Introduction
Anchoring bias is when people rely too much on a specific piece of information when making decisions. It’s like when you see a big number and it sticks in your mind, and then you use that number as a reference point for other things.
Anchoring bias is a cognitive bias that occurs when individuals rely too heavily on an initial piece of information (known as the anchor) when making decisions or judgments.
This bias can help individuals to make inaccurate or irrational judgments because they are overly influenced by the anchor, even if it is irrelevant or arbitrary.
When individuals encounter an anchor, it serves as a reference point that influences their subsequent judgments or decisions. They tend to adjust their judgments or decisions based on the anchor, often insufficiently, leading to biased outcomes.
Definitions of Anchoring Bias
“The subjects’ estimates… were biased towards the initial number. We called this bias the anchoring effect…” – Amos Tversky and Daniel Kahneman
“Anchoring refers to the phenomenon that people’s judgments are disproportionately influenced by an initial or extraneous piece of information.” – Thomas Mussweiler and Fritz Strack
“Anchoring refers to the phenomenon whereby an initial value, whether externally provided or self-generated, exerts undue influence on subsequent judgments made by individuals.” – Thomas Gilovich, Dale Griffin, and Daniel Loewenstein
“The anchoring effect describes the phenomenon whereby the initial value provided for an unknown quantity serves as a starting point for estimating that quantity, with estimates tending to be biased toward the anchor.” – Reid Hastie and Robyn M. Dawes
Occuring of Anchoring bias
Anchoring bias can occur in various contexts, including financial and economic decision-making, where individuals may be influenced by specific numbers, values, or information when estimating probabilities, forecasting returns, or making investment decisions.
Research has shown that anchoring bias can be influenced by factors such as the relevance of the anchor, the accessibility of the anchor information, and individuals’ prior knowledge or experience.
Relevant anchors, which are directly related to the decision or judgment being made, tend to have a stronger impact on individuals’ judgments compared to irrelevant anchors.
Additionally, individuals who have more prior information or knowledge about a particular topic may be less susceptible to anchoring bias.
Example of Anchoring bias
For example, let’s say you’re at a store and you see a toy that costs ₹50. That price becomes your anchor, or reference point. Later, you see another toy that costs ₹30. Even though ₹30 might be a reasonable price for that toy, you might still think it’s expensive because your anchor is ₹50.
Anchoring bias can make us make decisions that are not based on all the information available, and it can lead to mistakes. It’s important to be aware of this bias and try to consider all the relevant information before making a decision.
Confirmation bias with Example
Confirmation bias is the tendency to search for, interpret, and favor information that confirms one’s preexisting beliefs or hypotheses while ignoring or downplaying contradictory evidence.
An example of confirmation bias is when a person only seeks out news sources or information that aligns with their political views and ignores or dismisses information that contradicts their beliefs.
For example, a person who strongly supports a particular political party may only watch news channels or read articles that are biased towards that party, and they may dismiss or discredit any information that challenges their beliefs.
This bias can prevent individuals from considering alternative perspectives and can reinforce their existing beliefs, leading to a lack of critical thinking and a limited understanding of complex issues.
In a more simple way we can say that
“Confirmation bias is when you only pay attention to information that supports what you already believe, and ignore or dismiss information that goes against it.”
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Imagine you really like ice cream and you think it’s the best dessert ever. One day, your friend tells you that cake is even better than ice cream. But instead of considering what your friend said, you only remember all the times you’ve had ice cream and how much you enjoyed it. You ignore your friend’s opinion because it doesn’t match what you already believe.
That’s confirmation bias!
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