Anchoring Effect and Its Application in Trade

Abstract

Anchoring effect is one of the many heuristics or biases, which are shortcuts that help humans make quicker decisions. It affects many decisions made in our everyday lives, which might lead to the wrong choices being made. Therefore, this paper will examine one of the most influential biases that affect peoples everyday life decisions, the anchoring effect. How might it affect trade between consumers and producers? Whether it affects the consumer and the producer when they are making a decision. This will be done by analyzing different articles that looked at the implications of the anchoring effect on when a trade is going to or is taking place. At the same time, it is also important to look at how might this knowledge be useful for the different stakeholders, consumers and producers, which are involved in a trade. The results of the analysis of several articles related to the effect of anchoring bias on trade show that the anchoring effect greatly affects consumers price valuation and willingness to pay when a number is given before actually seeing the product.