Anchoring Bias

What it looks like

You see a jacket marked down from $400 to $150 and feel like you're getting a deal — the $400 anchor made $150 feel cheap, even if the jacket was never worth $400.

In negotiations, whoever names the first number often pulls the final agreement toward it. The same happens with salaries, house prices, and analyst price targets.

In trading and money decisions

Traders anchor to their entry price, a stock's all-time high, or a round number like $100. A position down 40% feels like it has to come back to breakeven — but the market doesn't know or care what you paid.

Anchoring also distorts targets: if Bitcoin once traded at $69,000, that number quietly becomes the reference for what it should be worth, regardless of changed fundamentals.

Common questions

What is a simple example of anchoring bias?

If asked whether the Mississippi River is longer or shorter than 5,000 miles, then asked to estimate its length, most people guess near 5,000. A different starting number produces a different guess — the first number anchors the estimate.

How do you reduce anchoring bias?

Generate your own estimate before looking at outside numbers, consider a range instead of a single figure, and deliberately ask what the price would be if you had never seen the anchor.

Is anchoring bias always bad?

No — anchors speed up decisions when information is scarce. The problem is when an irrelevant or outdated number silently drives a high-stakes judgment, like what a position is worth.