In 1974, Amos Tversky and Daniel Kahneman ran one of the most cited experiments in psychology. They spun a rigged wheel of fortune in front of participants — the wheel only ever stopped on 10 or 65 — and then asked a question with nothing to do with the wheel: what percentage of countries in the United Nations are African?

Participants who saw the wheel stop on 10 guessed, on average, 25%. Participants who saw it stop on 65 guessed 45%. A meaningless number, generated in front of them by a wheel they knew was random, shifted their answers by 20 percentage points. That is anchoring bias in its rawest form: the first number you encounter quietly becomes the gravitational centre of every estimate that follows.

The anchoring effect is now one of the most replicated findings in behavioural economics. It shows up in salary negotiations, house sales, courtroom sentencing, retail pricing, restaurant menus, and your own portfolio. Once you know to look for it, you start seeing the anchors everywhere — including the ones you set for yourself.

Anchoring bias is the tendency to rely too heavily on the first piece of numerical information offered (the “anchor”) when estimating an unknown value. After encountering an anchor, people adjust away from it — but they do not adjust enough. The distortion persists even when the person knows the anchor is irrelevant, has been warned about the bias, or sees an obviously absurd anchor.

The mechanism is well-studied. Estimating something uncertain, your brain looks for a starting point; any recently-presented number gets used. From there you adjust, but adjustment is effortful and people stop too early. Tversky and Kahneman called this anchoring and adjustment. Later research added a second mechanism: anchors prime related information from memory, biasing the answer in their direction.

The old negotiation advice was “never name a number first.” The research now says the opposite. In a much-cited study by Adam Galinsky and Thomas Mussweiler at Northwestern, the side that opened with a specific number got a final price closer to their preferred outcome — by a substantial margin — in both buyer and seller roles.

The reason is anchoring. When a candidate says “I’m looking for £75,000,” the recruiter’s mental search starts at 75. If the recruiter speaks first with “the band tops out at £58,000,” the candidate’s search starts at 58 and quietly accepts the band as the constraint.

Two practical implications:

• Anchor first, anchor specifically. “£82,400” pulls harder than “around eighty.” Precise numbers feel researched, which makes them stickier.
• Anchor at the edge of plausibility, not beyond it. Too absurd and the other side dismisses it; aggressive but justifiable and it sets. The sweet spot is the highest figure you can defend with one sentence.

If the other side anchors first, the most reliable counter is not to negotiate down from their number — it is to refuse the frame: “That’s a long way from where I need to be. I’m looking for £82,000.” Replace their anchor with yours rather than tugging against it.

Gregory Northcraft and Margaret Neale’s 1987 study is the cleanest demonstration of anchoring in a professional setting. They walked two groups — undergraduates and experienced estate agents — through the same house with the same information packet. The only thing they varied was the listing price printed on the packet.

The students were nudged by the listing price, as expected. The agents — who explicitly said the listing price had not influenced them — were nudged by almost the same amount. A higher listing anchor produced a higher appraisal across every measure: estimated value, estimated sale price, and lowest acceptable offer. The professionals were anchored and did not know it.

This is why listing strategy matters even when the market “knows” the right number. List too low and offers anchor below market; list aggressively (within reason) and offers cluster nearer the asking price. It is also why buyer’s agents do their own comparable analysis before looking at the listing — once you have read “£525,000” on Rightmove, you cannot unread it.

The most damaging investing anchor is the price you paid. It has no information about future returns and does not appear in any rational valuation model. Yet investors anchor on it relentlessly — selling winners early to “lock in the gain” and refusing to sell losers until they “get back to even.” This is the disposition effect, and the purchase price is the anchor at its core.

Terrance Odean’s analysis of 10,000 retail brokerage accounts found investors were roughly 1.5 times more likely to sell a winner than a loser of equivalent size — and the winners they sold went on to outperform the losers they kept. The anchor was costing them measurable returns every year.

Other investing anchors that quietly distort decisions:

• 52-week high. A stock at £42 that hit £60 last year “feels cheap” even if £60 was overvalued and £42 is fair.
• Round numbers. FTSE 100 at 8,000, Bitcoin at $100,000, Apple at $200 — psychological anchors that cluster orders and distort price action.
• Analyst price targets. The first bank to publish a target anchors the rest of the research community.

The fix is structural: build a sell rule that does not reference your purchase price. Sell when the thesis breaks, valuation crosses a ceiling, or a rebalance is due — not when the share price crosses an arbitrary number you happened to pay.

Every retailer’s pricing team understands anchoring — even if they call it something else. The reference price next to the sale price is the anchor; the actual price is the offer. Strip the anchor away and conversion drops, often by a lot.

The classic example is the William-Sonoma bread maker. The retailer launched a model at $279 and sales were unimpressive. They added a larger, more expensive model at $429 alongside it. The $429 unit barely sold — but sales of the $279 model nearly doubled, because shoppers now had a higher anchor to compare it against and $279 suddenly looked reasonable.

• The decoy on the menu. The most expensive dish is often there to make the second-most-expensive item — the one with the best margin — look like good value.
• The struck-through “RRP.” “Was £199, now £89” — the £199 is doing all the persuasive work, even though it may rarely have been a real selling price.
• Tiered pricing. SaaS pricing pages with Basic, Pro, and Enterprise tiers are engineered around the middle tier. The Enterprise tier exists to anchor; most customers buy Pro.
• Premium entry products. Apple sells iPhones at £1,599 partly so that the £799 model feels like the sensible choice rather than the extravagant one.

Anchoring is most studied with numbers, but it operates anywhere your brain needs a reference point.

• Project estimates. The first developer to say “maybe two weeks?” sets the team’s anchor; subsequent estimates cluster there even when the work warrants six.
• Courtroom sentences. Birte Englich’s research found that prosecutor demands picked from a literal die roll shifted judges’ final sentences by several months.
• Forecasts. Last year’s number anchors next year’s budget, regardless of whether the underlying business has changed.

The bad news from debiasing research: simply being told about anchoring does not help much. People who have read about the bias still anchor. People who have just been warned in the same room still anchor. The effect is unusually robust against awareness alone.

The good news: a handful of structural techniques do reduce the effect, sometimes substantially.

Anchoring is not a quirk you can think your way out of. It is a feature of how the brain handles numerical uncertainty: grab a starting point, adjust from there, stop early. Once you accept that the bias is structural rather than a personal failing, the playbook gets simpler.

Generate your own number first. Treat extreme anchors as noise to be replaced, not signals to negotiate down from. Build sell rules that do not reference your purchase price. Get independent estimates before group discussion. And when a price tag, salary band, or 52-week high is silently doing the persuading, name it out loud — anchors operate best in the dark.

Related reading: loss aversion compounds the anchoring problem in investing, the sunk cost fallacy shares the same disposition-effect machinery, and base rate neglect is the cognitive cousin that warps probability estimates the way anchoring warps point estimates.