A person begins with a first approximation (anchor) and then makes incremental adjustments based on additional information. According to this heuristic, people start with an implicitly suggested reference point (the 'anchor') and make adjustments to it to reach their estimate. Anchoring and adjustment heuristicĪnchoring and adjustment is a psychological heuristic that influences the way people intuitively assess probabilities. proposed that this is a result of a focusing illusion, with people focusing on conventional measures of achievement rather than on everyday routine. Ī rise in income has only a small and transient effect on happiness and well-being, but people consistently overestimate this effect. The bias lies in that most people asked focused on and overweighed the sunny weather and ostensibly easy-going lifestyle of California and devalued and underrated other aspects of life and determinants of happiness, such as low crime rates and safety from natural disasters like earthquakes (both of which large parts of California lack). For example, when people were asked how much happier they believe Californians are compared to Midwesterners, Californians and Midwesterners both said Californians must be considerably happier, when, in fact, there was no difference between the actual happiness rating of Californians and Midwesterners. People focus on notable differences, excluding those that are less conspicuous, when making predictions about happiness or convenience. The focusing effect (or focusing illusion) is a cognitive bias that occurs when people place too much importance on one aspect of an event, causing an error in accurately predicting the utility of a future outcome. Through this cognitive bias, the first information learned about a subject (or, more generally, information learned at an early age) can affect future decision making and information analysis.įor example, as a person looks to buy a used car, he or she may focus excessively on the odometer reading and model year of the car, and use those criteria as a basis for evaluating the value of the car, rather than considering how well the engine or the transmission is maintained. Once the anchor is set, there is a bias toward adjusting or interpreting other information to reflect the 'anchored' information. During normal decision making, anchoring occurs when individuals overly rely on a specific piece of information to govern their thought-process.

The anchoring effect examples