ECONOMICS

Detailed explanation-1: -The anchoring effect is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments.

Detailed explanation-2: -Anchoring bias refers to people’s tendency to give disproportionate weight to the first piece of information they receive in a decision-making context. As a result, this becomes a reference point or anchor that influences people’s perception of subsequent information.

Detailed explanation-3: -What is Anchoring Bias? Anchoring bias occurs when people rely too much on pre-existing information or the first information they find when making decisions. For example, if you first see a T-shirt that costs $1, 200 – then see a second one that costs $100 – you’re prone to see the second shirt as cheap.

Detailed explanation-4: -Anchor bias can lead to poor decision-making. When you rely too heavily on a single piece of information, especially if that piece of information doesn’t accurately represent a situation, it can lead to uninformed decisions.

Detailed explanation-5: -In the context of investing, one consequence of anchoring is that market participants with an anchoring bias tend to hold investments that have lost value because they have anchored their fair value estimate to the original price rather than to fundamentals.