Explain the concept of anchoring bias.

Explain the concept of anchoring bias.

Anchoring bias is a cognitive bias that occurs when individuals rely too heavily on an initial piece of information (the anchor) when making decisions or judgments. This bias can lead to individuals being overly influenced by the anchor, even if it is irrelevant or arbitrary. The anchor can be a specific number, value, or reference point that individuals use as a starting point for their decision-making process. Anchoring bias can affect various aspects of economic decision-making, such as pricing, negotiation, and investment choices.