Research has demonstrated that humans are susceptible to bias and are generally overconfident in their opinions, impressions, and judgments. Two common biases that plague decision-making are anchoring and overconfidence biases. Overconfidence bias is characterized by a tendency to be over-optimistic about one’s abilities while anchoring bias refers to reliance on initial pieces of information to make decisions (Block & Harper, 1991). Anchoring and overconfidence can reinforce each other to hinder sound decision-making.
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The anchoring and adjustment psychological heuristic explains how anchoring bias affects an individual’s decision-making. It claims that one starts with an indirectly suggested reference point that serves as an anchor and then proceeds to make adjustments to reach an estimate. Incremental adjustments are made upon reception of additional information, giving the anchor a great level of influence on imminent assessments. Even so, such adjustments are normally insufficient. According to Busenitz & Barney (1997), once an individual has set an anchor, they are likely to adjust away from it albeit insufficiently, thereby resulting in a guess that is closer to the anchor point. Anchor bias can be reinforced by one’s subjective confidence in their judgments. Overconfidence individuals usually portray subjective confidence that is higher than the objective accuracy of the judgment in question. Like anchor bias, overconfidence is a flaw in the calibration of one’s subjective probabilities.
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In conclusion, anchoring and overconfidence biases can intermingle to influence decision-making and problem-solving. Overconfidence may boost ones subjective confidence in a chosen anchor point. By the same token, anchor bias can lead to overconfidence in one’s judgmental position. Potential solutions to overcoming these biases include embracing honesty, learning, and assessing the foundation of a decision.
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