Anchoring Bias

Anchoring bias causes you to get distracted by the information that was presented first. Even if that is not relevant to the task at hand. Information that follows will also be judged relative to what was presented first. The first piece of information has now become anchored in your thought process. This happens when you look at the price of stock. When you buy a stock at a price and eventually gives you higher return, anchoring kicks in. Even though the fundamentals of the business hasn’t changed, you wouldn’t want to add to your existing position because the initial price is what you are anchored with. When looking at deals, we are trained to compare it to see if it is a bargain or not. And by default, the first price is what the comparison is done against. This happens a lot in sales as well. The salesman almost always starts their pitch with a much higher price. Thus anchoring the buyer to that price. So any discounts the salesman further makes looks like relatively a good offer for the buyer.

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