Anchoring in International Business: An Experimental Study of Debiasing the Anchoring Effect

Sveinung F. Krågeland & Tor Magnus Breivik

Student thesis: Master thesis

Abstract

The thesis is based upon an interest in the field of behavioral economics; in particular, the curious effects associated with decision bias and related heuristics. The motivation behind the paper is a genuine desire to explore if a simple set of tools could help mitigate the effects posed by such psychological phenomenon. In order to allow an in-depth analysis, the thesis will focus on the anchoring effect. This heuristic is considered one of the most robust among the human cognitive bias, and its effect on human decision-making has been illustrated extensively through previous studies. The paper will explore the anchoring effect in light of international business, where being aware of this effect might yield competitive advantages in situational contexts such as negotiations, market entries, marketing, or product strategies. Further, being able to evade the bias posed by the anchoring effect might be an even greater advantage. If this notion is attainable, the process of decision-making in international business is likely to benefit greatly. As such, this paper will explore the following question of research: ‹‹ Is it achievable to elude the effect of anchoring? If so, what are the potential implications for the decision-making process in international business? ›› In order to investigate the research question, a theoretical framework was constructed. Centered in the traditional economic theory of utility maximization and consumer surplus, the framework was established to explain why the anchoring heuristic deviates from the traditional rationality assumed in these theories. A review of multiple psychological notions, such as loss aversion, reference points, and emotions, provided theoretical insights that strengthened the framework. Existing literature on debiasing was quickly reviewed to find a suitable basis for the intervention technique, and the debiasing technique of general awareness and training was built upon in creating the intervention. To test the method of debiasing an experiment was created. The experimental study was largely based on consumer choices, and respondents had to denote their likeliness to buy certain products on a Likert scale. By manipulating the prices of the products, it was successfully generated responses in the higher spectrum for highly discounted products, consistent with the prior expectations of the anchoring effect. Half of the respondents were given a debiasing treatment, before continuing the experiment in the second stage. This treatment consisted of distributing a general information sheet regarding bias to respondents, where they were urged to consider the role of provided information in decision-making. The two first stages of the experiment were executed with the use of eye-tracking and a treatment effect was therefore expected to be found in this type of data. The last stage involved a risk lottery to determine the respondents’ payoff. This was included as an incentive to attract respondents, and the stage was completed without the eye-tracker, seen, as eye-movements were not of interest here. The attained data was analyzed through the statistical software STATA, and due to the nature of the data gathered from the Likert scale responses, the nonparametric Wilcoxon-MannWhitney method was used to investigate any anchoring and treatment effect. The eye-tracking data was analyzed by Student t-tests, as this is a method that has been extensively used in the analysis of such data. Both the anchoring and the treatment effect were found to be significant in these analyses. Further, the intervention was also proved successful in mitigating some of the effect caused by anchoring. As the anchoring and treatment effect were accomplished, the research is considered a success. In other words, it might appear that it is achievable to elude the effect of anchoring by facilitating the method of general awareness and training. By assuring that actors seeking to debias their behavior is familiar with the bias and recognizes situations in which it may arise, they have a better basis for avoiding being affected by anchoring. This arises a wide array of potential implications for the decision-making process in international business. By utilizing the effect of anchoring, actors are prone to enhance the efficiency of the decision-making process, which might yield competitive advantages in processes of negotiation, customer interactions, and brand awareness.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages162
SupervisorsJimmy Martínez-Correa