The minute you are exposed to a piece of information, the price of a product for example, you are very likely to base your future thinking on that price. Your thinking becomes anchored to what you now know, and as much as you may not like to admit it – there’s not much you can do about this.
The Anchoring Effect
In his book Thinking Fast and Slow, Daniel Kahnemann talks about the anchoring effect in a number of ways, here’s the essence of one I like:
Two groups of estate agents were asked to assess the value of a house after visiting it and reading some detailed sales blurb, which included an asking price. One group were shown a much larger asking price than the other, and all were asked what would be the lowest price they would be willing to sell the house assuming they owned it. They were next asked what factors had influenced their decision making. The estate agents maintained that the asking price was not one of these factors, rather that they took pride in ignoring it.
The test results showed they were wrong, and that the anchoring effect (the ratio of the difference between the lower and higher groups of prices expressed as a percentage) was 41%. A group of business school students were also asked to carry out the same task, and whilst the anchoring effect percentage was similar at 48%, a key difference was that the students acknowledged the influence of the starting price on their thinking.
Working Without an Anchor
Earlier this week I was invited to pitch a product idea to a networking group and to get feedback on three things. The things I chose were:
- How do I promote this product?
- How do I improve this product?
- What is a fair price for the product?
The group listened to me talk for about three minutes and read 200 words of sales blurb I’d put together. They were then invited to scribble down ideas for the first two questions and put them on a wall where we could all read them. I invited everyone to remain silent on their answer to question three, and to write down their suggestion and hand it to me. Why did I do this?
Based on my understanding of the anchoring effect, I was concerned that once someone posted a price on the wall, other people would be influenced by it and indeed, may choose not to contribute an answer. They might have thought – well that’s close enough to what I was thinking so no point in adding to the mix. They might have thought – wow that price is nowhere near my idea I’ll keep quiet, don’t want to embarrass me or Doug. I’ve seen versions of this play out in numerous meetings where a more assertive member of the team will forever put their views forward first, and it dampens and biases the views of others. What I hoped to gain was an unfettered source of independent perspectives. How did we get on?
I received 18 responses, nearly everyone contributed. The range was considerable, from £25 to £1,500. Five responses landed at £200 and below, six at £500 and above. The average was £414. Clearly I can’t go back in time with this group and redo the test with an anchor price included, but if I could, then based on Kahnemann’s research I’m confident I wouldn’t have gained such useful, unvarnished feedback.
So why does this matter to you?
Well I guess that depends on whether you want to avoid the anchoring effect like I did in the example above, or, put it to another use, perhaps like Chris Brogan does via this interesting blog post written by my smart friend, Paul Hebert. Either way – I think it’s important you are aware of it so that next time you are looking for feedback on an idea or you’re positioning something, you do so a) with the knowledge that you are applying an anchor, or not, and therefore b) that you are aware of the likely bias in the responses you get.
Kudos to my friend Vandy Massey, who suggested the idea to me of working without an anchor.
Estate agents eh? But it is so true – and as someone who spends a lot of time assessing interim and consulting professionals – all I can say is that the day rate or project rate is quite variable and not necessarily linked to levels of experience/expertise. I know that I do make a judgement on someone’s level based on their day rates – ‘if someone is prepared to pay that for them then they must be worth it’. That’s not necessarily true though and comes back to the even wider myth that an interim/consultant must be good at what they do as they are constantly scrutinised. Er, that’s not necessarily true and I would like some proper evidence.
Off to read the book you’ve suggested…….
Very interesting range of prices. It’d be fun to hear why each person priced it as they did, particularly the outliers. Mr/Ms 1500 might provide some great insight to anticipated value that’d allow you to tailor your marketing/pitches. Ditto in reverse for Mr/Ms 25.
Good stuff Broc – not sure I’ll be able to find out now – but will try and see what more I can learn. If I get more news, will let you know.