The Weight of Arbitrary Numbers: Anchoring, Adjustment, and Valuation Bias in Financial Judgment

Rational valuation models assume that an asset’s estimated worth is a function of the informa-tion available about that asset, uncontaminated by irrelevant numbers encountered immedi-ately beforehand. The anchoring-and-adjustment heuristic, first documented by Tversky andKahneman (1974), shows that this assumption fails in a specific and measurable way: an ini-tial numeric value, even one known to be random, systematically pulls subsequent numericjudgments toward itself. This paper reviews the heuristic’s origins and the two competingmechanisms proposed to explain it, then surveys evidence that anchoring persists among ex-perts making real valuation decisions (Northcraft & Neale, 1987), does not require the anchorto be remotely plausible (Ariely, Loewenstein, & Prelec, 2003), and shapes aggregate price dy-namics in financial markets through reference points such as a stock’s 52-week high (George& Hwang, 2004). We conclude by examining the small number of debiasing techniques withdocumented, if partial, effectiveness, and the structural interventions available to decision-makers and platforms seeking to narrow the resulting Rationality Gap.