The Art of Thinking Clearly: Better Thinking, Better Decisions

See also Problem with Averages (ch. 55); Base-Rate Neglect (ch. 28); Déformation
Professionnelle (ch. 92); Regression to the Mean (ch. 19); Simple Logic (ch. 63)

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30
WHY THE WHEEL OF FORTUNE MAKES OUR HEADS SPIN
The Anchor
When was Abraham Lincoln born? If you don’t know the year off the top of your
head, and your smartphone battery has just died, how do you answer this?
Perhaps you know that he was president during the Civil War in the 1860s and
that he was the first U.S. president to be assassinated. Looking at the Lincoln
Memorial in Washington, you don’t see a young, energetic man but something
more akin to a worn-out 60-year-old veteran. The memorial must depict him at the
height of his political power, say at the age of 60. Let’s assume that he was
assassinated in the mid-1860s, making 1805 our estimate for the year he was
born. (The correct answer is 1809.) So how did we work it out? We found an
anchor
to help us – the 1860s – and worked from there to an educated guess.
Whenever we have to guess something – the length of the Mississippi River,
population density in Russia, the number of nuclear power plants in France – we
use 
anchors
. We start with something we are sure of and venture into unfamiliar
territory from there. How else could we do it? Just pick a number off the top of our
heads? That would be irrational.
Unfortunately, we also use 
anchors
when we don’t need to. For example, one
day in a lecture, a professor placed a bottle of wine on the table. He asked his
students to write down the last two digits of their social security numbers and then
decide if they would be willing to spend that amount on the wine. In the auction
that followed, students with higher numbers bid nearly twice as much as students
with lower numbers. The social security digits worked as an 
anchor
– albeit in a
hidden and misleading way.
The psychologist Amos Tversky conducted an experiment involving a wheel of
fortune. He had participants spin it, and afterward, they were asked how many
member states the United Nations has. Their guesses confirmed the 
anchor
effect: the highest estimates came from people who had spun high numbers on
the wheel.
Researchers Russo and Shoemaker asked students in what year Attila the Hun
suffered his crushing defeat in Europe. Just like the example with social security

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numbers, the participants were anchored – this time with the last few digits of their
telephone number. The result? People with higher numbers chose later years
and vice versa. (If you were wondering, Attila’s demise came about in 453.)
Another experiment: students and professional real-estate agents were given a
tour of a house and asked to estimate its value. Beforehand, they were informed
about a (randomly generated) listed sales price. As might be expected, the
anchor
influenced the students: the higher this price, the higher they valued the
property. And the professionals? Did they value the house objectively? No, they
were similarly influenced by the random 
anchor
amount. The more uncertain the
value of something – such as real estate, company stock or art – the more
susceptible even experts are to 
anchors
.
Anchors
abound, and we all clutch at them. The ‘recommended retail price’
printed on many products is nothing more than an 
anchor
. Sales professionals
know they must establish a price at an early stage – long before they have an
offer. Also, it has been proven that if teachers know students’ past grades, it
influences how they will mark new work. The most recent grades act as a starting
point.
In my early years, I had a quick stint at a consulting firm. My boss was a pro
when it came to using 
anchors
. In his first conversation with any client, he made
sure to fix an opening price, which, by the way, almost criminally exceeded our
internal costs: ‘I’ll tell you this now so you’re not surprised when you receive the
quote, Mr. So-and-So: we’ve just completed a similar project for one of your
competitors and it was in the range of five million dollars.’ The 
anchor
was
dropped: the price negotiations started at exactly five million.