A Study on the Anchoring Effect: Definition, Applications and Optimization

Behavioral economics is a branch of economics that shows the irrational decisions made by people due to the presence of bias and heuristics. This essay delves into a predominant bias, the anchoring effect, and mainly discussed its applications in real world examples. The first application discussed is about the anchoring effect in judicial decision makings, where judges are affected by the anchors so they make irrational sentencing decisions; secondly, anchors can significantly influence consumers’ purchasing decisions because of the anchors businesses deliberately used, for example, pricing and advertising; lastly, the anchoring effect on property price listings is analyzed, where people often perceive higher values for the high-anchored houses. Through the research, it can be concluded that the anchoring effect is ubiquitous among all kings of people, and even irrelevant anchors can surprisingly influence experts’ final decision makings. What people can do to either mitigate or effectively take advantage of this bias were also presented in this essay.