What is Anchoring Bias?
Anchoring bias is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic. When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively.
This can skew our judgment, and prevent us from updating our plans or predictions as much as we should.
Avoiding Anchoring Bias
So, how do you guard against an anchoring bias? There’s no substitute for rigorous critical thinking. When you approach evaluation, instead of looking at where a stock is now, why not build up a first principles evaluation using DCF analysis? When analysts find their evaluation is far out from the actual stock price, they often try to change their evaluation to match the market. Why? Because they’re being influenced by the anchor instead of trusting their own due diligence.
More reading: Not All Anchors Are Created Equal.
ow Do You Avoid Anchoring Bias?
Debiasing is the fundamental way to avoid the effects of anchoring bias. This is easier said than done—our brains are hardwired to take these sorts of shortcuts. To debias, take a step back from your own thinking process.
Ask yourself if you’re letting the first thing you heard about a given subject irrationally color your decision-making process about it now. Each time you make this diagnosis, it might become easier to avoid the bias in the future.