Anchoring exists because of the way our brains process information. When we encounter new information, our brains seek a reference point to make sense of it. The first piece of information we receive sets a mental benchmark, and subsequent information is interpreted in relation to this anchor. This process helps simplify decision-making by reducing the complexity of evaluations, but it can also lead to systematic biases.

Understanding anchoring is crucial because it affects a wide range of decisions, from financial investments to daily purchases and negotiations. Being aware of this bias helps individuals critically assess whether their decisions are being unduly influenced by initial information. This understanding can lead to more informed and rational decision-making, especially in situations where initial impressions may be misleading.

To use anchoring to your advantage, start negotiations or decisions with a strong anchor point in your favor. In negotiations, presenting your offer first can anchor the discussion around your preferred outcome. When making decisions, consciously seek out multiple sources of information before settling on an opinion, to avoid being unduly influenced by the initial data. Practicing mindfulness and being aware of your decision-making process can also mitigate the effects of anchoring.

Anchoring can be used against us in marketing, pricing strategies, and negotiations. Retailers often use high initial prices as anchors, making subsequent discounts appear more appealing. In negotiations, the first offer can set the tone for the entire discussion, potentially leading to less favorable outcomes if the initial anchor is strategically high or low. Understanding anchoring allows individuals to recognize these tactics and respond more effectively.

A customer shopping for a car sees the first model priced at $30,000. As they continue shopping, they compare every other car's value to that initial $30,000 price, perceiving cars priced lower as bargains and those priced higher as expensive, even if those assessments aren't based on the cars' actual features or market value. This shows how the initial price sets an "anchor" for all subsequent perceptions and decisions.