In the field of psychology and its recent
hybrid offshoot, behavioral economics,
While enormously helpful in everyday
situations, these heuristics often lead to
unseen biases in our decision-making.
One such bias is called “anchoring.”
The anchoring bias was first identified by
Daniel Kahneman and Amos Tversky in their
article Judgment Under Uncertainty: Heuristics
and Biases, which appeared in the journal
Science in 1974. They claimed that people make
estimates by starting from an initial value that is
adjusted to yield the final answer. This is a perfectly
reasonable way for estimations to be made of course,
but their experiments revealed that people were often
starting from (anchoring) to the wrong values or failing
to account for differences between their anchor number
and their estimate. The researchers showed that “different
starting points yield different estimates, which are biased
toward the initial values.” In other words, people “anchor” to
a value in their experience and rely too heavily on this in their
estimation of a new value.
In one experiment, subjects were asked to estimate the number
of African countries in the United Nations. They expressed this
estimate while watching a wheel of fortune spin. Unbeknownst
BY MICHELE WOOD
Bias in real estate pricing and valuation
ANCHORS
A-WEIGH
