Anchoring Effect: What It Is and Why It Matters at Work

Here’s an experiment. Ask one group of people: “Is the population of Turkey greater or less than 15 million?” Ask another group the same question, but replace 15 million with 65 million. Then ask both groups to estimate the actual population. The group that heard 65 million will consistently guess higher — even though the initial number was arbitrary. That’s anchoring, and it shapes workplace decisions more than most leaders appreciate.

Definition

The anchoring effect is a cognitive bias in which people rely too heavily on the first piece of information they encounter (the “anchor”) when making subsequent judgments or decisions. Even when the anchor is irrelevant, random, or obviously manipulative, it systematically pulls estimates and decisions in its direction.

The concept was first demonstrated by Amos Tversky and Daniel Kahneman in a landmark 1974 paper. In one of their experiments, participants spun a rigged roulette wheel (landing on either 10 or 65) and then estimated the percentage of African nations in the United Nations. The wheel’s number — completely unrelated to the question — significantly influenced answers. Participants who saw 65 guessed an average of 45%. Those who saw 10 guessed 25%.

Why Anchoring Is So Powerful

Anchoring works through two mechanisms. The first is insufficient adjustment — we start from the anchor and adjust away from it, but we rarely adjust far enough. The second is selective accessibility — the anchor activates information in memory that’s consistent with it, biasing how we evaluate subsequent evidence.

What makes anchoring particularly dangerous in professional settings is that expertise doesn’t reliably protect against it. Studies have shown that real estate agents, judges setting bail amounts, and experienced negotiators are all susceptible — often while insisting they aren’t.

How It Shows Up at Work

Salary negotiation. The first number on the table disproportionately determines the final outcome. Research by Todd Thorsteinson found that even absurd anchors influence results — job candidates who jokingly mentioned a salary of $1 million before stating their real ask received higher offers than those who didn’t. The implication for hiring managers: whoever names a number first sets the gravitational center of the entire negotiation.

Budgeting and forecasting. Last year’s budget becomes the default anchor for this year’s allocation, regardless of whether the business context has changed. This is why zero-based budgeting — which forces teams to justify every dollar from scratch — produces different results than incremental budgeting. It removes the anchor.

Performance ratings. When managers review self-assessments before writing their own evaluations, the employee’s self-rating serves as an anchor. A self-assessment of “exceeds expectations” pulls the manager’s rating upward, while “meets expectations” pulls it down — independent of actual performance data.

Common Misconceptions

“I can just ignore the anchor.” You almost certainly can’t. The anchoring effect operates below conscious awareness. Studies where participants were explicitly warned about anchoring and offered financial incentives to resist it still found significant anchoring effects. Awareness helps at the margins, but it doesn’t eliminate the bias.

“Anchoring only works with numbers.” While most research focuses on numerical anchors, the principle extends to qualitative judgments. The first candidate interviewed often becomes the anchor against which all subsequent candidates are compared. The first strategic option presented in a meeting shapes the evaluation of alternatives.

Defending Against Anchoring

The most effective strategies are structural, not cognitive:

• Generate your own anchor first. Before entering a negotiation or reviewing someone else’s proposal, commit to your independent estimate in writing.
• Consider the opposite. Deliberately asking “what if the true answer is very different from this anchor?” has been shown to reduce (though not eliminate) the effect.
• Use multiple reference points. A single anchor dominates. Multiple data points dilute its influence.

Related Terms

• Cognitive Bias — systematic patterns of deviation from rational judgment
• Framing Effect — how the presentation of information influences decisions
• Sunk Cost Fallacy — irrational commitment driven by past investment

FAQ

Does the anchoring effect work even when people know about it? Yes. Multiple studies confirm that awareness of the anchoring effect doesn’t prevent it. This is why structural interventions — independent pre-estimates, multiple reference points, standardized evaluation criteria — are more effective than simply training people to “watch out for anchors.”

How can managers use anchoring ethically? Setting ambitious but achievable targets leverages anchoring constructively. A well-chosen stretch goal anchors the team’s sense of what’s possible, pulling effort and creativity upward. The ethical line is transparency: using anchoring to inspire higher performance is different from using it to manipulate negotiations or suppress fair compensation.