The Impact of Anchoring Effect on Financial Investment Decisions and Coping Strategies

Abstract

The development of behavioral finance has resulted in a heightened emphasis on the impact of psychological elements on investment decision-making, which has emerged as a key domain of academic inquiry. In particular, the anchoring effect is widely used in consumer behavior as a common cognitive bias. However, its application and research in the financial market remain insufficient, especially in terms of the underlying mechanism of action and optimization strategies in different market environments. Therefore, this paper aims to explore the impact of the anchoring effect on investors decision-making processes with regard to stock valuation, portfolio selection, and trading strategies, and analyze the potential for adjusting this cognitive bias in order to improve decision-making quality and investment returns. Through a combination of literature review and case study, we explore the performance of the anchoring effect in different investment decisions and its mechanism of action, and propose strategies to deal with it. The results show that the anchoring effect significantly affects stock valuation, portfolio decisions and trading strategies. Investors often rely excessively on initial information, such as historical stock prices or market highs, leading to erroneous investment judgments. And this bias is particularly pronounced during times of high market volatility, and may lead to missed market opportunities or irrational decisions, which further affects investment returns.