Anchoring is a cognitive bias in negotiation whereby parties give too much weight to the first number put forward. It's highly effective in negotiations. Here's why The issue was first discussed by the famous team of Amos Tversky and Daniel Kahneman.
In one experiment they rigged a roulette wheel to stop on either 10 or 65. Participants were then asked to guess the percentage of UN member states that were African nations. Participants whose wheel stopped on 10 guessed lower (25% on average) than those whose wheels stopped at 65. There has been a wide range of experiments that show a similar result. In one study parties were even given numeric answers to factual questions that were plainly wrong and they still influenced the answer which participants gave. In another, candidates for a job made one of two jokes; “I’d like to make $100,000 but really I’m just looking for something fair” or “I’d work for $1 but really I’m just looking for something fair”. Candidates who mentioned $100,000 were offered a higher wage than those who made the $1 joke. Anchors work in all sorts of different contexts. Buying a car is a classic example where the sticker price influences the bidding process and will always lead to a higher first offer than where there is a simple request for the party to make an offer. It has been said that in order to make an effective anchor you first need to have knowledge of the ‘zone of possible agreement’ or ‘ZOPA’ which is the possible range of values in which there is likely to be a settlement between yourself and the other side. If both sides have a strong sense of the ZOPA then the anchor is likely to have less of an impact. But the less knowledge the other side has of the ZOPA the more influential the anchor will be within the negotiations - because the side does not have any other bias, it makes the anchor an effective way of moving the negotiations in your favour. The danger in this situation is that it may be too concessionary (in which case you are giving up too much ground) or too demanding (to the point where the other side does not respond, or walks away). Making a More Effective Anchor Do your homework - an early offer without knowing the market or possible ZOPA can have a damaging impact on your negotiating position. Back up your anchor - give facts and figures that help to demonstrate your offer is an entirely reasonable position which adds to the cognitive bias in favour of your position. Engage with the other side - communicate with them, ask questions, find out key information which may feed into where to pitch your first offer. At the extreme it’ll stop you making an opening offer lower than they would have settled for, but at the very least, it helps inform your negotiating model before you make a move. Use precise figures rather than rounding - Research by the University of Columbia has shown that a precise first offer which has not been rounded will act as a more effective anchor, presumably because the other party will feel it has more weight due to its precision. Anchors have a very powerful effect and can be a good reason to make the first offer within negotiations. Comments are closed.
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AuthorRichard Marshall is an Accredited Civil and Commercial Mediator with over 25 years experience as a Litigation Solicitor, as well as being a qualified Solicitor-Advocate. He is the founder of Striving to Settle, through which he works as a mediator and provides negotiation training. www.strivingtosettle.co.uk Archives
August 2022
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