Vision is the art of seeing what is invisible to others.Jonathan Swift
Anchoring refers to the tendency to hold to certain beliefs even when faced with new information that should alter those beliefs, thereby creating, in effect, tunnel vision.
In other words, people start at an initial mental reference point based on past experience. This might lead to overweighting irrelevant past data or slowly adjusting to a correct answer or decision as they receive additional information.
People start at an initial mental reference point based on past experiences.
As applied to the announcement of a company’s earnings, anchoring results in security analysts under-reacting to unexpected earnings announcements. This does not mean there is not a reaction, because such announcements typically move the stock quickly and, in some cases, significantly. It does mean that security analysts do not revise their earnings estimates enough to reflect this new information. As a result, positive or negative earnings surprises tend to be followed by more positive or negative earnings surprises.
It does mean that security analysts do not revise their earning estimates enough to reflect this new information.
Individual investors, of course, also experience anchoring.
Their investment experiences create beliefs that they subsequently rely on, and then they under-react to new information. One of
Related to anchoring is the Normalcy Bias.
Which is essentially the refusal to plan
People may put blinders on because of the normalcy bias, and not want to acknowledge, much less react to, events that could be real game changers.
Next. Read about Money Behavioral Mistake #4. Hindsight Bias.