“To reach a port we must sail, sometimes with the wind, and sometimes against it. But we must not drift or lie at anchor.” Oliver Wendell Holmes, Sr
As leaders, we are often challenged with various cognitive biases. For many, a cognitive bias describes the common human tendency to rely too heavily on the first piece of information offered when making decisions. This piece of information is known as “the anchor”.
Apart from its nautical connotations, the term “anchor” can refer to a person or thing which provides stability or confidence in an otherwise uncertain situation. While this sounds like a good thing in the context of decision-making, we should be wary not to depend too heavily on an initial piece of information when making subsequent decisions.
In a study of the human ability to make decisions, researchers have found that once an anchor is set, decisions are made by adjusting away from that anchor, and there is a bias towards interpreting other information around the anchor. This holds true in almost every aspect of life – for example when negotiating the price of a car, a high first offer subtly increases the value of the car in one’s mind, setting a standard range around which one will come to expect an offer. To elaborate, consider these two questions:
• Is a used Audi A3 Sportback 1.8T FSI Stronic worth R300 000?
• If you were to sell your own car right now, how much would you ask for it?
If you are like most people, by the second question you would be subconsciously comparing your own car’s worth to that of an Audi A3, influencing your asking price to higher or lower depending on whether you believe your car is worth less or more than the Audi.
This simple test illustrates the common mental phenomenon of anchoring: when considering a decision, the mind gives disproportional weight to the first information it receives, anchoring following evaluations.
Although not always a bad thing, as leaders we should be consciously aware of anchoring because once an anchor is set in our minds, we tend to make more decisions based on what could well be a false assumption. While no one is immune, it is our responsibility to try to limit the potentially imprudent influence of anchoring.
For example, it’s important to consider our own stance on leadership before consulting others to avoid becoming completely anchored by their ideas. When consulting others, seek information and opinions from a wide variety of people and weigh it all up carefully. This will help us to recognise our and their cognitive biases – resulting in more informed and fair decision-making. ❐
*Based on John S Hammond, Ralph L Keeney and Howard Raiffa, The hidden traps in decision making, Harvard Business Review, January 2006.
Author: Brett Tromp CA(SA) is CFO of Discovery Health
