Anchors Away


In 1985, Intel was a semiconductor memory company. It had been a memory company for 17 years, but Japan was making memory better and cheaper and Intel was bleeding money trying to keep up. After over a year of experimenting with futile strategies, president Andy Grove and CEO Gordon Moore fired themselves.

They walked outside, smoked a couple cigarettes, and then walked back in pretending to be new hires. The pretend-new CEO and president didn’t know that Intel spent 17 years selling computer memory. They took one look at the company, killed the memory business, and used their freshly-freed talent to become a microprocessor company.

You're fired. For the porn 'stache.
You’re fired. For the porn ‘stache.

Anchoring is a cognitive bias that forces people to focus on some initial value and then make decisions with that reference. A good salesman often quotes an inflated price and then allows the customer to negotiate a much lower price. Because the customer has the initially-quoted price as an anchor, the new price seems like a great deal.

Anchors are the root of loss aversion. A decade ago, I had a huge losing position in a crappy company called Sun Microsystems. I started out with high hopes that Java could take down Microsoft, but the best they could do was sue Microsoft for being a monopoly.


As a novice investor, I didn’t want to realize my loss. If I didn’t sell Sun, it was hypothetically still worth my anchoring purchase price (even though the market was trading at half that). My very smart labmate Andy asked me: If you didn’t already own this stock, would you buy it today?

Of course not. It was a shitty company and nobody liked Java.

So sell it.

Avoid anchoring biases by framing the situation in a new perspective. If your employer fired you, is this the job you would look for today? If not, quit. If your spouse died, is this the replacement you would look for on OKCupid? If not, leave. If your child died, would you make another one? If not, put it up for adoption.

If you were starting a new company, is this the one you would start today?

See Also:
1. Only-the-Paranoid-Survive

2. Anchoring, the Mother of Behavioral Biases –Psy-Fi

Why Employers Want You To Buy a House

house for sale

Yesterday, my classmate from Harvard sent me a message to tell me that an offer he’d made on a multimillion-dollar home had been accepted. My stomach hurt a little bit. If I hadn’t quit my job, I’d be taking in his same salary. Maybe I would be buying a big house instead of slumming in a garage.

When I accepted my job offer at Intel, I was assigned a Home Mortgage Consultant. They had their own Relocation Mortgage Program for new employees. That was awfully nice of them, I thought. They’re really looking out for me. Of course not. Intel wanted me to buy a house and take on a mortgage because the payments would have enslaved me for at least the next decade.

Why would anyone want to be enslaved to an expensive house? I feel sorry for my classmate. He’ll be making mortgage payments until his retirement party. And it’s a big house, which means he will likely populate it with offspring. He might as well have thrown a dog collar around his neck with a short rope to his cubicle. That’s what companies want.

The Marginal Utility of Time

I had dinner with a very dear friend last night. He had recently received a $264,000 job offer from a tech company up the street, but turned it down after receiving an even better offer elsewhere.

OH MY GOD, I said. Is that what people are making in the Bay Area these days??

You could easily land something similar, he said. I could recommend you for the position I turned down. You just have to promise not to quit your job again after four months. That would make me look bad.

Damn. I had to think about it pretty hard. When I was at Intel, I was working over 50 hours a week for less than half that salary. Adjust for taxes, benefits, and vacation time, and I’d estimate that I was pocketing at most $45 for each hour of work.

Chump change. The decision to quit was easy, because I derive more than $45 worth of enjoyment value for each hour that I spend to myself.

But just how much more? Now that I’m unemployed, it’s especially hard to compare the marginal utility of my time against the value of previous hours.

The job comes with free food, he said. (He knows me so well.)

If the job didn’t suck, they wouldn’t have to pay someone $264,000 a year to do it.

No, thank you, I said. My time is still worth more than that. I think.

Besides, golden handcuffs are very difficult to shed.
Golden handcuffs