![]() ![]() Anchoring occurs when someone introduces a piece of information that will influence everyone regarding how they judge further bits of information, thereby leading them to jump to conclusions. However, anchoring can also occur unintentionally and derail successful ideation for design teams by causing people to accept distorted views. ![]() When designers apply it, they take advantage of users’ inability to make wholly critical judgments in the moment, and so prompt them towards actions that should be desirable for both the users and the brand. Anchoring is often used in user experience (UX) design. It’s also an age-old marketing strategy-appearing in everything from restaurant menus to car showrooms-that encourages customers to pick items because they’re a “good deal” compared with the most expensive offering (the anchor). Parents who ask their children “How often do you want to tidy your room: every day or every other day?” can appreciate its value. Used intentionally, anchoring (also called priming or focalism) can be an effective technique. Daniel Kahneman, Psychologist and economist noted for his work on the psychology of judgment and decision-making as well as behavioral economics Anchoring means Shaping Selections ![]() We’re not designed to know how little we know.” We have very little idea of how little we know. ![]() To learn more, check out CFI’s Behavioral Finance Course.“We’re blind to our blindness. Thank you for reading CFI’s guide on Anchoring Bias. More reading: Not All Anchors Are Created Equal. Why? Because they’re being influenced by the anchor instead of trusting their own due diligence. When you approach evaluation, instead of looking at where a stock is now, why not build up a first principles evaluation using DCF analysis? When analysts find their evaluation is far out from the actual stock price, they often try to change their evaluation to match the market. So, how do you guard against an anchoring bias? There’s no substitute for rigorous critical thinking. We can develop the tendency to focus on the anchor rather than the intrinsic value. The problem with anchors is that they don’t necessarily reflect intrinsic value. So when we think about currency values, which are intrinsically hard to value, anchors often get involved. Also, the more difficult it is to value something, the more we tend to rely on anchors. The more relevant the anchor seems, the more people tend to cling to it. Anchoring, or rather the degree of anchoring, is going to be heavily determined by how salient the anchor is. Anchoring in Public MarketsĪnchoring bias is dangerous yet prolific in the markets. Learn more in CFI’s Behavioral Finance Course. We’re starting with a price today, and we’re building our sense of value based on that anchor. If I were to ask you where you think Apple’s stock will be in three months, how would you approach it? Many people would first say, “Okay, where’s the stock today?” Then, based on where the stock is today, they will make an assumption about where it’s going to be in three months. Anchoring bias is an important concept in behavioral finance. The anchor – the first price that you saw – unduly influenced your opinion. Whereas, if you’d merely seen the second shirt, priced at $100, you’d probably not view it as cheap. 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. Anchoring bias occurs when people rely too much on pre-existing information or the first information they find when making decisions. ![]()
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