Lecture Notes
Let's say that you're going to put a house up for sale on the market, or perhaps your parents are, and the belief is that you feel your house is going to sell in a week, feel pretty confident, you think the price is set well, it's going to be a week. Then you meet with a realtor, and the realtor says that, on average, houses are on the market two months before they sell, that's kind of the current state of the housing market. Are you likely to then say, "Ok, my house is going to sell in two months"? Probably not. Often in a case like this, you might say, "Well, maybe it's going to be two weeks." Well, why would you not go all the way over to what the realtor said, based on that information, certainly by somebody who's an expert and knows a lot about the housing market? Well, what's happening here is the anchoring heuristic. You're going to estimate the probability of an event not by starting from scratch but by adjusting from an earlier estimate. So you already had that week time-line in mind, so you're going to make adjustments from that, not going from zero. The same is true in sort of your belief of being a victim of a crime. Say, if you're visiting a big city and you feel that you're 50% likely to be mugged while you're in that city, then perhaps you read a news story or you look into some crime data and see that well really the estimation, the likelihood is probably about 5% in reality. Chances are you're not then going to think, "Well, there's only a 5% likelihood." You're probably going to stay anchored to that original estimation and say, "Well, maybe I'm actually 40% likely to be mugged"; and you can probably, I'm sure, think about examples where you had a pretty firm idea in your mind about probability or the estimation of something, and then you were presented with information. Did you immediately go to that information, which is probably based in reality; or were you more likely to sort of, maybe gradually, get there by making those small moves? That's really the anchoring heuristic at play.
