Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.Kahneman and Amos Tverskey Kahneman goes over numerous examples of this bias; one involved asking study participants if Gandhi was 144 years old when he died. While this question is obviously absurd, as 144 years is longer than anyone can live, it sets an "anchor" from which the participants "adjust" from. Participants adjust down from 144 to reach their answer.
In another example, real estate agents were given sufficient information to assess the value of a house. Within this information was the list price. Some agents were provided information with a very high list price while others were given a very low list price. The ones given the high list price produced a significantly higher value of the home than did those who were given the low list price.
The "anchoring index" is the ratio of the difference in anchor-adjusted answers (difference in values provided by the real estate agents) to the difference in the values of the anchor (the difference in the provided list prices). The anchoring index of the real estate agents was shown to only be slightly better than the estimates provided by business school students who had little or no real estate experience (41% vs. 48%). While the students admitted to basing their answer off of the list prices, the pride and ego of the real estate agents would not allow them to do so. They adamantly denied being influenced by the list prices.
So how does all of this affect each of us? Well, we can think of this affect in a number of ways and use it to our advantage. Think of goals that you set for yourself. Set high goals that are just out of reach. You subconsciously fool your mind into raising your effort to reach that goal. The higher the goal, the higher the "adjustment" you'll make for actual attainment.
The same goes for money, whether saving it or cutting costs. Set high goals for how much you want to save and set extraordinary amounts for how much you want to reduce your spending by. By doing so, your mind will subconsciously adjust to a higher (or lower) number than if you plan for "average", maximizing your actual results! The mind is a powerful thing!