Three Applications of the Anchoring Effect

Abstract

To find out the relationship between psychology and economics, many people try to study the reasons that lead people to make choices. This paper aims to explain the influence of the anchoring effect in behavioural economics on consumption, investment, and food intake. Through reading the previous literature review and the experiments, and based on the definition of the anchoring effect in Thinking Fast and Slow by Daniel Kahneman, three real-life applications of the anchoring effect were identified. In the anchoring effect in consumption, investment, and food intake, the anchoring price is proportional to peoples price estimates. Anchors can be divided into high anchor conditions and low anchor conditions in those cases. However, possible biases in some of the experiments mentioned in some of the citations and related solutions are also mentioned. In a complete decision-making process, peoples choices will be influenced by multiple anchors, and those anchors are always related to each other.