The First Number Wins
When making estimates or judgements involving numbers, people place disproportionate weight on the first number they encounter — even when that number is arbitrary or irrelevant. This is the anchoring effect: an initial piece of information acts as an anchor, pulling subsequent judgements toward it.
In one famous experiment, participants were asked to spin a wheel that stopped at a random number, then estimate the percentage of African countries in the United Nations. Those who spun higher numbers gave higher estimates. The random wheel result had no logical connection to the answer — yet it consistently influenced people's guesses.
Anchoring in Financial Decisions
Anchoring is everywhere in finance:
Purchase prices. The price you paid for a house, share, or car becomes an anchor. You evaluate current offers relative to what you paid, even though what you paid is irrelevant to what something is worth today. A share bought at $100 that falls to $60 isn't "due a recovery" — the market doesn't know or care what you paid.
List prices. A product "marked down" from $200 to $140 feels like a bargain because $200 is the anchor. Retailers deliberately set high list prices to make discounts appear more valuable.
Salary negotiations. The first number put on the table in a negotiation anchors the entire discussion. Research consistently shows that whoever makes the first offer gains a significant advantage — the final agreement tends to cluster around that initial number.
Arbitrary Anchors
What makes anchoring particularly powerful is that anchors don't need to be rational to be effective. Studies show that even obviously irrelevant numbers — like the last four digits of a phone number — influence estimates of unrelated quantities. Our minds grab the first number available and use it as a reference point, often without awareness.
Breaking the Anchor
Awareness of anchoring helps, but doesn't fully eliminate it. More reliable approaches: deliberately generate an alternative starting point before negotiating, focus on the intrinsic value of an asset rather than its purchase price, and be sceptical of "original price" claims. When evaluating any number, ask: where did this anchor come from, and does it actually tell me anything?