Research on anchoring and adjustment suggests that professional investors might be specifically vulnerable to the anchoring bias. Anchoring is unaffected by general expertise or by the richness of information available (Englich & Mussweiler, 2001; Mussweiler & Strack, 2000b; Northcraft & Neale, 1987), so investors high in expertise who make decisions in an information-rich environment are unlikely to show a diminished anchoring effect. The anchoring bias is more pronounced in situations of high emotion (Araña & León, 2008; Kassam et al., 2009) and occurs when decisions are uncertain (Chapman & Johnson, 2002). Since investment decisions are inherently uncertain (Shiller, 1999), and often has the potential for substantial financial loss, investment decisions should be vulnerable to the anchoring bias.
What the present study shows is that the situation might not be as dire for investors as expected. Over the full sample, no significant anchoring effect was found and the means of the low and high anchor conditions differed by only 0.58%. Since the coefficient of variation is 4.52%, it can be seen that the difference between the two conditions is not only statistically non-significant, it is also incredibly small when compared with the variance present in any share valuation. It is thus clear that the high and low anchor had no practical effect on participants’ investment decisions.
Of specific import to investors is that effortful thought and increased elaboration decreased the anchoring effect. This contradicts earlier findings on the correlation between anchoring and adjustment and effortful thought (e.g. Epley & Gilovich, 2005). For investors, it means that the anchoring bias can be mitigated, or even removed, by considering all the information available on a firm. Since a thorough analysis of a firm is likely to generate multiple anchors, an analysis of this information should result in an unbiased pool of activated information. Further good news for investors is that the anchoring effect in other studies on anchoring and adjustment in the research environment (e.g. Marsat & Williams, 2010; Mussweiler &
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Schneller, 2003) might be overstated. A significant difference between the high and low anchor was detected in the present experiment when participants made conscious use of the anchor. However, this effect clearly differs from the unconscious anchoring effect since it can be controlled by participants. As other studies in the field did not include a measure of informativeness, how much of the difference between the conditions was caused by an anchoring effect and how much was caused by the conscious use of the anchor should be questioned. This is not to say that other studies did not show any anchoring effect but rather that the effect might be weaker than stated.
The present study also provided participants with more comprehensive information than in many studies on the anchoring effect in an investment environment (for example, Anderson & Settle, 1996; Kaustia et al., 2008), and based on the feedback from the pilot study, with information more useful to investors than other experiments (e.g. Mussweiler & Schneller, 2003). As a result, the information provided to participants is most similar to the information used in real world decision making. The fact that no anchoring effect occurred when realistic information was used is heartening for investors.
Perhaps the most encouraging finding for both investors and decision makers in general is that the anchoring effect can be debiased automatically in certain situations. No specific effort was made to debias the anchoring effect in the present study, yet participants did so automatically by considering all the information at hand. If this finding can be replicated, it would suggest that the anchoring bias is less robust outside of the experimental setting than previously believed.
While undoubtedly positive for investors, these findings do not show that the anchoring bias does not affect investors. The results from the unmodified group reinforces past research that investors are affected by anchoring and adjustment (Kaustia et al., 2008; Marsat & Williams, 2010; Mussweiler & Schneller, 2003). Instead, these findings show that investors who engage in careful analysis of the data when multiple anchors are available debias the anchoring effect. This leaves a large number of investors and investment situations vulnerable to bias. For one, not all investors make use of multiple different valuation methods (although research by Grivillers, 2007, suggests that expert investors use 3.59 valuation techniques on average). Reliance on one valuation technique might create an anchoring bias, as the result from the valuation creates an anchor which biases participants’ search procedure, resulting in participants activating more evidence in support of the valuation than is warranted. Similarly, a cursory examination of investment opportunities would still be affected by the anchoring bias. As a result, strong investment opportunities with low anchors might be screened out while poor investment opportunities with high anchors are considered for further research. There are thus many situations in which an
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anchoring effect could still occur, while it is only when a detailed analysis is conducted and multiple contrasting salient comparison standards are present that an anchoring effect would not occur.
It is also unclear whether all anchoring effects in the investment environment would be debiased by the presence of multiple anchors or if this finding is restricted to the specific anchors present in the questionnaire. As Ariely and colleagues (2003) discovered, the first anchor encountered has a proportionally larger impact than any subsequently encountered anchors. The results from the present study were largely unaffected by this finding because the valuations were very significant comparison standards while the manipulated anchor was comparatively subtle. However, if the initial anchor is a more important comparison standard, such as the share’s current price (Marsat & Williams, 2010), it is unclear if less significant comparison standards would still debias the anchoring effect.
A further concern for investors and investment analysts is that the anchor affected which valuation method participants chose (as evidenced by the unmodified group’s results). When participants were provided with multiple valuation models, most participants did not show an anchoring effect. However, in many situations participants will not be presented with these models beforehand and will need to make a decision about the valuation method to use. In such situations, evidence from other studies in the field (such as Mussweiler and Schneller, 2003) suggests that participants would be significantly affected by the anchor, resulting in valuation techniques supporting the anchor being chosen.
Taken together, these findings paint a complex picture for investors. Anchoring can be debiased automatically in a situation with multiple contradictory anchors. This is not to say that anchoring does not take place; there is strong evidence to suggest that anchoring does takes place in the investment environment but is debiased. However, the exact conditions required for debiasing to take place are unclear.