Social Anchoring Causes People To Make Worse Estimates

There is almost endless evidence showing that your average investor acts emotionally (selling into a bear market, buying in the wake of a rally) hurting their own long-term returns. This is usually attributed to untrained investors getting caught up in the media hype one way or the other, but research into the effect that anchoring has on estimation shows that even people who should know better can get caught up in the alleged wisdom of crowds. A well-known concept in psychological circles, anchoring is when someone relies on the reasoning of other people instead of making his own informed choice,…