The Effect of Anchoring on Economic Decision-Making

Abstract

The anchoring effect is a cognitive heuristic that influences human decision-making processes. People consistently perceive the initially available information as an anchor and use this reference point to form decisions. However, decision-makers' over-reliance on anchors causes them to falsely believe the information they perceive without further thought. This paper explains the definition, underlying mechanism, and applications of anchoring. For methodology, the paper uses qualitative research to illustrate examples of anchoring in different scenarios. To conclude, even though the automatic generation of heuristics is difficult to detect, it is important to understand the way anchoring affects economic decisions in advance. The research results of this paper have practical contributions and far-reaching implications. Different from the mathematical analysis method, the case analysis method more accurately reflects the importance of anchoring in real life environment. In addition, some people have prejudices about the anchoring effect. This paper can bring enlightenment to people and help them better understand the way in which anchoring facilitates the generation of economic gains and losses.