Economics Game Theory In Behavioral Economics Questions Medium
Anchoring and adjustment is a cognitive bias in behavioral economics that refers to the tendency of individuals to rely heavily on an initial piece of information (the anchor) when making judgments or decisions, and then adjust their judgments incrementally from that anchor. This bias occurs because people often use the anchor as a reference point or starting point, and subsequently make adjustments based on that initial information.
The impact of anchoring and adjustment on judgment can be significant. Research has shown that the initial anchor can have a powerful influence on subsequent judgments, even when the anchor is completely arbitrary or irrelevant to the decision at hand. People tend to insufficiently adjust away from the anchor, leading to biased judgments that are closer to the anchor than they should be.
Furthermore, anchoring and adjustment can also impact the range of possible judgments. For example, if individuals are presented with a high anchor, their subsequent judgments are likely to be higher than if they were presented with a low anchor. This anchoring effect can lead to systematic biases in decision-making, as individuals may fail to consider a wider range of possibilities or alternatives.
Overall, the concept of anchoring and adjustment in behavioral economics highlights the importance of initial information in shaping judgments and decisions. By understanding this bias, economists and policymakers can design interventions and strategies to mitigate its impact and promote more rational decision-making.