Was I a Victim of the Anchoring Bias?

business, humor, lessons learned, Teaching and Education 2 Minutes

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…

Published by Jim Borden

A 60-something guy trying to figure out the world, and his place in it. Happily married for 40-plus years, three wonderful sons. Accounting teacher, fitness enthusiast, blogger, reader.

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34 thoughts on “Was I a Victim of the Anchoring Bias?”

  1. Whether or not you have the anchoring bias, I have to give you credit for being honest with yourself. At least you’re willing to do some soul-searching over the whole issue. Seems to me like sometimes the consumer gets the better end of a deal, and sometimes the business person. It probably all washes out even over the long run.

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  2. Hi Jim, there is also a saying “you get what you pay for.” If the man did a good job and quickly, then you made the right decision so why worry about it. I always tell Terence how much he saved when I get a discount. He doesn’t need to know how much it cost him, that would be information overload. Hehehe.

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  4. The way I am wired is that when it comes to expensive things is I try to make an educated decision by doing tons of research. I’m hard on myself if something goes amiss if I haven’t put in the time. On the other hand, if I make an educated decision and spend a lot of time gathering information ahead of time, I don’t second guess things if something goes wrong. I guess you could call it making an informed decision. I sleep better, knowing I did all I could.

    I used to work at a JC Penny in the shipping and receiving department. We put the prices on the merchandise. Even when things were marked 50% off, they still were making a decent profit. A lot of this marketing stuff comes down to psychology. We all want to think we’re getting a good deal.

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    1. I am usually the same way, but sometimes I go overboard and any extra benefit I might get from doing more research may be outweighed by all the time I put into it.

      and I agree, a lot of marketing is psychology…

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  5. I think the first price you were given was just an opportunity for the contractor to make a great profit on a job you had no sense of value on. I think, after you checking with the your wife (and knowing that you likely did some price comparisons), he returned with what is likely a reasonable offer in comparison to other contractors. To you, the price seemed reasonable, and if you have received a product or service that you are happy with, then I would say you have met the definition of value. This contractor is making a living tackling the small jobs most contractors are not interested in and commonly overcharge for, so in the end I think you made a wise decision. Congratulations on your new driveway!

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  7. I think we are all guilty of anchoring bias at some time or another. Sometimes it’s just a piece of information or an opinion we pick up and use as a yardstick for any related info that follows. Chalk it up to human nature.

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  8. Interesting! Sounds like you got a good product. As to value or overpricing, try another perspective; most likely that the contractor reduced his profit (translate to his living wages) to do your driveway. As a salary man you have the luxury of bringing home a steady income that doesn’t get reduced if your students don’t show up, or if their parents negotiate. Or, maybe if at the end of class a student came up to and said that they didn’t get their money’s worth in this lesson and they want a discount…there are things that we don’t question in our daily transactions and that’s another bias. Yes, I know this is not about this, but about anchoring bias 🙂
    We had a similar experience buying a house recently. Prices of houses skyrocketed and when we eventually found our house, which was more than we originally planned to spend, we felt like it was a great deal. Glad the driveway turned out okay and I hope it serves you for many years to come!

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    1. I’ve done the same, usually in situations when I had some sense of what I should be paying. In this case, I really did not have a rough idea of what it may cost…

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