Confounding changes in averages with marginal effects: How anchoring can destroy economic value in strategic investment assessments


  • Zur Shapira,

    1. Department of Management and Organizations, Stern School of Business, New York University, New York, New York, U.S.A.
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  • J. Myles Shaver

    Corresponding author
    1. Department of Strategic Management and Entrepreneurship, Carlson School of Management, University of Minnesota, Minneapolis, Minnesota, U.S.A.
    • Correspondence to: J. Myles Shaver, Carlson School of Management, University of Minnesota, 321 19th Ave. S., Minneapolis, MN 55455, U.S.A. E-mail:

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Profit maximization requires that decision makers assess marginal profits. We demonstrate that decision makers often confound marginal profits with changes in average profits (e.g., changes in return-on-investment). This results in systematic deviations from profit maximization where decision makers forgo profit-enhancing investments that reduce average profits or engage in loss-enhancing investments that decrease average losses. In other words, average profit becomes an anchor by which new investments are assessed. We conduct two decision-making experiments that show this bias and demonstrate it is pronounced when average profit data are accessible or task-relevant. Moreover, we find within-subject effects across experiments, which helps demonstrate the mechanism that invokes the bias. Copyright © 2013 John Wiley & Sons, Ltd.