Anchoring Bias
Why does a price you paid in the past continue to influence how you see an investment today?
A position is entered at a certain level, and from that point on, that price begins to take on meaning. It becomes a reference point. If the price falls below it, the investment can feel “cheap” relative to where it was bought. If it rises above it, the gain can feel more secure, even if the underlying case has not changed.
What is interesting is that the original price often has little relevance to the current decision. It reflects a moment in time, based on information and conditions that may no longer apply. And yet, it continues to shape judgement.
This is where anchoring begins to influence behaviour. Rather than evaluating a situation independently, the mind attaches itself to an initial reference point and adjusts from there. The adjustment may be reasonable, but it is rarely complete. The starting point continues to exert a quiet pull.
The effect was explored in early work by Daniel Kahneman and Amos Tversky, who showed that even arbitrary numbers can influence decision-making. In one well-known experiment, participants were asked to estimate quantities after being exposed to a random starting value. Their estimates tended to cluster around that initial number, even when it had no logical connection to the question. The anchor did not need to be meaningful to have an effect.
In markets, this shows up in subtle but persistent ways. Investors often measure outcomes relative to their entry price, using it as a benchmark for success or failure. Decisions become framed around that reference point. Selling below it can feel like admitting a mistake. Waiting for a return to it can feel like patience. Buying above it can feel expensive, even if conditions have improved.
Over time, this can distort decision-making. The focus shifts from assessing the current opportunity to managing the relationship with a past price. The anchor becomes part of the decision, even though it has no direct bearing on what happens next.
You may notice this in yourself when you find it difficult to let go of a level that once mattered, or when a previous price continues to influence how you view value today. The number stays in place, even as everything around it changes.
Anchoring does not need to be accurate to be influential.
It only needs to be there.