From the Decision Lab:
Anchoring bias is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic. When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively. This can skew our judgment, and prevent us from updating our plans or predictions as much as we should.
A couple of weeks ago, a paving contractor was going around our neighborhood and repaving many of the asphalt driveways. We still had a concrete driveway, which had been added on to about 25 years ago. It was starting to show its age, with uneven surfaces and cracks, so I thought I would ask the owner of the paving company how much it would be to convert my driveway into an asphalt driveway.
He told me he would first have to dig up the old concrete, pour stone, and then top it off with asphalt. He then quoted me a five-figure amount, which was nowhere near what I expected, but I really had no basis for what the cost should be.
I told him I would have to talk to my wife about it, and we decided to get a couple more quotes before we made a decision. I called a couple of local paving contractors, and left a message describing the work I wanted to be done, and asking if someone could provide an estimate.
I also checked online to try and get a rough idea of what it would cost to convert a concrete driveway to asphalt, but it was a pretty wide range. But even at the higher-end, it didn’t seem to come close to the five-figure quote I had been given.
A few days passed, and I still had not heard back from any of the contractors I had called, and then there was a knock on my door. It was the guy who was still in the neighborhood doing other driveways, and he told me he really wanted to do my driveway and was willing to work with me on the price. He then quoted a price that was more than 30% below his original quote.
At this point, I still was not sure if it was a reasonable price, but it was certainly well below the original quote. Plus, he was in the neighborhood and said he could have it finished in two days.
So I told him I would get back to him, and after talking with my wife, we decided to go ahead with the work.
I then started to wonder if I had fallen victim to the anchoring bias. Had that original quote set a reference point, which caused me to then skew my judgment, and make the revised quote seem like a good deal?
Shortly after the work started, one of the contractors I had called a few days ago to get a quote finally got back to me, but I told them it was too late.
At that point, I had no interest in finding out what price another contractor might come in at.
Who wants to know that they overpaid for something?
And who wants to admit they were guilty of a cognitive bias, especially when one knows all about such a bias? What would Dan Ariely have to say?
Anyway, the contractor seems to have done a good job, and in a few months, I’m sure I’ll have justified my decision in some type of convoluted logic…