What is Anchoring Bias?
Anchoring bias is a cognitive bias that occurs when people rely too heavily on the first piece of information they receive (the “anchor”) when making decisions. This bias can lead to sub-optimal decisions because people don’t consider all available information. Anchoring bias is common in negotiation situations, where the first offer can anchor the final settlement.
Understanding Anchoring Bias
An anchoring bias is a tendency to remember or rely on the first piece of information that is presented rather than on subsequent information.
An anchoring bias in selling can occur when someone introduces a product or service to a customer. As soon as that product or service is introduced, the customer may remember the name and think about the product or service. However, customers may need to remember what they learned about that product. As a result, the information gets “anchored” on the first piece of information, and the customer may not remember the rest.
It can be difficult, especially when the customer has to make a quick decision, to remember all the information that was learned about a product or service.
Anchoring Bias in the Business World
1. In tech investing, “anchoring bias” refers to the fact that entrepreneurs often believe in the validity of their personal beliefs about a product’s future based on the past.
2. Anchoring bias is most powerful when investors have highly selective criteria for judging a product’s future.
3. Investors who rely on anchoring bias often mistake “unicorns” (assets with 10-digit valuations) for winners.