anchoring and adjustment theory

Anchoring and adjustment theory explains how people make decisions or estimates based on an initial reference point, called the "anchor." Once set, individuals tend to make insufficient adjustments from this anchor, leading to biased judgments. For example, if someone hears a high price first (anchor), they may perceive subsequent prices as more reasonable, even if they’re still expensive. The theory shows how our minds rely heavily on initial information and adjust only partially, which can influence judgments in areas like negotiations, pricing, and forecasting.