Quashing Cognitive Bias: Then and Now 

“All truths are simple to know as soon as they’re found; the purpose is to find them.” —Galileo 

It’s now universally accepted that the Earth orbits the solar each 365 and one-quarter days. Nevertheless, roughly 400 years in the past, civilization was taught that Earth was the middle of all the things. Again then, folks didn’t imagine within the heliocentric photo voltaic system. The Catholic church put the Italian astronomer Galileo on trial for spreading controversy that the Earth wasn’t the middle of the Universe and he was sentenced to penance and imprisonment. 

In his day, most individuals thought Galileo was loopy and didn’t take heed to him. Individuals couldn’t settle for this new thought. They’d lengthy been informed that God had created the Earth and it have to be the middle of all the things, and so they had been anchored of their perception. Such habits is now acknowledged as a cognitive bias referred to as anchoring.   

Anchoring causes us to rely closely on the primary piece of knowledge we’re given a few subject. In an anchoring situation, we people are inclined to base our choices on the data that’s identified to us, with out considering that it may not be related or that new data could battle with the accuracy of the data. 

For example, somebody intending to buy a diamond engagement ring has been led to imagine that it ought to price them two month’s wage. This anchoring is illogical and irrelevant as a result of, in actuality, the individual ought to solely purchase what’s inexpensive. But many potential nearly-weds observe this irrational system. They disregard budgeting and harm their monetary future by succumbing to this anchored perception. 

In most retail companies, entrepreneurs use the cognitive bias to lure in clients. They may typically present two value tags: the “unique” value and the “discounted” value. Prospects anchor to the unique value as an merchandise’s precise worth and imagine they’re reaping vital financial savings by paying the discounted value. Everybody loves a deal, however we customers ought to all the time do our personal homework as to why issues are priced a sure method.  

I’m not proof against anchoring bias. I’ve fallen into the lure when investing in actual property. Like many different potential property patrons, I made a suggestion on a home primarily based on the preliminary itemizing value with out contemplating how, most often, the true property agent itemizing the property will set the worth utilizing comparable gross sales and present market circumstances. But a value primarily based on these standards might not be indicative of the true worth, or of the worth most patrons can be prepared to pay. Realistically, as a purchaser, I ought to have seemed on the precise intrinsic worth of the property. It’s potential that the vendor could have been prepared to take rather a lot much less in the long run. 

To quash this bias, we should pause and consider as a result of our preliminary response is probably going a results of a defective conclusion primarily based on anchoring bias. 

Right here’s the best way to keep away from falling into the anchoring bias lure:  

1. Acknowledge whenever you’re attaching your choice course of to 1 single supply of knowledge. 

2. Argue towards your preliminary ideas. Discover different options and extra info. 

3. Seek the advice of a trusted buddy or advisor to get one other perspective or different concepts.  

4. Checklist the professionals and cons of the alternatives that you’ve got in entrance of you. Assign goal values to these decisions.  

5. Keep up on evolving value factors, new information and statistics, and altering traits.