Objectivity and a practical approach to investing can go a long way in helping you to be away from anchors that influence your investment pattern and thus affect your portfolio returns negatively. The easiest way to overcome the anchoring bias is to track one’s behaviour and identify the anchors that you are normally prone to be dragged down by. Similarly, when the price of the shares in your portfolio goes up or down, to avoid price anchoring, you must check the company fundamentals before making a call to sell or buy. In such scenarios one should do a thorough research on their own before investing their hard-earned money.

Similarly, analyst forecast /expert opinion about any particular industry or company makes investors anchored to their information, which may not be correct. Such thinking will provide investors a broader view of the entire scenario. Critical thinking in this context means that when everyone around you is getting all positive news about a share or industry, you must try to find out negative points in it as well. It is advisable for investors to practise critical thinking to avoid anchoring bias. Opportunity to get up to 7.75% rate of interest on AAA rated FD: Should you invest? So, anchoring bias could influence your investment patterns and lead you to make sub-optimal decisions regarding your investment portfolio. Generally, such bias occurs when an investor pays attention to unwarranted details, which lead to error in investment decisions. In other words, the concept of anchoring draws on the tendency to attach or anchor investor thoughts to a reference point or information which might have no logical relevance to the investment decision at hand. Let us discuss one such bias- anchoring- and find out the ways and means to avoid the same while investing.Īnchoring bias indicates that an investor makes decisions based on the initial information or relies too much on the recent information that he / she obtained. Often investors are their own worst enemy because of psychological biases such as greed and fear that can influence investment decisions. One can attribute many reasons such as declining interest rates, volatility in fixed income instruments, enhanced awareness about investment options, ease of app-based trading, etc. BMC Medical Informatics and Decision Making, 16(1), 1-14.During the last one year of Covid-19, the equity market attracted the attention of retail investors across the globe and India is no exception.

Cognitive biases associated with medical decisions: A systematic review. Organizational Behavior and Human Decision Processes, 39(1), 84-97. Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions. Personality and Social Psychology Bulletin, 26(9), 1142-1150. Overcoming the inevitable anchoring effect: Considering the opposite compensates for selective accessibility. Mussweiler, T., Strack, F., & Pfeiffer, T. How much does expertise reduce behavioral biases? The case of anchoring effects in stock return estimates. Personality and Social Psychology Bulletin, 32(2), 188-200. Playing dice with criminal sentences: The influence of irrelevant anchors on experts’ judicial decision-making. Journal of Applied Social Psychology, 31(7), 1535-1551.Įnglich, B., Mussweiler, T., & Strack, F. Sentencing under uncertainty: Anchoring effects in the courtroom. The Quarterly Journal of Economics, 118(1), 73-106.Įnglish, B., & Mussweilier, T. “Coherent arbitrariness”: Stable demand curves without stable preferences. Ariely, D., Loewenstein, G., & Prelec, D.

The anchoring effect example