They were then asked to adjust that number, lower or higher, to indicate how many African countries were included in the UN. In one of their experiments, participants were told to spin a wheel to select a number from 0 to 100. How does it work? Amos Tversky and Daniel Kahneman, famous psychologists and economists, discovered that even arbitrary numbers could lead people to make wrong estimates. Values are assigned based on how one option is attractive compared to others, rather than on an analysis of each option on its own. The individuals who experience the anchoring bias tend to fixate their thoughts on an irrelevant reference point. These initial perceptions have a great impact on the decision-making process. Therefore, anchoring bias, also known in psychology as anchoring effect or focalism, is the tendency to use first impressions to form further perceptions.
When making decisions, people often use a so-called “anchor” as a reference or starting point, overly relying on a specific piece of information.
Keep reading to find out what this psychological phenomenon really is and how to avoid anchoring bias when trading. However, according to cognitive psychology, there are some factors that come from within, and anchoring is one of them. Some are impossible to be tamed as they come from the outside, such as economic and political events. There are a number of factors that may significantly affect your trading performance.
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