1. What do I know?
3.2.4 · 35–55 minutes · reflect, test, discuss, review
1. What do I know?
What you will learn
- Recognise a number’s influence beyond its evidential basis.
- Build an independent estimate before seeing a target.
- Separate a justified update from repetition of an anchor.
3.2 · The Human Side
The Human Side
The Human Side · the work you will do
- 1What do I know?
- 2What influences me?
- 3How do I act?
- 4Record and review
Before you begin
Your first decision
You are about to value DailyCup. Before you see the accounts, someone says, “It has to be worth £800,000.” Write your first reaction. What would you need to do to make your own estimate?
Record your first answer before continuing.
Video coming soon · about 3 minutes
The First Number You Hear
Use the narration below while the recording is being made, then try the decisions in this lesson.
Read the full narration
You are about to value DailyCup. Before you see the accounts, someone says, “It has to be worth £800,000.” Write your first reaction. What would you need to do to make your own estimate?
In this lesson, notice what affects your own judgement. You do not need to invest real money or share personal financial information.
An asking price, a share-price target or a previous high can become the number your thinking circles around. This is anchoring when the starting number influences you more than its information deserves. The first estimate may contain useful research. Ask how it was produced. Simply spotting an anchor does not make you immune to it.
Start with what drives the business: customers, revenue, costs, cash and risk. Make a dated first estimate before looking at another person’s target where practical. Then compare the methods. Independence means having reasons you can explain; it does not mean refusing to learn from someone else’s better evidence.
Suppose a new supplier agreement lowers future costs. That can change DailyCup’s cash flows and your estimate of value. Now suppose a well-known investor repeats the same £800,000 target without new evidence. That might affect attention or the market price, but it does not establish higher business value. Point to the input that changed before changing your model.
Your group may see a different starting number from another group while receiving the same fictional accounts. Compare the reasons behind your estimates. Keep your first calculation and explain any revision. This classroom exercise helps you notice a possible influence; it cannot prove that one student is biased and another is not.
Pause for the worked example and the choices. Use the feedback to improve the explanation, then apply it to the fictional case. Keep your first view as well as any revision.
Which number stayed in your mind? Explain whether it supplied evidence or merely a starting point. What would you calculate first next time?
A number can get there before the evidence
An asking price, a share-price target or a previous high can become the number your thinking circles around. This is anchoring when the starting number influences you more than its information deserves.
The first estimate may contain useful research. Ask how it was produced. Simply spotting an anchor does not make you immune to it.
Research and nuance
An early asking price, analyst target or historical high can pull attention toward a particular range. That number may be relevant evidence or merely a prompt. The research on anchoring asks whether its influence is justified by its information. Do not assume every first estimate is arbitrary, or that noticing an anchor makes its influence disappear. Inspect where the number came from.
Make your own first estimate
Start with what drives the business: customers, revenue, costs, cash and risk. Make a dated first estimate before looking at another person’s target where practical.
Then compare the methods. Independence means having reasons you can explain; it does not mean refusing to learn from someone else’s better evidence.
Research and nuance
Write the business drivers, valuation method, cash assumptions and required return before viewing another target when practical. This produces a record of what your estimate rests on. Independence does not mean ignoring other analysts. After the first pass, compare methods and sources, explain differences and update when the evidence warrants it. Avoid treating consensus as either authority or automatic error.
Ask what actually changed
Suppose a new supplier agreement lowers future costs. That can change DailyCup’s cash flows and your estimate of value.
Now suppose a well-known investor repeats the same £800,000 target without new evidence. That might affect attention or the market price, but it does not establish higher business value. Point to the input that changed before changing your model.
Research and nuance
A revised supplier contract that changes sustainable cash can justify a value update. A famous investor repeating the same unsupported target cannot establish new operating value by repetition alone. A historical price may contain information about previous expectations, but it is not a substitute for a current model. Ask which input or mechanism changed and by how much.
Compare your reasoning, not your ego
Your group may see a different starting number from another group while receiving the same fictional accounts. Compare the reasons behind your estimates.
Keep your first calculation and explain any revision. This classroom exercise helps you notice a possible influence; it cannot prove that one student is biased and another is not.
Research and nuance
Groups may be shown different explicitly arbitrary prompt numbers alongside identical fictional data. Compare reasoning, not personal susceptibility. It is a discussion exercise, not a controlled replication or proof of a universal effect. Preserve initial calculations and explanations so pupils can see whether they supplied an evidential reason for a revision.
A target and a cash-flow estimate
For this separate invented illustration, sustainable annual cash is £40,000 forever with no growth, a 10% required return and no other claims. Compare an unsupported £800,000 target with the model. Then verified new evidence revises sustainable cash to £32,000; other assumptions unchanged.
- Initial model value=40,000/.10=£400,000.
- An unsupported target alone supplies no changed cash or rate assumption.
- With verified cash 32,000, the model becomes 32,000/.10=£320,000.
The second estimate changes because evidence changes an input, not because it moves toward or away from a fashionable target.
Put it into practice
1. Calculate before the target
Individually calculate the model value from the supplied cash/rate data, record assumptions, then discuss the target.
Write your response in your workbook before opening feedback.
Compare with a model response
The model gives 400k under its simplifications. Ask the target’s author for different cash, growth, risk or claim assumptions. A disagreement should become inspectable.
2. Sort update reasons
Compare “another analyst agrees with 800k”, “cash is verified at 32k” and “the old high was 800k”. Which changes the model directly?
Write your response in your workbook before opening feedback.
Compare with a model response
Verified cash changes a model input. Agreement and a historical high may prompt research but do not supply an operating-cash revision by themselves.
3. Design a safeguard
Write a practical rule for reading external targets without becoming mechanically contrarian.
Write your response in your workbook before opening feedback.
Compare with a model response
Record an initial method and assumptions, inspect the external method, then log any evidence-based changes. Do not reject an estimate merely because it came first or is popular.
Notice your own judgement
Which number stayed in your mind? Explain whether it supplied evidence or merely a starting point. What would you calculate first next time?
Original On Judgement teaching. Research and further reading: Likierman; Kahneman and Tversky; Yale teaching.
Jargon buster
Anchor
An initial reference number that can influence later judgement.
Independent estimate
An estimate with its own explicit evidential basis.
Consensus
A described common or aggregate view, with scope stated.
Target price
A conditional analyst estimate, not a promised transaction.
Historical high
A past traded price rather than a current valuation model.
Justified adjustment
A revision linked to relevant changed evidence or assumptions.
Knowledge check
Make each choice on the page. Feedback explains the reasoning. Use Try again after revisiting an idea.
AQA connection and further reading
AQA 7138 applied links: AO 2–AO 4 evidence, analysis and evaluation (4.2); uncertainty and change (3.3.4), with quantitative interpretation in Annex 6 where used. Named psychological effects and calibration methods are investing enrichment, not specified AQA content. Classroom exercises illustrate processes; they do not diagnose individual traits.
AQA 7138 specification
Primary curriculum reference; links and original classroom rubrics are interpretive, not endorsement.
Likierman · six elements explained by London Business School
Public LBS explanation checked on 1 November 2026. Six elements are attributed to Sir Andrew Likierman; the three-area grouping and investing exercises are On Judgement adaptations, not his published model or an endorsement.
Andrew Likierman · Judgement at Work: Making Better Choices
Publisher book page. The full book has not been reviewed; teaching uses the publicly explained six-element framework with original examples.
Morewedge and Kahneman (2010) · Intuitive Judgment
Author manuscript/research synthesis for anchoring and intuitive judgement. Original finance exercises are illustrations, not replications.
Understand yourself as an investor
Record your first estimate, the anchor you encountered and the evidence behind any revision. Can you reproduce the estimate without the anchor?
Keep this reflection private unless you choose to share. Use evidence from the fictional exercise; no personal finances or fixed investor-personality label is required.
Take forward
Recognise a number’s influence beyond its evidential basis. Build an independent estimate before seeing a target. Separate a justified update from repetition of an anchor.