The Effect of Anchoring on Economic Decision-Making
DOI:
https://doi.org/10.54691/bcpbm.v29i.2191Keywords:
Anchoring Effect, Economic Decision-Making, Heuristics-Driven Bias, Reference Point, Behavioral FinanceAbstract
The anchoring effect is a cognitive heuristic that influences human decision-making processes. People consistently perceive the initially available information as an anchor and use this reference point to form decisions. However, decision-makers' over-reliance on anchors causes them to falsely believe the information they perceive without further thought. This paper explains the definition, underlying mechanism, and applications of anchoring. For methodology, the paper uses qualitative research to illustrate examples of anchoring in different scenarios. To conclude, even though the automatic generation of heuristics is difficult to detect, it is important to understand the way anchoring affects economic decisions in advance. The research results of this paper have practical contributions and far-reaching implications. Different from the mathematical analysis method, the case analysis method more accurately reflects the importance of anchoring in real life environment. In addition, some people have prejudices about the anchoring effect. This paper can bring enlightenment to people and help them better understand the way in which anchoring facilitates the generation of economic gains and losses.
Downloads
References
Almashat, S., Ayotte, B., Edelstein, B., & Margrett, J. (2008). Framing effect debiasing in medical decision making. Patient Education and Counseling, 71(1), 102–107. https: // doi.org / 10.1016 / j.pec.2007.11.004.
Andersson, H., Bökman, F., Wallhagen, M., Holmgren, M., Sörqvist, P., & Ahonen-Jonnarth, U. (2021). Anchoring effect in judgments of objective fact and subjective preference. Food Quality and Preference, 88, 104102. https://doi.org/10.1016/j.foodqual.2020.104102.
Bar-Hillel, M. (1973). On the subjective probability of compound events. Organizational Behavior and Human Performance, 9(3), 396–406. https://doi.org/10.1016/0030-5073(73)90061-5.
Beggs, A., & Graddy, K. (2009). Anchoring effects: Evidence from art auctions. American Economic Review, 99(3), 1027–1039. https://doi.org/10.1257/aer.99.3.1027.
Dogerlioglu-Demir, K., & Koçaş, C. (2014). Seemingly incidental anchoring: The effect of incidental environmental anchors on consumers’ willingness to pay. Marketing Letters, 26(4), 607–618. https://doi.org/10.1007/s11002-014-9295-0.
Englich, B., & Soder, K. (2009). Moody experts-- How mood and expertise influence judgmental anchoring. Judgment and Decision Making, 4, 41–50. https://doi.org/10.4324/9780203141939-11.
Furnham, A., & Boo, H. C. (2011). A literature review of the anchoring effect. The Journal of Socio-Economics, 40(1), 35–42. https://doi.org/10.1016/j.socec.2010.10.008.
Kahneman, D. (2011). Thinking, fast and slow. Farrar, Straus and Giroux.
Kristensen, H., & Gärling, T. (2000). Anchor Points, Reference Points, and Counteroffers in Negotiations. Group Decision and Negotiation, 9(6), 493–505. https://doi.org/10.1023/a:1008722223618.
Lee, E., & Piqueira, N. (2019). Behavioral biases of informed traders: Evidence from insider trading on the 52-week high. Journal of Empirical Finance, 52, 56–75. https://doi.org/10.1016/j.jempfin.2019.02.007.
Lowies, G. A., Hall, J. H., & Cloete, C. E. (2016). Heuristic-driven bias in property investment decision-making in South Africa. Journal of Property Investment & Finance, 34(1), 51–67. https://doi.org/10.1108/jpif-08-2014-0055.
Northcraft, G. B., & Neale, M. A. (1987). Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions. Organizational Behavior and Human Decision Processes, 39(1), 84–97. https://doi.org/10.1016/0749-5978(87)90046-x.
Paek, H.-J., Yoon, H. J., & Hove, T. (2011). Not all nutrition claims are perceived equal: Anchoring effects and moderating mechanisms in food advertising. Health Communication, 26(2), 159–170. https://doi.org/10.1080/10410236.2010.544281.
Reed, K. L., Harvey, E. M., & Everly, C. J. (2021). The intersection of Behavioral Economics and the General Medicine Literature. The American Journal of Medicine, 134(11). https://doi.org/10.1016/j.amjmed.2021.06.041.
Ritov, I. (1996). Anchoring in simulated competitive market negotiation. Organizational Behavior and Human Decision Processes, 67(1), 16–25. https://doi.org/10.1006/obhd.1996.0062.
Strack, F., & Mussweiler, T. (1997). Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73(3), 437–446. https://doi.org/10.1037/0022-3514.73.3.437.
Tversky, A., & Kahneman, D. (1982). Judgment under uncertainty: Heuristics and Biases. Judgment under Uncertainty, 3–20. https://doi.org/10.1017/cbo9780511809477.002.
Whyte, G., & Sebenius, J. (1997). The effect of multiple anchors on anchoring in individual and group judgment. Organizational Behavior and Human Decision Processes, 69(1), 75–85. https://doi.org/10.1006/obhd.1996.2674.
Downloads
Published
Issue
Section
How to Cite
