Final answer:
Anchoring bias refers to the tendency to use an initial piece of information when making decisions, even if it is irrelevant. This can lead to skewed judgment and estimations, such as in Tversky and Kahneman's study on country numbers, or in real estate pricing scenarios used by realtors.
Step-by-step explanation:
Understanding Anchoring Bias
Anchoring bias is a cognitive bias that influences the way people intuitively assess probabilities and make estimates. When individuals rely too heavily on an initial piece of information, known as the "anchor," subsequent judgments and decisions are made with this figure in mind, even if it is irrelevant to the decision at hand. This phenomenon was studied by Tversky and Kahneman, where a random number presented initially influenced people's estimations about the number of African nations in the United Nations.
The anchoring effect is a powerful force that can skew reasonable judgment and decision-making processes. An example of anchoring bias in real life could be a realtor using a high rental price as an anchor to influence potential tenants to increase their budget, leveraging the bias against their original spending limitations.
Understanding and acknowledging anchoring bias can aid in mitigating its effects on our decisions, encouraging more rational thinking and better judgment. It challenges us to use all cognitive resources at our disposal instead of making snap judgments based on initial, potentially misleading information.