Business Analysts & The Anchor Effect

I’ve always been intrigued by the concept of cognitive bias for the simple reason that it exposes the flaws in one’s thinking and ability to make sound decisions. Every analyst, and in fact everyone, stands to benefit from understanding what cognitive biases are so they can be kept to a minimum or spotted when interacting with others.

This piece discusses the anchor effect, how it is used to gain or lose advantage (consciously or unconsciously), and how its effects can be mitigated when dealing with stakeholders.

Imagine a component in your car requires a fix. You approach your mechanic and he gives you a quote. This quote (assuming you’ve never had to pay for this part before and you have no prior knowledge of how much it costs) becomes the reference point from which you begin negotiation. This reference point is called an anchor and its effects can be seen in everyday situations.

There are numerous examples—the first thing we hear about someone forms the basis of our perception, the first price we are quoted forms the basis of future negotiations, the list goes on.

An anchor can be defined as the ingrained point of reference from which decisions are made. Subsequent interpretation of a problem or information received from other sources will typically be subjected to this point of reference, thereby colouring your impression of what you presume a problem or situation to be.

The anchor effect plays out when we assume that we have considered all the important factors necessary to make a decision. People in most cases, tend to trust the first piece of information they are given. For example, a stakeholder describes how a current process works. They are your first source of insight and you might be tempted to take their word for it. Consult with others and seek their opinions. You might be surprised at what you find. 

How does this affect me as a business analyst?

Beware of using anchors when discussing with stakeholders. For example, posing a question like “How can we improve this process by eliminating the use of paper booklets?”, will cause stakeholders to think along the lines of "eliminating the use of paper booklets" in providing a response. It’s possible that the process can be improved in other ways or that the inefficiencies currently experienced are not a result of the use of paper booklets. By setting an anchor when posing a question, you limit possibilities. Conversely, if your intention is to get stakeholders to think along a specific direction, setting the anchor from the beginning of the project can work to your advantage.

One key take-away is to always question your first impression of what you think a solution/problem is (the anchor) but to always seek out other factors that may shed some interesting insight into the information you already have. Once an anchor is set, there tends to be a bias towards that position and we unconsciously interpret other fragments of information to conform to that worldview.

Another way of managing the anchor effect is to ask questions and be conscious not to be guided by old anchors when you encounter a problem. Always dig deeper and don’t assume your initial perceptions are accurate.

Business Analysts in interacting with stakeholders should learn to spot anchors in discussions and also avoid proffering anchors when crafting questions, whenever it works to their advantage. The key take-away is to know what the anchor effect means and to decide whether or not using it will help you meet the objectives of your project.