The ask was 12 million and we approved 10. Did we really save?

The request was 12 million. After a long discussion, we approved 10. So we saved 2 million, didn’t we? Not necessarily.

This is anchoring bias: the first number in a discussion can become the psychological reference point for every number that follows, even when the opening number has little basis.

Once 12 million entered the meeting, the whole discussion began orbiting it. Ten million now looked “reasonable” because it was below twelve.

But the most important question may never have been asked: does the activity actually need 10 million?

The real need might be seven, or fourteen. The point is that the first number pulled everyone’s thinking towards it.

It is not only a budgeting problem

• Valuation
• Pricing
• Supplier negotiations
• Compensation
• Forecasting
• Estimating losses or expected returns

The first number can do something more consequential than starting the conversation: it can define the entire range of debate.

Example: company valuation

If the first valuation you hear is 500 million, the discussion may quickly become 450, 520, or 550. But the right question may be: “What value do the cash flows and assumptions actually support?”

Return to first principles instead of moving around the initial number. You may believe you are analyzing freely while actually operating inside boundaries someone else set at the start.

Four ways to reduce anchoring

1. If the first number had not been stated, what would my estimate be?
2. Do I have an independent benchmark?
3. Is the estimate built from real drivers or merely adjusted from an earlier number?
4. If I started from zero, would I reach the same conclusion?

For important decisions, it can help to have each person prepare an independent estimate before seeing anyone else’s number.

The first number has more power than we realize.