Summary: Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions.

Read The Full Article Here

-

Judgment under Uncertainty: Heuristics and Biases

In many situations, people make estimates by starting from an initial value that is adjusted to yield the final answer. The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of a partial computation. In either case, adjustments are typically insufficient. That is, different starting points yield different estimates, which are biased toward the initial values. We call this phenomenon anchoring.

Read The Full Article Here

-

Avoiding Decision Traps

Kahneman and Tversky contended that people frequently form estimates by starting with a given, easily available reference value — which could be arbitrary — and adjusting from that value. An estimate, therefore, would be “anchored” to that value. (Think of auto salespeople starting negotiations at the manufacturer’s suggested retail price.)

To demonstrate this heuristic, Dan Ariely, professor of management science at MIT Sloan School of Management, conducted a mock auction with his MBA students. He asked students to write down the last two digits of their Social Security numbers, and then submit bids on such items as bottles of wine and chocolate. The half of the group with higher two-digit numbers bid “between 60 percent and 120 percent more” on the items, says Ariely.

“People don’t know how much something is worth to them,” he comments. An anchor helps them decide. Once a value is set, people are good at setting relative values, Ariely explains. But “it’s very hard to figure out what the fundamental value of something is,” he adds, whether it’s an accounting system, a company’s stock, or a CEO.

Read The Full Article Here

If you enjoyed that why not find a job or read our guide to working in the 21st century. You can also join our Kiva team or hire me for your project.