Why you need an anchor

“Simplicity is the ultimate sophistication.”

- Leonardo da Vinci.


Thank you for joining me for blog 18 in the series, highlighting decision-making and the brain. This is my public exploration of what drives decision-making and how we can use that information to make better decisions, resulting in better outcomes.


Today's might feel like a dry topic, but it is very important. Decision-making processes can be thrown off by a bad starting point. If there is one thing you take away from this, it is that trying to ground your forecasts well by finding similarities to other things, will help you much more than viewing a situation as unique.


What is an Anchor?


An anchor is the starting point for you to make forecasts. If you were trying to estimate how many people in your apartment building had cats, knowing what proportion of people had cats in your town would be a great starting point. I believe that the effort required to get a good starting point is too high for some people, but these early thoughts will improve decision-making hugely. The example below shows how many low relevance facts can sometimes make you feel like you have a lot of information, when actually you have very little on which to anchor your view. There can be a lot of noise from which to distill a signal, or just a lot of noise.


Read this example:


An individual has been described by a neighbour as follows: Steve is very shy and withdrawn, invariably helpful but with little interest in people or in the world of reality. A meek and tidy soul, he has a need for order and structure, and a passion for detail." Is Steve more likely to be a librarian or a farmer?


Now at first glance it looks like you have a lot of information, some really interesting character traits that seem to suggest librarian, but what if I told you, that in the town that Steve lived, there were 500 farmers in his town and only 5 librarians. This completely skews the picture. When we did not have an anchor to decide, the mind defaulted to an assumption that they were equally likely and focused on the information that we did have. This anchor (information to give you a good starting point) is crucial to making good decisions.


Decisions rely on forecasts and predictions. Making a good decision relies on having a good understanding of the various avenues you are choosing between and that requires forecasts. With forecasts that you trust decision-making is easier.


Is it unique?


How long will the Russia/Ukraine war last for? It seems like quite a unique problem and maybe it is, but what is it similar to? How about looking at all the wars of invasion in the last 100years since weaponry evolved. Where has there been a similar situation where a well-equipped country attacked its neighbour that was also being supplied weapons? As we piece together this information and start looking at the wars in the Middle East and around the world we get some data points that will be helpful. For example, if wars have tended to last many years, it should inform our forecasts about how long this conflict will last for.


Use of anchors


There is a lot of data to suggest we can be thrown off the scent suggestively. Have you ever noticed that estate agents, whilst selling you a property, use the bigger house on a better road as a comparable rather than the smaller house on a less desirable road? This automatically makes the higher number the first reference point (your anchor).


But that's not even the start of it, it starts to get weirder....


In a research study, people were asked to spin a wheel of fortune that was rigged to land on one of 10 and 65. They were then asked to write it down and asked the question:


"Is the percentage of African nations among UN members larger or smaller than the number you just wrote down".


Those who wrote down 10 on average guessed 25% and those who wrote down 65 guessed 45% on average. A completely random number before the exercise influenced the outcome by a huge margin. I don't know how this bug in the system works exactly, but clearly there is a residual piece of mental capacity tied to calculations that you have performed prior.




Priming


Another truly remarkable thing that we see is priming. We experience it normally through marketing. Let's say a restaurant has over-ordered on French wine. If they now have French music and a French 'dish of the day' they will put Frenchness into people's mind and guess what? They are more likely to buy French wine. In effect, a change in the initial conditions changed the decision-making outcome.



Priming can also have some unexpected sources. In an experiment, some students were asked to unjumble sentences that had words associated with the elderly (including the word Florida) and other students were asked to unjumble some sentences with a younger/neutral theme. They were then asked to walk down the corridor to perform another task. They timed how long it took people to go down the corridor and lo and behold, those students that were unjumbling words to do with the elderly took longer to walk down the corridor. The 'Florida' effect, beautifully illustrates how our brain is being impacted by factors completely unrelated to the task at hand.


Anchors and priming suggest we should engage our deliberate and focused part of the mind (not intuitive) to try and come to a starting point that will lead us to a good forecast. These tend to use comparables, base rates or a back-of-the-envelope approach.


Anchor-and-adjust


Once we have an anchor, we can try and work out how our case is different from the anchor. In the question of how long will the Russia/Ukraine conflict last, we can decide why the unique factors in this case mean a longer or shorter war. In general adjusting from the anchor is much more fiddly than producing the anchor as there are many factors you need to consider and decide whether they are material or not.


Adjusting from the anchor requires focus and cognitive bandwidth, it is observed that when people are cognitively depleted, they are less comfortable adjusting from the anchor and in general people do not adjust enough.


Implications to decision-making


We are often in situations where an interested party is trying to negotiate with you and lays down the facts to make a particular course of action attractive to you. It is likely you have been anchored and primed to get you to make the decision they would like you to. The way you can ensure your decision-making is sensible, is by determining your own starting point.


Whether it is on discounts from an unreasonably high price, or starting with an outlandish first offer, we often get anchored to a something that we try and move from away from. We tend not to adjust enough so we need to be wary of the starting point.


Whilst it is easy enough to put together sensible anchors for growth rates of companies or heights and weights of people, it is much more difficult to put together anchors for things that have a very skewed distribution like book sales, or likes on a post. In some cases we just need to accept that some things are very difficult to predict and will have a huge margin of error.


How is this all relevant to decision-making? Here are three take-aways I want to leave you with before we pick it up next week:


1) To make a good decision, we need to make some forecasts. Good forecasting requires an anchor.


2) If we don't construct the anchor ourselves we leave ourselves vulnerable for another person to construct it for us, which might be our biased


3) To make a good decision, start with a good anchor and adjust from there. Some types of things are easier to anchor than others by the distribution they tend to have. We tend not to adjust enough from anchors.


Thank you for joining. The next blog in a week's time will cover the question 'Framing'.