Anchoring:
Faced with uncertainty, investors will
grasp at any fixed point of reference
when forming opinions.
In a classic experiment, behavioural
psychologists Kahneman and Tversky asked
two groups to guess the proportion of African
nations that make up the UN. The first group
was asked whether the answer was higher
or lower than 10%, while the second group
was asked whether it was higher or lower
than 65%. The median response of the first
group was 25% and the second group 45%!
Can you imagine the perils of anchoring
investment decisions on completely
irrelevant information?