![the anchoring effect the anchoring effect](https://www.ionos.com/digitalguide/fileadmin/DigitalGuide/Teaser/ankereffekt-t.jpg)
We can develop the tendency to focus on the anchor rather than the intrinsic value. The problem with anchors is that they don’t necessarily reflect intrinsic value. So when we think about currency values, which are intrinsically hard to value, anchors often get involved. Also, the more difficult it is to value something, the more we tend to rely on anchors. The more relevant the anchor seems, the more people tend to cling to it. Anchoring, or rather the degree of anchoring, is going to be heavily determined by how salient the anchor is. Anchoring in Public MarketsĪnchoring bias is dangerous yet prolific in the markets.
![the anchoring effect the anchoring effect](https://cdn-images-1.medium.com/max/2600/1*_O9aGgboEYkGgINWgodWvA.png)
Learn more in CFI’s Behavioral Finance Course. We’re starting with a price today, and we’re building our sense of value based on that anchor. If I were to ask you where you think Apple’s stock will be in three months, how would you approach it? Many people would first say, “Okay, where’s the stock today?” Then, based on where the stock is today, they will make an assumption about where it’s going to be in three months. Anchoring bias is an important concept in behavioral finance. The anchor – the first price that you saw – unduly influenced your opinion. Whereas, if you’d merely seen the second shirt, priced at $100, you’d probably not view it as cheap. For example, if you first see a T-shirt that costs $1,200 – then see a second one that costs $100 – you’re prone to see the second shirt as cheap.
![the anchoring effect the anchoring effect](https://d8odtvk64bkvp.cloudfront.net/preview/25089-the-anchoring-effect.png)
Anchoring bias occurs when people rely too much on pre-existing information or the first information they find when making decisions.