Let’s say that you find a nice watch in a shopping mall. Sadly, after seeing the $500 price tag, you realize you cannot afford it right now. Even though you really like it, you are about to walk away. Just then, a salesperson approaches and tells you that the watch is on sale today for only $200. That’s still a lot of money, but it’s $300 less than the original price, and you’re most likely going to buy the watch anyway someday. It seems like the perfect opportunity. Eventually, you decide to make the purchase.

Later, you come across the same watch online. To your dismay, several sites are selling the watch for $100. Now you regret your decision. You’re asking yourself, “Why was I so hasty to pay $200 for it?”

As a matter of fact, when people make a decision, they often give more weight to the first piece of information they get.  This information becomes an anchor, or a point if reference . After this anchor has been established, all reasoning is based on it, and any new information seems like an addition or modification. Psychologists call this the “anchoring bias” or “anchoring effect.”

You saw that the watch was $500. This information stuck in your mind, so the price of a mere $200 seemed very low. You ignored other possibilities, such as other stores offering lower prices, and made your choice based on information you had already received, which acted as an anchoring point for your decision.

Beware of the anchoring effect, as it can be quite powerful. Search for your anchoring point and ask yourself if it could be misleading. Avoiding this trap will help you make better decisions.