Ditch Anchoring And Dial The Right Number

Imagine walking into a store of your choice to buy a shirt. You see a tag that says, "MRP: 2,500 - Now available for *1,200." Suddenly, the *1,200 tag feels like a great deal even if *1,200 was your budget all along. Why? Because your brain just got anchored to *2,500.

- Kundan Kishore

Another classic example is the way discounts are displayed: "discount up to 50 per cent". In this case, you would forget the words "up to" because your brain just got anchored to 50 per cent.

In behavioural finance, anchoring refers to the tendency to rely too heavily on the first piece of information (which becomes the "anchor") when making decisions. It usually applies when we hang on to a number, fact or return figure that has no bearing on the overall investment or spending decision.

Anchoring In Investments