Anchoring or the Anchoring Bias is the human tendency to evaluate or “anchor” numbers based on their presentation. Observers and participants will usually be swayed by the availability or recency of a number. Human tendency towards anchoring bias is often exploited to make subsequent facts or numbers appear in a certain light.
Beware the Anchoring Bias – Question the Numbers
The easiest way to evaluate the anchoring bias is to watch or observe it’s effect through an example. Anchoring works best without historical perspective, sp we’ll look at a place where numbers often come sans context: finance and economics news.
Anchoring Bias in a Job Report
Let’s say that there is a new jobs release from the BLS, reporting that 138,000 jobs were added. An enterprising financial writer picks it up and writes a post with the headline “138,000 Jobs Were Added in Stunning Month!”.
Writers often use this technique to drive home stunning(!!!) facts that shield the inherent fluctuation in the data. It can be malicious or unintentional but it’s certainly inevitable; because people consume so much information they don’t have the time to properly frame the entire problem. Without knowing some key pieces of context (past months, average months, the number which balances a growing workforce) you’ll tend to agree with the author.
Watch For Your Own Anchoring Bias: Question the Numbers
Anchoring is so persistent because of how much information there is to process. It is simply impossible to have the time to know all the details of every story.
Not everybody knows the history of the federal funds rate, the number of jobs added per month, the detailed history of the economy. When we read we rely on others to process and contextualize that information for us. A malicious or bad writer, instead, will spin the numbers – making them murky, muddy, volatile, noisy… and difficult to parse. Sometimes information is boring… and it often doesn’t easily fit in a headline.
This bias reveals itself in many aspects of financial – and other – reporting. Due to the nature of this site we’re most familiar with economic reporting bias… but Michael Crichton’s famous Gell-Mann amnesia theorem hints at the iceberg below.
Most every every slightly contentious article has layers of manipulations and assumptions in interpreting and reporting the data. It’s often difficult to understand or trust anything besides the actual primary source… and those have their own biases. Financial reporting often includes some form of “continues winning streak” or “lowest point since” because financial data is very volatile. There are so many tracked datasets out there there will certainly be thousands of spurious correlations.
What is the Solution to Anchoring Bias?
The only “solution” to the anchoring bias is looking at the truth as being slightly revealed in each report. As the number of sources increase underscoring the data, your confidence in it should increase. Take the infamous employment example above… if the government suddenly reports a spike to 30% unemployment, you’ll have to weigh it against other data and your own experience.
Of course, the other important solution is a healthy dose of humility and an open mind. You may have been lead to believe a certain thing which was purposefully vague or misleading. If evidence later comes out overturning it? Prepare to raise anchor, friends!
Alas, we won’t always have the time. In fact, I’ve got to go – hope you enjoyed this treatment on anchoring.