To what extent do investors in a financial market anchor their judgments excessively? Evidence from the Hong Kong horserace betting market

Abstract

A naturalistic study was employed to explore a new form of ''basic anchoring.'' In particular, we examined the degree to which decision makers in a financial market, the horserace betting market, anchored their probability judgments excessively on a factor present in the environment at the time the judgments were made and which was relevant and informative to the judgment: the advantage afforded by a horse's barrier-position (BP). The results demonstrated that under certain conditions bettors anchored excessively on BP information revealed at previous race meetings, but not on the most recent race outcomes. In fact, bettors appeared to use the most recent race outcomes appropriately when forming probability estimates; but only when the results were in line with, what were likely to be, their expectations of BP advantage. Bettors with varying levels of expertise were shown to be subject to excessive anchoring, although greater expertise was generally associated with less excessive anchoring. The paper concludes that the manner and degree of basic anchoring in real-world environments is complex.

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“…Extant psychology research demonstrates that, in asking people to make a judgment, the experimental manipulation of initial values, or anchors, leads to estimates that are biased toward that anchor (Englich, Mussweiler, & Strack, 2006;Galinsky & Mussweiler, 2001). As a result, studies of the effects of anchoring on human behavior have been carried out in a variety of fields, including finance (Johnson, Schnytzer, & Liu, 2009), law (Guthrie, Rachlinski, & Wistrich, 2007) and marketing (Adaval & Wyer, 2011). Some of the psychological mechanisms underlying anchoring are confirmatory hypothesis testing, numeric or magnitude priming, and insufficient adjustment.…”

Exploring personality-targeted UI design in online social participation systems

“…Extant psychology research demonstrates the cognitive effects of anchoring: experimental manipulation of the initial values, or anchors, leads to estimates that are biased toward the anchor [18,28]. As a result, studies of the effects of anchoring on human behavior were carried out in a variety of disciplines, including finance [36], law [33] and marketing [1]. Some of the psychological mechanisms underlying anchoring are confirmatory hypothesis testing, numeric or magnitude priming, and insufficient adjustment.…”

Are groups ‘less behavioral’? The case of anchoring

“…Assuming a robust influence of anchoring effects from previous laboratory experiments, numerous real-world behavioral effects have been attributed to anchoring. Recent examples for these applications include real estate pricing (Bucchianeri and Minson, 2013), art and online auctions (Beggs and Graddy, 2009;Dodonova and Khoroshilov, 2004), sports betting (Johnson et al, 2009;McAlvanah and Moul, 2013), earnings forecasts (Cen et al, 2013), financial forecasts (Fujiwara et al, 2013), macroeconomic forecasts (Bofinger and Schmidt, 2003;Campbell and Sharpe, 2009;Hess and Orbe, 2013) and sales forecasting (Lawrence and O'Connor, 2000).…”