Anchoring bias (reference effect): definition & use in marketing

Introduction

Why does that €15,000-a-year software package suddenly seem inexpensive? Because you just turned down a €30,000 offer. This psychological phenomenon is called the anchoring bias (reference effect): your brain clings to the first number you come across, your "anchor," and compares all subsequent decisions to it. Without realizing it, this affects your business choices, from pricing to investments to contract negotiations. But how exactly does anchoring work within business contexts? And how do you leverage this insight to your advantage, while avoiding becoming a victim yourself?

In this article you will learn how anchoring bias affects your business decisions, gain insight into the science behind it, and receive practical tips that can be applied immediately.

What is the anchoring bias?

Anchoring bias, also known as the anchor effect or reference effect, is a cognitive bias in which people are strongly influenced in decision-making by the first piece of information, called the anchor, that they receive. Our brain uses this anchor as a starting point and inadequately adjusts subsequent judgments, even when this anchor is random or irrelevant.

Although Amos Tversky and Daniel Kahneman (1974) publicized the phenomenon with their influential research on heuristics and biases, the phenomenon was noted earlier. Sherif, Taub and Hovland (1958) showed that people are strongly influenced in perceptual and social judgments by predetermined reference points, which laid the foundation for the later understanding of anchoring as a cognitive heuristic.

Tversky and Kahneman then showed experimentally that even random numbers, such as spinning a roulette wheel, have significant influence on estimates of unknown values.

An example:

You may buy a Mother's Day gift for up to 25,-. In the store you come across a beautiful necklace for 75,-. Much more expensive than your budget, so you pass it up. Then when you see a beautiful bracelet for 35,- you suddenly find it "cheap," even though it is still above your budget. You buy it, because compared to 75,- 35,- is a bargain.

The effect of anchoring bias is deeply ingrained in our brain and even affects things for which it is not even relevant. The effect has been studied by psychologists for many years. The anchoring bias can be triggered by different mechanisms, depending on the circumstances. The anchoring bias can arise from values that come from within ourselves or from supplied information (external sources).

How does anchoring work?

There are two alternative hypotheses about how anchoring works in our brain.

1. Anchor-and-adjust hypothesis

According to Tversky and Kahneman (1974), our brain works in two steps. First, we fixate on the anchor (the first information we see). Then we try to adapt our judgment to new information. However, this adaptation often happens insufficiently, so the first anchor remains dominant in our decision-making.

2. Selective accessibility hypothesis

An alternative explanation by Strack and Mussweiler (1997) states that the anchoring effect occurs because the first anchor activates certain associations or memories that are consistent with this anchor. This makes the anchor seem more credible or relevant and continues to strongly influence our judgment.

This hypothesis is based on the ubiquitous priming effect. The priming effect (Chartrand & Bargh, 1996) causes certain incoming information to evoke older information that the brain has already stored. These are often words and images we hear and see in our daily lives. Unconsciously, connections are made. However, these connections can be consciously influenced. For example, by using a positive, calming ad, customers will have less trouble waiting longer because the ad puts them in a good mood.

Priming is also used by recognizable brands to get customers to buy more. Companies can activate certain associations or past experiences in customers' memories to make them more receptive to the products or services the company wants to sell. This can have a major impact on potential customers' decision-making. Without being aware of it, they fall prey to companies' marketing techniques in this way. Just think of the associations you get with the brands Miele (There is no better) and Coca-Cola (atmospheric Christmas imagery).

Research findings

Anchoring bias has been extensively researched, with numerous experiments and studies:

Experiments with random anchors

In hundreds of studies, even completely random numbers, such as a spin of a roulette wheel, were found to influence estimates. For example, participants who saw a high random number (e.g., 65) gave significantly higher estimates of the percentage of African countries in the UN than those who saw a lower number (e.g., 10).

Meta-study: anchoring among experts

Meta-analyses show that even experts are susceptible to anchoring. Real estate appraisers, judges and financial analysts are strongly influenced by previous values and suggested amounts, even when these anchors turn out to be irrelevant or arbitrary.

Resource-rational approach (bounded rationality)

Recent research highlights that anchoring is not just a bias, but possibly rational use of limited cognitive resources. Our brain uses anchors because it is fast and efficient. In doing so, it saves mental capacity for other tasks. This approach argues that anchoring is partly rational, given the limited information and time in which to make decisions.

Recent: anchoring bias in Large Language Models (LLMs)

Striking new research shows that even AI models like ChatGPT are susceptible to anchoring bias. For example, experiments show that when an LLM is exposed to certain numerical anchors in prompts, it significantly affects subsequent responses.

Practical applications of anchoring bias

Anchoring bias plays a crucial role within business decision-making. Here are some concrete applications.

Pricing strategy in bidding

By deliberately setting a high starting anchor, you can steer the perception of your offer. For example, suppose a company is selling a software package. An initial offer of €50,000 makes a final price of €35,000 considerably more attractive than if you start with €35,000 right away.

Practical tip: Present a more expensive variant or premium package first before showing the standard package. This makes the regular offer feel like a better deal.

Negotiations and contracts

In business negotiations, the first offer strongly influences the outcome of the conversation. If you are the first to quote a price, your proposal sets the anchor on which the conversation builds.

Case: When negotiating hourly rates in consulting, the first quoted rate immediately influences all subsequent price proposals. For example, if you start with a rate of €200 per hour, €150 suddenly feels like a compromise to the other party.

Practical tip: Deliberately set an ambitious but credible opening bid. Be prepared for your opening bid to be used as a reference point.

Investment decisions and budgeting

Anchoring shows up strongly in investments. Companies automatically compare new investments with previous spending, which strongly influences the decision-making process.

Example: If a management team is used to spending €20,000 annually on marketing software, a €30,000 proposal quickly seems expensive, even if it clearly offers more value. You can counter this effect by explicitly emphasizing value or ROI first, before mentioning price.

Practical tip: Always contrast investments with their intended value (ROI) before referring to price anchors.

Business services and consultancy

In business services, anchoring is essential to effectively manage your rates and perception of value.

Example: Consulting firms often use so-called "pricing options" to steer customers toward a preferred option. By placing a premium package (€10,000 per month, for example) next to a standard package (€5,000 per month), the middle option (€7,500 per month) suddenly becomes more attractive.

Practical tip: Deliberately use price anchors in bundles or options to steer perception toward the choice you prefer to sell.

How do you avoid anchoring bias?

Anchoring is inevitable, but there are effective methods to guard against it or reduce its negative impact:

Awareness

The first and most important step to reducing anchoring bias is awareness of the phenomenon itself. Research shows that simply knowing that anchoring exists makes you more critical during decisions (Shepperd et al., 2018).

Practical tip: Organize short workshops for management and sales teams where you cover anchoring and explicitly discuss how it occurs in your daily practice.

‘Consider-the-opposite’-techniek

This technique forces you to actively search for information that contradicts your initial anchor or assumption. In doing so, you automatically reduce the strength of the anchor.

Example: When you receive an offer, actively formulate arguments both for and against the proposed price. This greatly reduces the effect of the initial anchor.

Practical tip: When making larger investments or deals, make it routine to explicitly brainstorm alternatives or counterarguments before making a decision.

Advance warning

Although less powerful than active techniques, alerting decision makers in advance helps somewhat. When you point out anchoring bias before an important negotiation, you are better prepared to critically examine the influence of the first proposal.

Practical tip: Before important meetings or negotiations, explicitly remind your colleagues of the risk of anchoring so that they respond more critically to the opening offer.

Work explicitly with multiple reference points

A powerful tool against anchoring is to train yourself and your team to actively use multiple reference points. One reference point makes one vulnerable, but multiple reference points provide broader context.

Example: When comparing software or services, actively gather multiple reference points from different sources before entering the negotiation. This prevents one number from completely defining your thinking.

Practical tip: Create checklists or templates that collect at least three different reference points before making a final decision.

Conclusion

Anchoring bias constantly influences business decision-making. Whether in negotiations, pricing strategies or investment decisions-the first piece of information often unconsciously determines the outcome. By being aware of this bias and applying or avoiding it strategically, you create immediate advantage in your business context.

Key insights at a glance:

• Anchoring bias causes the first reference point to have great influence on decision making.
• Even experts are susceptible to anchoring; awareness is key.
• Conscious application of anchoring can be beneficial in negotiations and pricing strategy.

Concrete recommendations to avoid anchoring:

• Increase awareness within your team through education.
• Actively use consider-the-opposite methods.
• Always gather multiple reference points before important decisions.

Anchoring in the age of AI

Recent research shows that artificial intelligence (AI) is also susceptible to anchoring bias. Large Language Models (LLMs) in particular respond strongly to numerical anchors in prompts. This means you need to be careful with prompt design and AI-driven analysis, as anchors from your prompt may have an unexpectedly strong influence on the final advice or content generated.

Want help from a marketing agency that understands anchoring, to scale your business? Contact us with no obligation.

Resources

Sherif, M., Taub, D., & Hovland, C. (1958). Assimilation and contrast effects of anchoring stimuli on judgments. Journal of Experimental Psychology, 55(2), 150-155. https://doi.org/10.1037/h0048784

Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131. https://doi.org/10.1126/science.185.4157.1124

Strack, F., & Mussweiler, T. (1997). Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73(3), 437-446.

Furnham, A., & Boo, H.C. (2011). A literature review of the anchoring effect. The Journal of Socio-Economics, 40(1), 35-42.

Lieder, F., Griffiths, T.L., & Goodman, N.D. (2018). The anchoring bias reflects rational use of cognitive resources. Psychonomic Bulletin & Review, 25(1), 322-349.

Huang et al (2025). Anchoring Bias in Large Language Models. arXiv preprint arXiv:2505.15392.

Shepperd, J. A., Mair, D., Waters, E. A., & Weinstein, N. D. (2018). Efforts to Reduce Anchoring Bias. Journal of Experimental Psychology: Applied, 24(2), 149-163.