Anchoring Bias: Why the First Number You Hear Decides What You Pay

🎡 What is anchoring bias?🔗

In 1974, Amos Tversky and Daniel Kahneman published a paper in Science called Judgment under Uncertainty: Heuristics and Biases. The experiment they used to demonstrate anchoring is still one of the most striking in behavioural science, largely because it is so obviously unfair.

They brought people into a room and spun a wheel of fortune in front of them. The wheel was rigged to land on either 10 or 65. Participants watched it spin, noted the number, and were then asked something completely unrelated: what share of United Nations member states are African nations?

The wheel had no bearing on the answer whatsoever. Everyone in the room could see it being spun. And still, the group who saw 65 guessed around 45%, while the group who saw 10 guessed around 25%. A meaningless number moved their judgement by roughly 20 percentage points.

🧲 Why it works even when the anchor is random🔗

The short version is that your brain is built for speed, not accuracy.

Faced with an uncertain question, your mind grabs whatever number is nearby as a starting point, then adjusts up or down until the answer feels plausible. The catch is that people almost always stop adjusting too early, which leaves them sitting much closer to the anchor than to the truth.

There is a second mechanism underneath it. Once an anchor is in your head, your brain starts retrieving whatever supports it. See $850,000 on a listing and you will begin, without deciding to, assembling reasons why $850,000 sounds about right. It is not deceiving you. It is doing what it always does, which is looking for a story that hangs together.

🏠 Anchoring in Australian property🔗

If you have stood at an auction and felt your stomach drop when the opening bid landed well above the advertised guide, you have felt this one directly.

Underquoting is when an agent advertises or quotes a price below the seller's asking price, the reserve, a rejected written offer, or the agent's own estimate of the selling price. It is a deliberate low anchor, designed to pull more buyers into the campaign.

In New South Wales it is an offence under the Property and Stock Agents Act 2002. NSW Fair Trading says it takes a zero tolerance approach: it can issue a penalty notice of $2,200, a court can fine an agent up to $22,000 if the matter is prosecuted, and the agent can lose the full commission and fees on every property they underquoted. Victoria prohibits misleading price representations too, enforced by Consumer Affairs Victoria.

🎯 The essential: Victoria is about to change the game. Consumer Affairs Victoria has confirmed that from 1 October 2026, agents must disclose the seller's reserve price seven days before an auction or fixed-sale date, publish the final sold price once a sale is unconditional, and use a new Property Price Statement in place of the Statement of Information. In anchoring terms, buyers get handed the seller's actual number instead of a marketing one.

Auctions concentrate the effect. The opening bid sets the reference point for the room, and every bid after it is judged as a step from there. A $700,000 opening makes $750,000 feel like a small move. The same $750,000, named first in a private negotiation, feels like a much bigger number.

The defence is unglamorous and it works: research comparable sales yourself before you go, not the ones the agent selected for you. A price guide is a marketing document, not a valuation. Our deposit guide is a better place to set your real number.

💼 Anchoring in salary negotiation🔗

Here is the question that makes most people squirm: do you name your number first, or wait?

Whoever names a figure first usually sets the anchor. Say $95,000 and the conversation orbits $95,000. Let them open at $80,000 and you are now climbing uphill from their number, which is considerably harder work.

Name first when you have done the research. If you know the market rate for your role in your city, opening with a researched figure at the upper end means they adjust down from your anchor, and you still land where you wanted.

Let them open when you genuinely do not know the rate. Anchoring yourself too low is very hard to undo, and their budget may be higher than you would have guessed.

The practical middle ground is a range rather than a point. Something like: I am looking at $95,000 to $105,000, depending on the full package. The top of your range does the anchoring while the bottom gives them the satisfaction of having negotiated. Just remember the bottom of your range is a floor you have volunteered, so do not put anything there you would resent accepting. More on the mechanics in our guide to negotiating a pay rise.

🏷️ Anchoring in retail and sale pricing🔗

Look at any television in any electronics shop. There will be a crossed-out price above the real one. That crossed-out number is the entire point of the tag. It exists to make the price below it feel like a win, whether or not anybody ever paid the higher figure.

The recommended retail price does the same job. A product with an RRP of $299 selling at $199 feels like a deal. The identical product at $199 with no RRP shown just feels like it costs $199. Nothing about the product changed, only the reference point.

Then there is the decoy. A gym offers $39 basic, $79 standard and $82 premium. Premium is not there to be bought. It is there so that standard, sitting three dollars below it, looks like obvious value. You will find the same shape in streaming tiers, phone plans and coffee subscriptions, and the middle option wins almost every time.

📊 Anchoring in investing🔗

The most common anchor in investing is the price you paid. You buy at $4.20, it falls to $3.10, and you hold on, not because the company looks good from here but because $4.20 has lodged in your head as the real value. You are waiting to get back to even, which is a goal the company has never heard of.

That feeds straight into the disposition effect, the habit of selling winners early and holding losers far too long.

Round numbers are anchors too. I will sell when it hits $100 is a very common plan, and there is nothing special about $100 except that humans have ten fingers. The same goes for 52-week highs shown in your brokerage app. A share at $7.50 against a 52-week high of $12.00 looks cheap purely because of the number sitting next to it, even if $7.50 is still expensive on fundamentals.

🛡️ How to defend against it🔗

1. Write your own number down first. Before you look at the guide, the offer or the listing, do the research and commit to a figure. Now you have an anchor of your own.
2. Pick your own comparables. In property, choose the recent sales yourself rather than accepting the shortlist you were handed.
3. Name a range, not a point. Especially in salary talks, where it anchors high while leaving room to move.
4. Slow it down. Anchoring feeds on fast, intuitive judgements. Asking for twenty-four hours is often enough to let the slower part of your thinking catch up.
5. Generate a counter-anchor. Handed a high number, deliberately produce a low one. Not to be difficult, but so that both ends of the plausible range exist in your head rather than just theirs.
6. Decide your walk-away before you start. A number you set while calm is worth far more than a number you defend while under pressure.

🚗 The same car, three different tags🔗

Nothing about the vehicle changes across these three rows. Only the listing price does, and look what it does to what a buyer considers a fair offer.

❓ Frequently asked questions🔗