The Anchoring Heuristic and the Mzungo effect.
I’ve just returned from Kenya. Hopefully, I’ve successfully defeated the flourishing Amoebas in my intestine. I thought you might like to hear about my recent experience with the anchoring heuristic whilst building a primary school for the children’s charity CBSM Kimilili, in western Kenya.
I find it both exciting and challenging working with cultures different to my own but often such differences can lead to mistakes being made; for instance our lack of knowledge of the environment means that we are working with incomplete information. In such situations we are likely to draw on our previous experience, which may have little bearing or relevance to the current problem. These subjective judgements are called heuristics.
Heuristics are “a method of solving problems by finding practical ways of dealing with them, learning from past experience” (Oxford Advanced Learner’s Dictionary). Heuristics are often good; they help us make decisions quicker. However, by being aware of when we may be using them we can hopefully make better, more balanced decisions.One such heuristic is the “anchoring and adjustment” heuristic. Research has found that individuals tend to anchor their subsequent answers around a given starting point (Johnson, 2011).
Let’s take a look at buying cement, an expensive commodity in any country. On the school build we needed to purchase and have delivered 150 bags of 32.5N Bamburi cement for blinding the foundations. Lacking transport, we had to source the cement from hardware shops in town rather than buy from the wholesalers in Bungoma. I was sincerely advised at this point that I would be subject to the Mzungo (white man) effect and it would be impossible for me to get a fair price.
Loving a challenge, I suggested that Masika, the construction manager and I work separately; we would each take a different side of the town, meet in the middle and the winner with the lowest price would win of a bottle of (cold!) Tusker beer. Well, I won the beer, having found a price of 5KSH lower than Masika!
It was during the cement negotiations that I realised I had succumbed to the anchoring heuristic. We roughly knew the price of cement direct from the factory; add on a margin for the wholesalers and then for the retailers and we therefore assumed that the very best price (BATNA) might be KSH850.
Sure enough, each hardware shop was quoting around the KSH860/870 mark, give or take KSH10. I therefore based my negotiations around this figure. That was until I came to Highway Hardware towards the end of Kimilili’s main street. Here, the owner opened the bidding with a price of KSH835 for the 100 bags! I realised my mistake that I’d been anchoring my bids at the KSH850 level. Now my negotiations would start from this lower price. In the end, I managed to knock a further KSH5 off the price and settle at KSH830 for 150 bags including delivery.
I think this experience is a good example of the anchoring heuristic; it also shows us that the colour of our skin doesn’t necessarily mean we can’t get the best price.