What is the effect of anchoring in decision-making?

The effect of anchoring in decision-making is best captured by the reliance on an initial piece of information when forming subsequent judgments. This phenomenon occurs when the first piece of information encountered serves as a reference point, or "anchor," which influences how individuals evaluate additional information and make decisions.

For example, if a person is exposed to a high initial price for a product, they may judge subsequent prices against that anchor, potentially perceiving a slightly lower price as a great deal, regardless of its actual value. Anchoring can lead to biased judgments and decisions, often causing individuals to give disproportionate weight to the first piece of information they receive.

Understanding this concept is crucial in various fields such as marketing, negotiation, and behavioral economics, where initial impressions and information can significantly sway decisions and outcomes.