• The study was an independent samples design.  This means that participant variability may have played a role in the results.  It would be better to have a matched pairs design to attempt to have two groups with an equivalent level of maths competency.

Heuristics strengths

Anchoring bias is applicable in numerous fields, including economics, marketing, negotiation, and legal decision-making. For example, it explains why initial price offers can set the tone for negotiations, impacting perceived value and final agreements

Heuristics weaknesses

• difficult to measure the actual use of such biases in real-life situations.  It is possible that an anchor may play a key role but in this naturalistic situation, there are also other factors

• Since heuristics are often used unconsciously, our explanation as to how we decided what was the best price to pay is most likely a rationalization

• Much of the research in this chapter is done with Western university student samples under highly controlled - and rather artificial - conditions.  Many of the questions given to the students would be of little interest to them and were not asked in a way that was natural.  The studies lack ecological validity as well as cross-cultural support - assuming that cognitive biases are universal