The phenomenon leads investors to make mistakes
Anchoring happens, when an individual is presented with a number before he makes a decision. The number may or may not be related to the situation at hand, but might end up influencing the decision that the individual takes.
Amos Tversky and Daniel Kahneman, the pioneers of behavioural economics, in a study asked the participants to estimate “What proportion of the United Nations is formed by African nations?”
But before the participants answered this question, a wheel of fortune, with numbers from 1 to 100 was spun. And this ultimately had an impact on the estimate that participants made.
As Tversky and Kahneman pointed out, “The median estimates of percentages of African countries in the United Nations were 25 and 45 for groups that received 10 and 65, respectively, as starting points.”
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