Recently, I was on the hunt for a new car. I’d done my research and had a clear idea of what I wanted to spend, but when I walked into the dealership, I decided to try something different. When the dealer asked what kind of budget I had in mind, I threw out a number $5,000 lower than what I was willing to pay. I didn’t expect him to bite — I figured we’d meet somewhere in the middle. But what happened next surprised me: He didn’t hesitate. He quickly started negotiating around my anchor, and by the end of the day, I’d landed a deal far better than I originally anticipated.
The trick? I used anchoring bias to my advantage. By setting a low starting point, I shaped the entire negotiation. This tactic is rooted in how our brains work, and understanding it has significant implications for everything from buying a car to negotiating a salary.
What Is Anchoring Bias?
Anchoring bias happens when we rely too heavily on the first piece of information we receive — the "anchor" — to make decisions. Once an anchor is set, all future decisions and judgments get filtered through that initial figure. Even if we know the first number we hear is arbitrary or unrealistic, our brains can’t help but gravitate toward it.
Take my car negotiation, for example. By starting with a low number, I set the tone for the entire discussion. The dealer’s counteroffers were still influenced by my anchor, even if he wasn’t consciously aware of it. This phenomenon plays out in many areas of life, from shopping for clothes (think about those “original price” tags) to negotiating salaries.
How Anchoring Bias Relates to System 1 and System 2 Thinking
To really understand why anchoring bias works the way it does, it’s helpful to think about the brain in terms of System 1 and System 2 thinking, concepts introduced by Daniel Kahneman in his book Thinking, Fast and Slow (Kahneman, 2011).
System 1 is fast, automatic, and intuitive. It’s the part of the brain that makes snap judgments and reacts immediately to the first piece of information we receive. Anchoring bias happens here — it’s instinctive, without much critical thought.
System 2, on the other hand, is slower, more analytical, and requires effort. It’s the system we use to deliberate, evaluate information, and override biases like anchoring. Unfortunately, unless we actively engage System 2, we often default to the quick, less rational thinking of System 1.
When we hear a number in a negotiation, our System 1 immediately grabs hold of it and starts building a framework around it. Unless we make a conscious effort to switch to System 2 thinking, that initial anchor becomes the foundation for all our future decisions in that discussion.
Using Anchoring Bias to Our Advantage
While anchoring bias can work against us if we’re unaware of it, it can also be a powerful tool in our hands if we use it wisely. By setting a higher anchor in negotiations, we can influence the final outcome in our favor. For example, when negotiating a salary, instead of letting the employer set the tone with their offer, we can introduce a higher figure based on research or market value. This makes it more likely that any counteroffer will land closer to our preferred range.
Anchoring bias can also be used to create the perception of value. Retailers, for example, often set higher original prices and then mark them down, making the sale price feel like a bargain, even if the item’s true value is much lower. The higher price serves as the anchor, and we judge the discount based on that initial number.
The Neuroscience of Anchoring: How Dopamine Comes Into Play
Anchoring bias isn’t just a cognitive quirk; it has a foundation in the brain’s chemistry. Specifically, dopamine — the neurotransmitter responsible for motivation, pleasure, and reward — plays a key role in how we process anchors.
When we’re exposed to an anchor, our brain registers it as a potential reference point for rewards or losses. This release of dopamine makes the anchor feel significant, encouraging us to weigh our decisions around it. The brain, driven by the desire to seek rewards or avoid losses, becomes anchored to that first number, even if it’s arbitrary.
By setting our own high anchor, we can trigger the same effect in others, driving their dopamine response and making them more likely to stick to the framework we’ve established.
Actionable Steps to Overcome Anchoring Bias
While anchoring bias is powerful, we can take steps to mitigate its effects:
Prepare and Research: Before entering any negotiation, arm ourselves with facts. Knowing the market value of a car, a house, or a job salary helps us come in with our own anchor and prevents us from being swayed by someone else’s.
Set Our Own Anchor: By establishing the first offer — whether it’s in a negotiation or a financial decision — we take control of the conversation. The other party is more likely to adjust their expectations based on the anchor we set.
Engage System 2 Thinking: When presented with an anchor, pause and ask: “Is this number fair? Is it based on data?” This shift from System 1 to System 2 thinking can help us evaluate the situation more rationally.
3 Mistakes to Avoid in Negotiations
Anchoring bias can trip us up if we’re not careful. Here are three mistakes to watch out for:
Not Questioning the First Offer: Many people take the first number they hear at face value. Always challenge the initial offer and see if there’s room for negotiation.
Failing to Set a Counter-Anchor: If we don’t come prepared with a researched number, we’re more likely to accept the other party’s anchor. Set our own anchor to guide the conversation in our favor.
Letting the Anchor Narrow Our Thinking: Anchors can limit our perspective. Be sure to evaluate the full range of options before making a decision, not just those within the anchored range.
Final Thoughts
Anchoring bias is one of the most powerful cognitive biases affecting how we make decisions. Whether we’re negotiating a salary, buying a car, or making a significant life choice, that first number has a disproportionate influence on the outcome. By understanding how it works and how it relates to System 1 and System 2 thinking, we can learn to use this bias to our advantage — or protect ourselves from being swayed by it.
Next time you’re negotiating, remember that the first offer isn’t just a suggestion — it’s a psychological anchor. Make sure to set it yourself and see how the entire negotiation shifts in your favor.
Liked this post? All I ask is you share with one friend. see you next week!
References
Kahneman, D. (2011) Thinking, Fast and Slow. New York: Farrar, Straus and Giroux.
Tversky, A. and Kahneman, D. (1974) ‘Judgment under uncertainty: Heuristics and biases’, Science, 185(4157), pp. 1124-1131.
Chapman, G.B. and Johnson, E.J. (1999) ‘Anchoring, activation, and the construction of values’, Organizational Behavior and Human Decision Processes, 79(2), pp. 115-153.
😍