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What is the Anchoring Effect? How First Impressions Influence Judgment

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Definition​

The Anchoring Effect is a psychological phenomenon where the first information you encounter sticks like an anchor and influences subsequent judgments and decisions. Simply put, it's the tendency to be "swayed by the first number."

For example, you're looking at a jacket in a store and the price tag says "Original $500 → Special $250." You think "Wow, half price! So cheap!" and buy it. But think about it. The actual value of that jacket could be $250, or even $150. The first number you saw, "$500," becomes the anchor (reference point), making $250 feel cheap. If only "$250" had been written from the start, you might have thought "expensive."

The anchoring effect was discovered in 1974 by Nobel Prize winner psychologist Daniel Kahneman and Amos Tversky. Their famous experiment went like this: They had participants spin a wheel that randomly landed on either 10 or 65. Then they asked "What percentage of UN member countries are African countries?" The group that got 10 answered an average of 25%, and the group that got 65 answered an average of 45%. A completely unrelated random number influenced their answers. (By the way, the actual answer is about 28%.)

Characteristics​

  • Works unconsciously - People don't realize they're being influenced by anchors. They think "I judged rationally," but they were actually swayed by the first number
  • Influences even when unrelated - Random numbers, birth dates, last digits of ID numbers—completely unrelated numbers affect judgment. It doesn't make sense logically, but that's how the brain works
  • Even experts can't escape - Experienced real estate agents, judges, and doctors are influenced by the anchoring effect. Even with knowledge and experience, the influence of initial information is powerful
  • Adjustment is insufficient - People see an anchor and think "this is too high" and adjust, but the adjustment isn't sufficient. They see $500 and think "it's expensive, so maybe $400?" when the actual value could be $200
  • Higher anchors are stronger - Higher anchors have a more powerful influence than lower anchors. "Original $1000 → $500" feels more attractive than "Original $300 → $250"

Examples​

Example 1: Real Estate Prices You went to see a house and the first one was $1 million. Too expensive, so you didn't buy it. The second house was $700,000. You thought "Wow, $300,000 cheaper than the first one! That's a reasonable price" and signed the contract. But think about it. If you hadn't seen the first house? $700,000 would have felt expensive too. The first $1 million became an anchor, making $700,000 look cheap. Real estate agents know this. That's why they show you expensive properties first, then show the one they actually want to sell. "This is more reasonable, right?"

Example 2: Salary Negotiation In an interview, they ask "What's your desired salary?" The applicant answers "$40,000." The company offers "$35,000, how about that?" The applicant accepts thinking "Hmm... that's okay." But what if the company had said first "We usually pay new hires $30,000"? The applicant would have negotiated with "Then how about $32,000?" starting from a lower amount. Depending on who proposes a number first and how much that number is, the negotiation result is completely different. Negotiation experts advise "throw out a high anchor first."

Example 3: Restaurant Menus At the top of a high-end restaurant menu is "Chef's Special Course $150." Most people don't order it. It's too expensive. Instead they order the "Premium Course $80" below it. Thinking "$80 is much more reasonable than $150!" This is the restaurant's strategy. They didn't create the $150 course to sell it, but to make the $80 course look reasonable. $150 acts as an anchor. If $80 were the highest price on the menu, people would think "expensive" and order the $50 option.

Example 4: Sentencing Influence A law professor ran an experiment. They gave judges the same case and had them decide sentences. But they told one group "the prosecutor requested 3 years," and told the other group "the prosecutor requested 1 year." The result? Judges who heard "3 years" gave an average sentence of 25 months, and judges who heard "1 year" gave an average of 18 months. Even experienced judges were influenced by the anchor of the prosecutor's request. The scary fact that even justice and fairness can be swayed by the first number.

Example 5: Charity Donations When a charity requests donations, they present options like this: "□ $100 □ $50 □ $30 □ Other" People donate an average of about $40. $100 becomes an anchor, making $50 or $30 feel "reasonable." But what if they change the options? "□ $30 □ $20 □ $10 □ Other" Average donation drops to $20. Same people, but just changing the first number cuts donations in half.

How to Use​

How can you use the anchoring effect and defend against it?

Using in Business

1. Pricing Strategy When selling products, set a high "original price" and show the discounted price. "Original $100 → Special $60" is much more attractive than just "$60." This is the strategy luxury brands always use.

2. Menu Composition Add a much more expensive "premium" option than the product you want to sell. People think "the most expensive is burdensome, and the cheapest looks cheap, so I'll go with the middle option." If that middle option is what you actually want to sell, mission accomplished.

3. Starting Negotiation In negotiation, propose a number first. And make it high. "How about $10,000?" The other party will negotiate saying "too expensive, how about $7,000?" but it'll settle around the $8,000 you wanted. If they'd proposed "$5,000" first, it would have finished at $6,500.

4. Product Comparison If your product is $50,000, show a competitor's product at $70,000 next to it. "Our product is $20,000 cheaper!" $50,000 looks reasonable.

Defending Against Anchoring

1. Ignore First Numbers When shopping, ignore the "original price." Judge "what's this product's real value?" for yourself. Even if it says "Original $100," think "it's probably worth $30" to be less swayed.

2. Evaluate Value Independently When looking at real estate, to avoid being influenced by the first house price, set your budget beforehand. "I can pay $500,000. I won't look at anything over $500,000 regardless of other house prices."

3. Don't React to Their Number in Negotiation If they say "$100," don't say "Hmm... how about $90?" You're already pulled to the $100 anchor. Instead, throw out a completely different anchor: "The value I see is $50."

4. Research the Market Compare multiple places so the first store's price doesn't become an anchor. It's even better to check average market prices online first. "This product is usually $30-40. This store is $50, so it's expensive." You can judge objectively.

5. Take Time Don't decide on the spot. Say "I'll think about it" and leave, then think again after getting away from the anchor's influence. When you get home and think carefully, you realize "hmm, not as good as I thought?"

6. Throw a Counter-Anchor If a seller says "this car is $30,000," immediately throw a counter-anchor: "a similar car I saw was $20,000." Then negotiation starts around the middle, $25,000.

7. Start from Scratch When making important decisions, ask yourself "if I were seeing this information for the first time, what would be appropriate?" Erase the initial information and judge from the beginning again.

Actual Research​

Many interesting studies have proven the anchoring effect.

Kahneman and Tversky's UN Experiment (1974) The roulette experiment I mentioned earlier. Completely unrelated random numbers (10 vs 65) made African country percentage estimates completely different (25% vs 45%). This study proved that "even unrelated information can become an anchor."

Real Estate Expert Experiment (Northcraft & Neale, 1987) They had experienced real estate agents evaluate the same house. But they told one group "listing price $119,900" and the other group "listing price $149,900." What did the experts estimate? The first group averaged $117,000, the second group averaged $130,000. Even experts were influenced by the listing price anchor. And they claimed "I wasn't influenced by the listing price." They didn't recognize their own bias.

Wine Price Experiment (Ariely, 2008) They had MIT students write down the last two digits of their social security number. Then asked how much they'd be willing to pay for wine, chocolate, keyboards, etc. The result is amazing. Students with numbers 80-99 offered an average of $56, students with 00-19 offered an average of $16. A completely random, unrelated social security number created more than a 3x difference.

Judge Sentencing Experiment (Englich & Mussweiler, 2001) They gave German judges the same rape case and had them decide sentences. One group was asked by a journalist "do you think 3 years is appropriate?" and the other group was asked "do you think 1 year is appropriate?" The first group sentenced an average of 33 months, the second group an average of 25 months. A journalist's question, with a random number, influenced judges' verdicts.

Donation Choice Experiment (Weyant, 1984) When charities requested donations, they presented different options. The group that saw a "large amount ($100)" anchor had an average donation more than double the group that saw a "small amount ($5)" anchor. Just by changing the option checkboxes, donations doubled.

Pros and Cons​

Positive Aspects​

  • Quick decision-making: If you analyze all information, decisions are hard. Anchors provide a reference point to help judge quickly
  • Reduces complexity: When there are too many choices, it's confusing. Anchors reduce that complexity. They help you get a sense of "this much is reasonable"
  • Business strategy: From a seller's perspective, it's an effective marketing tool. It can increase sales when used in pricing strategy, negotiation, and menu composition

Negative Aspects​

  • Irrational decisions: Unrelated information influences important decisions. It's clearly irrational that random numbers like social security numbers determine purchase prices
  • Overspending: Seeing high anchors makes you spend more money. You see "Original $100" and think "$50 is cheap," but the actual value could be $30
  • Unfair negotiation: Negotiation results differ depending on who throws the anchor first. The side with more information has an advantage, and the weaker side is disadvantaged
  • Distorted judgment: Even experts are influenced by anchors, making objective judgment difficult. Doctors, judges, and real estate agents are no exception

FAQ​

Q: Does knowing about the anchoring effect prevent you from being influenced? A: Unfortunately, yes. That's what's scary about the anchoring effect. Even psychologists who know about this phenomenon are influenced by anchors. In the real estate expert experiment, experts said "I wasn't influenced by the listing price," but they actually were greatly influenced. Anchoring operates in "System 1," the automatic and unconscious thought process. If you consciously try to "this is an anchor, I should ignore it," you can reduce the influence, but you can't eliminate it completely. But just being aware helps a lot. If you think "that number is an anchor, so let me think more critically," you'll at least be less swayed.

Q: In negotiation, who should propose a number first? A: Traditionally, people said "let the other side propose first" to gain information. But anchoring research says the opposite. "You propose first." The first number becomes an anchor that sets the negotiation range. But there are conditions: 1) When you know market information well. If you throw an unreasonably high or low anchor, you lose trust and the negotiation itself can break down. 2) With confidence. If you hesitate saying "um... $100,000...?" it has no effect. You need to say confidently "Our proposal is $100,000." 3) Have justification ready. When they ask "why $100,000?" you should be able to explain "market average is $90-110,000, and our product's features are..." If you lack information and don't know the market well, then it's better to let the other side propose first.

Q: Is feeling everything's expensive after seeing "free" also anchoring? A: Right! "Free" is one of the most powerful anchors. People evaluate "free" much higher than its actual value (zero). In one study, they offered "premium chocolate 15 cents vs Hershey chocolate 1 cent" and 73% chose premium chocolate. But when they lowered both by 1 cent to "premium chocolate 14 cents vs Hershey chocolate free," 69% chose Hershey. Just a 1 cent difference flipped the choice. That's the anchoring effect of "free." That's also why it's hard to convert from free trials to paid. Once you experience "free," even $5 a month feels expensive. This is a problem many startups struggle with. Free attracts users, but paid conversion doesn't work well.

Q: Is a higher discount percentage always better? A: Not always. Discount percentage depends on how much the anchor (original price) is. Between "Original $100 → 50% discount $50" and "Original $60 → 10% discount $54," which is better? Actual payment is $50 vs $54, similar, but most people find the first one much more attractive. Because of the large number "50% discount" and the high anchor of "$100." But smart consumers should consider "what's the actual value?" The original price could be manipulated. Many online shopping malls set "original prices" higher than actual and always sell at "discount." It says "Original $100" but may have never sold at $100. That's why it's important to check other places' prices with price comparison sites.

Q: Does the anchoring effect differ by culture? A: Differences in degree exist, but it appears in all cultures. In studies comparing East Asia and the West, both showed anchoring effects, but East Asians showed it slightly stronger. The reason isn't clear, but there's a hypothesis that collectivist cultures place more value on external information (anchors). What's interesting is age. Young children and elderly people show stronger anchoring effects than young adults. Children rely on anchors because they lack experience, and elderly people have reduced ability to adjust anchors due to declining cognitive resources. Middle ages (30-50s) are least influenced by anchoring, but they can't completely escape either.

Q: Can I trust online shopping malls' "original prices"? A: You should be skeptical. Many online malls abuse the anchoring effect. It says "Original $100 → Special $50" but in reality: 1) Never sold at original price. $50 was the target price from the start. 2) "Original price" was arbitrarily set. Cost is $20 but they set the original price at $100 and advertise "50% discount." 3) Some malls raise it to $100 for one day, then lower it back to $50 and display "on sale." Technically not a lie, but deceiving consumers. This practice is so common that fair trade commissions are cracking down. Reliable method? 1) Check price history on price tracking sites (Naver Shopping, Danawa, etc.). 2) Compare prices across multiple malls. 3) Check overseas direct purchase prices too. Sometimes Korean "50% discount" prices are more expensive than overseas prices without discounts.