Mental Model: Anchoring

Ever walked through the bustling lanes of Sarojini Nagar in Delhi or Colaba Causeway in Mumbai, trying to strike a bargain? You see a stunning leather bag, and the shopkeeper says, “Madam, bas ₹5,000!” You scoff, shake your head, and after a dramatic negotiation, you walk away with it for ₹2,500—thinking you’ve bagged a steal.

But did you really?

Or take a Myntra sale—a branded T-shirt with an “MRP of ₹2,000” is now available for just ₹999! But was it ever really worth ₹2,000? Why does that first number stick in our heads?

Welcome to the world of Anchoring Bias—a powerful mental shortcut that influences everything from how much we pay to how we perceive job offers, real estate, and even people.

What is Anchoring?

Anchoring is a cognitive bias where the first piece of information we encounter—be it a price, a salary expectation, or an opinion—heavily influences our decision-making.

This concept was first introduced in 1974 by psychologists Amos Tversky and Daniel Kahneman, who later won the Nobel Prize for their work in behavioral economics.

Example:

A real estate agent first shows you an apartment priced at ₹5 crore. You react, “That’s insane!” A few minutes later, they show you another one at ₹4.2 crore, calling it a “steal.” Suddenly, ₹4.2 crore feels like a bargain, even if it’s still overpriced.

How Anchoring Works in the Brain

Anchoring happens because our brains rely on heuristics—mental shortcuts developed through evolution—to make quick decisions. Instead of calculating an item’s “true” worth, our brain locks onto the first number it sees and adjusts from there.

The amygdala, responsible for emotional reactions, processes this initial information fast, leading to impulsive judgments.

Everyday Anchoring Examples in India

1. Shopping:

• Flipkart shows an MRP of ₹10,000, but the “sale price” is ₹5,000. Even if ₹5,000 is the real price, you feel like you’ve saved ₹5,000.

2. Real Estate:

• A builder in Mumbai quotes ₹5 crore for a flat, but after a “festival offer,” it’s available for ₹4.2 crore. Buyers feel relieved, though the actual worth may be lower.

3. Salary Negotiations:

• A job seeker asks for ₹40 lakh CTC. HR was thinking ₹30 lakh, but now they counter at ₹35 lakh—higher than they originally planned.

4. Social Perceptions:

• The first impression of a person (their clothes, accent, or car) anchors your judgment about their status and credibility.

Anchoring in Key Life Areas

1. Finance:

• Loan EMIs: Banks offer “low EMI of ₹3,999 per lakh”—anchoring your decision rather than making you evaluate the total loan cost.
• IPO Pricing: Paytm’s IPO price set expectations high, even though it later crashed.

2. Career:

• Previous salary often becomes the benchmark in job negotiations.

3. Parenting:

• “Doctor ya Engineer banna hai”—anchoring career expectations from childhood.

Positive Uses of Anchoring

1. Personal Finance:

• Setting high savings goals: “Save ₹1 lakh per year” rather than “Save ₹8,000 per month.”

2. Marketing (Ethical Anchoring):

• Limited-time offers: Amazon’s “Only 5 left in stock!” triggers urgency.

3. Negotiations:

• Businesses anchor clients with a high initial price, making discounts seem generous.

The Dark Side of Anchoring

1. Manipulative Discounts:

• Many e-commerce sites show fake inflated MRPs to trick buyers into believing they’re getting a deal.

2. Scams:

• Ponzi schemes promise “guaranteed 20% monthly returns”—anchoring unrealistic expectations.

3. Social Issues:

• Dowry expectations are often anchored based on community norms.

Combating Negative Anchors

• Awareness: Question the first number—“Is this car really worth ₹10 lakh?”
• Research: Compare real estate prices on MagicBricks before believing a builder’s claim.
• Mindfulness: Stay objective through practices like meditation and yoga.

The Indian Cultural Context

1. Festivals:

• Diwali sales anchor us with high MRPs before “discounts.”

2. Weddings:

• A ₹50 lakh wedding feels “normal” because society has anchored expectations.

3. Joint Families:

• Elders’ financial and career beliefs set strong anchors for younger generations.

Case Studies: Anchoring in Action

Tools & Techniques to Outsmart Anchoring

• Framing: Presenting ₹500/month as “just ₹16/day” makes it seem more affordable.
• Re-anchoring: Counter a low salary offer by showing industry benchmarks.
• Multi-anchor Approach: Consult multiple doctors before deciding on treatment.

Conclusion: Anchors Are Everywhere—Use Them Wisely!

We encounter anchoring every day—in malls, job interviews, and even relationships. The key is to be aware of it and make conscious decisions rather than blindly following the first number thrown at us.