Preview first lesson
Anchoring Effect
We rely heavily on the first piece of information introduced. It acts as an ‘anchor’ that influences our subsequent judgments and decision-making.
Imagine you’re out shopping for a gift. You find a pair of sunglasses that you know they’d love. But they cost $100—way more than your $60 budget. Right beside it, you see this necklace for $80 - still over your budget - but hey, it’s cheaper than the sunglasses. You buy the necklace instead, right?
The “Anchoring Effect” influences our thinking and behavior by:
- making it difficult for us to consider other options or alternatives
- limiting the range of information that we consider when making a decision
The reason why our brain uses this mental shortcut is to save time and cognitive effort. Rather than evaluating every piece of information we receive and considering all the possible options and alternatives, our brain uses the initial information as a starting point and focuses on the options and alternatives that are most relevant, or related, to the ‘anchor’. It helps us make decisions faster, but also leads to errors.
Examples
1. Amazon
Amazon shows a high starting price, called the “List Price”, causing customers to perceive the real price as an amazing deal. It doesn’t matter that the list price is outrageously high. It just matters that customers see it.
2. Tinder
When the first photo is the best one from a series, the chances for a match on Tinder increase exponentially. It happens because the viewer’s judgement intensity drops with every other photo that follows the ‘anchor’. To take advantage of this effect, Tinder displays the photo gallery in a carousel format with full-width images. Additionally, it uses performance data to automatically change the order of the photos in the series.
3. Twitter
Last month, Elon Musk announced a monthly subscription for Twitter Blue at $20. By starting with a high price, he aimed to generate buzz and set the ‘anchor’ for people’s perceptions. Soon after, he pitched a lowered price of $8. Let’s break it down:
- He creates the opportunity for buzz
- He sets the anchor high, people reject the price
- He makes space for them to contribute and give feedback
- He lowers the price by 60%
- People accept the new price as fair value because they have ownership in the ‘final’ decision—Musk uses another bias here called “Endowment Effect”
Product experiences
- A search engine that always shows the same results first anchors the user's decision and influence their choices. If the search engine consistently shows the most popular or relevant results first, leads users to believe that those are the best or only options, even if there are other relevant and useful results available.
- Smartphones come with a set of default settings that are automatically applied when the product is first used. These default settings anchor the user's decision-making and behavior, making it difficult for them to consider alternative settings or configurations.
- A fitness app that provides users with a default daily step goal anchors their behavior and influence their activity levels. If the default goal is too high or too low, it leads users to either over or underestimate their ability, and potentially leads to frustration or disappointment.
- An online shopping platform that always shows the same product first, or that always recommends the most expensive option first, anchors the user's decision and influences their choices. Leads users to believe that the recommended option is the best or only option, even if there are cheaper and equally good alternatives available.
Takeaways
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All lessons
- #01
Anchoring Effect 6 min
People rely too heavily on the first piece of information they receive when making decisions.
- #02
Scarcity Bias 7 min
People value things more highly when they are scarce or in limited supply.
- #03
Framing Effect 6 min
People make different decisions based on how information is presented to them.
- #04
Halo Effect 6 min
People have a positive impression of something based on a single positive characteristic.
- #05
Social Proof Bias 7 min
People do or believe something because they see others doing or believing it.
- #06
Familiarity Bias 6 min
People prefer things that are familiar to them.
- #07
Authority Bias 8 min
People believe and follow the advice of someone in a position of authority.
- #08
Confirmation Bias 6 min
People seek out information that confirms their preexisting beliefs.
- #09
Sunk Cost Fallacy 8 min
People continue investing in something because they have already invested a lot of time or money in it.
- #10
Endowment Effect 8 min
People value something more highly simply because they own it.
- #11
Loss Aversion Bias 6 min
People avoid taking risks in order to avoid potential losses.
- #12
Projection Bias 7 min
People project their own beliefs and attitudes onto others.
- #13
Recency Bias 7 min
People give more weight to recent events or information.
- #14
Optimism bias 8 min
People overestimate their chances of success and underestimate the likelihood of negative events.
- #15
Groupthink 7 min
People go along with the majority, even if they personally disagree.
- #16
In-Group Favoritism 8 min
People favor members of their own group over those in other groups.
- #17
Curse of Knowledge 8 min
Once people know something, they asume everyone else knows it, too.
- #18
Automation Bias 6 min
People trust the output of a computer or other automated system without fully understanding how it arrived at its conclusions.
- #19
Google Effect 7 min
People rely on search engines and other online sources for information, leading to a decline in personal knowledge.
- #20
Belief Bias 8 min
People judge the validity of an argument based on their preexisting beliefs, rather than considering the evidence objectively.
- #21
Status Quo Bias 8 min
People prefer to maintain the current state of affairs, even if a change could be beneficial.