DON'T LET YOUR ANCHORS WEIGH YOU DOWN!

Recently, my wife was shopping online… for a pair of high heels!

The first item she liked was priced at Rs 5,000.

"Bit overpriced", she told me.

On another website, she came across a pair that was available for Rs. 4,100. Perfect.

The rest was expected - Added to the Cart, Check out, and Purchased!

Now, you must be thinking, what prompted my wife to buy that?

Well, nothing but Anchoring Bias!

In simple terms, we tend to favour the first piece of information we receive, which is also called the Anchor.

In this case, my wife made Rs 5,000 her anchor.

Compared to the anchor, Rs 4,100 was reasonable and a fair deal.

Had she not anchored on the Rs 5,000 price tag, she would have been able to check whether 4,100 was a fair price or not.

Anchoring Bias is harmful because:

1. It makes you feel that First impression is the last impression.

2. It makes you spend more money than you would have wanted to.

So, how do we overcome this bias?

Follow the two golden rules of Charlie Munger:

1. Start from Zero & remember what you want to achieve.

For example, in investing, forget about Past returns. That is a bad anchor.

We need to look at future prospects, our Goals & whether those Investments fit into your financial plan.

2. Adjust information to reality.

Add all necessary information available & then make a decision.

For example, Nifty 1.5 years back & now appears the same. But earnings & macroeconomic cycles have completely changed.

So, we must take them into account as well!

Now that you know of the Anchoring bias, be aware, be practical, and don't let your anchors weigh you down!