What is the anchoring effect in psychology?

Learn how the anchoring effect in psychology works, why it can lead to bias, and how to overcome the anchoring effect. Anchoring describes the bias where you depend too heavily on an initial piece of information when making decisions.

What is anchoring effect & opportunity cost?

Anchoring effect: The tendency for a person to rely heavily on the first piece of information they receive when making decisions. Cognitive bias: A systematic error in thinking that affects people's judgment and decisionmaking. Opportunity cost: The value of the next-best alternative when a decision is made; it's what is given up.

What is an example of anchoring bias?

It is easy to find examples of anchoring bias in everyday life. Customers for a product or service are typically anchored to a sales price based on the price marked by a shop or suggested by a salesperson. Any further negotiation for the product is in relation to that figure, regardless of its actual cost.

What is anchoring in economics?

Anchoring is a cognitive bias in which the use of an arbitrary benchmark such as a purchase price or sticker price carries a disproportionately high weight in one's decision-making process. The concept is part of the field of behavioral finance, which studies how emotions and other extraneous factors influence economic choices.