Anchoring and adjustment heuristic
This article gives a basic definition in behavioral economics.
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The anchoring and adjustment heuristic is a psychological heuristic that people use to make quantitative estimates. According to this heuristic, people's estimate of the value of a quantity is disproportionately influenced by their knowledge of the value of a related (or sometimes unrelated) quantity. This other related quantity is termed the anchor and the process of adjusting from the anchor value to the value estimated is called adjustment. This heuristic can be exploited to create a systemic bias in estimation by exposing people to certain quantities before asking them to make the estimate.
Anchoring for comparable quantities
One form of anchoring is where the anchor is in fact logically related to the value that needs to be estimated. The problem here is that the adjustment made against the anchor is usually insufficient. For instance, when asked to estimate the population of a city, a person may use his or her knowledge of the value of the population of a related city, and the ntry to adjust upward or downward, but the adjustment may be insufficient. Similarly, when trying to estimate the time taken for a particular journey, the person may use estimates for the time taken by a related journey but fail to accurately account for differences.
Anchoring for incomparable quantities
Another form of anchoring is where the anchor is totally unrelated to the value that needs to be estimated, and hence, using it to influence the value being estimated is irrational. For instance, it has been found that people who were asked down to write a two/three-digit number based on the digits of their phone number, and were then asked to estimate some totally unrelated quantity, were influenced by the number they wrote down based on their phone number.
Exploitation of the anchoring and adjustment heuristic
Further information: Reference price
A seller may try to influence a buyer's decision to purchase a good by placing another similar good next to it, which has a higher price. The hope is that the buyer, using the anchoring and adjustment heuristic, considers the cheaper good a bargain. The anchoring and adjustment heuristic is thus responsible for isolation effects in this case.