Throughout time, people have warned against using shortcuts.
There are no shortcuts to knowledge, especially knowledge gained from personal experience. Following conventional wisdom and relying on shortcuts can be worse than knowing nothing at all. — Ben Horowitz
And perhaps for good reason…
Humans and animals use shortcuts constantly to make decisions. These shortcuts often are made with the unconscious or irrational part of our brain — this is known as our inner elephant. Behavioral economists refer to these shortcuts as heuristics.
Heuristics are mental shortcuts to aid in decision making and problem-solving. Think of them as a rule-of-thumb to make life easier for us (Thaler & Sunstein, 2009).
But — Heuristics also have a dark side. They can lead to systematic biases (Thaler & Sunstein, 2009).
To address any problem, you must first become aware of it. The unconscious must be brought to the conscious.
Today I am going to go through one of three heuristics — the problems it can cause and what you can do to train your inner elephant.
The anchoring and adjustment heuristic is where people start with a suggested reference point and make adjustments.Let’s learn more through four examples…
Let’s say I asked you to guess Shakira’s age. You would likely begin by using your age as an anchor and adjust her age based on whether she was older or younger than you. This is fine because you know your age (hopefully).
But, let’s say I told you, Jennifer Lopez’s age is 43 and then asked you to guess Shakira’s age. You would most likely use J.Lo’s age as an anchor and guess that Shakira was younger than 43. (For the record — both these women were amazing and after the Super Bowl halftime show, I googled that J.Lo is 50 and Shakira is 43 — beautiful).
Hopefully, this little example showcased the problem with anchoring and adjusting. If the anchor is initially wrong, the adjustment is likely incorrect.
If you are going to continue to blindly guess, be okay with being wrong. Otherwise, fact-check your anchor/starting point. Don’t assume the anchor is true.
Anchoring also influences answering questions. If two questions are asked, the order in which they are asked influences the response.
This was tested on college students. They were asked the following two questions:
When the order was reversed, the students used how much they were dating — the anchor, as a way to measure their happiness — the adjustment (Thaler & Sunstein, 2009).
This makes you second guess every satisfaction survey you have ever taken, huh?
Consider the order of the questions. If you have a hunch that some nudges are going on, try reordering the questions and see if you would answer differently.
Anchors are also seen at your local coffee shop. Upon payment, a series of suggested tip amounts are shown. This is not an accident. This is a nudge to leave a default tip. Now, if the person is providing excellent service, yes, this is great. But — what about the burnt-out barista that can’t be bothered to smile and gets your order wrong?
Use the C_ustom Tip Amount_. Decide for yourself what is affordable, what is reasonable, and what the person earned, but keep in mind that working in the service industry is hard.
At Echobind, we are well aware of the anchoring and adjustment heuristic. Poor estimating can be catastrophic to a project. People have a tendency to be overly optimistic about what they can achieve and tend to underestimate how long a task will take. This is especially true when estimations are provided in group discussions. Person one will give their estimate, and then person two will use person one’s estimate and a point of reference and adjust their estimate.
Avoid group discussions when estimating. When we estimate projects at Echobind, we have our team provide their estimates individually and separately. That way no one is influenced. We unanchor the anchor. By doing so, we find our estimates are more accurate, resulting in smooth sailing for our projects.
That concludes Part I. I encourage you to look for the anchoring and adjustment heuristic in your own life. Join me for Part II, where we will go through the second heuristic.
Thaler, R. H., & Sunstein, C. R. (2009). Nudge: improving decisions about health, wealth, and happiness. Rev. and expanded ed. New York: Penguin Books.