Anchoring and Affect
One of the most interesting and oft-cited cognitive heuristics is the Anchoring and Adjustment heuristic. A fascinating example is the mock auction biased by the last two digits of the participants Social Security number:
Dan Ariely, professor of management science at MIT Sloan School of Management, conducted a mock auction with his MBA students. He asked students to write down the last two digits of their Social Security numbers, and then submit bids on such items as bottles of wine and chocolate. The half of the group with higher two-digit numbers bid “between 60 percent and 120 percent more” on the items, says Ariely. [1]
A similar heuristic is the Affect heuristic. An “affect” in this case is a feeling of “good” or “bad”, a simple emotional response to any stimulus. An interesting examples of an Affect heuristic is the positive correlation between New York City weather and major stock indexes. [2] In other words, the affect of the weather on investors effects asset prices. A not so subtle reminder of how irrational our rational minds behave.
Much has been written about overcoming and compensating these types of cognitive biases. I would like to propose something radically different. Embrace these biases, use them to your advantage! The beauty of these mental heuristics is that even when we are aware of them, we are still victims to these biases. I’ll write more on our bias blindspot in a future essay.
Everything you do, whether you like it or not, is already anchored. Various inputs, including the weather, create an anchored affect and biases every judgment throughout your day. It’s self-centered and lazy to go through life at the whims of the weather, and everyone else’s mood.
Before you go into an important meeting or negotiation, be prepared with an anchor. And not just to anchor other people you are talking to, but anchor yourself! And it’s easy– the anchor need not have any relevance. A positive anchor is anything that makes you happy and provides a “good” affect, and a negative anchor is anything that provides a “bad” effect. This could be a picture you carry, a song in your head, a vivid memory, anything. It doesn’t even need to be in your conscious awareness, so perhaps carefully selected background music might be appropriate while you are working.
The key is to recognize when to employ a positive affect and when to employ a negative. A positive affect is likely not a wise choice if you are negotiating for a low price or trying to assess risk in a project. Likewise a negative affect could be devastating if you are trying to sell an idea or discover something new.
References
1. http://www.cfo.com/article.cfm/3014027
2. http://heuristics.behaviouralfinance.net/affect/Saun93.pdf