Definition
Initial reference points cling to valuations and trade plans even after conditions shift.
Example
A trader fixates on a prior "fair value" level set during a different macro regime. As inflation dynamics shift and rate expectations reset, the original valuation anchor remains the benchmark. New data is interpreted as noise rather than justification for a full reprice, delaying adjustment and distorting risk decisions.
Cognitive Driver
The first available number forms a perceptual baseline. Updates are treated as incremental adjustments rather than independent signals. The anchor becomes a gravitational centre, shaping how new information is weighed and preventing full recalibration.
Market Expression
Initial price levels, historical highs or lows, stale analyst targets, and legacy P&L marks become embedded reference points. Valuations drift around numbers that no longer reflect present conditions. Position entries, exits, and sizing decisions cluster around outdated anchors.
Trigger Conditions
- IPO prices or issuance levels
- Round numbers and major historical technical zones
- Prior analyst targets that remain mentally "sticky"
- Legacy carry or volatility regimes
- P&L reference points acting as implicit thresholds
Diagnostic Markers
- Rationale repeatedly cites a single historical price level.
- Targets and stops gravitate toward the inherited anchor.
- Valuation updates framed as deviations from the anchor rather than independent observations.
- Market structure reviewed through the lens of prior regimes instead of current distributions.
Cost Profile
- Under-adjustment during regime shifts
- Slow response to structural breaks
- Capital tied to obsolete valuations
- Poor adaptation as opportunity sets drift
- Systematic mispricing relative to current fundamentals
Differentiation From Adjacent Biases
- Not confirmation bias: anchoring fixates on a number; confirmation fixates on a narrative.
- Not status quo bias: anchoring distorts evaluation; status quo resists change.
- Not loss aversion: anchoring concerns reference points, not pain avoidance.
Corrective Lens
Treat early reference points as provisional. Rebuild valuations from first principles at each major data event rather than adjusting around inherited levels. Use alternative anchors--cycle averages, cross-asset comparables, percentile distributions--to prevent a single number from setting conviction.