The first offer dilemma in negotiations – should you make the first offer? Few questions related to negotiation techniques and negotiation strategies have yielded more academic attention and debate among practitioners in negotiation research. … Read More
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What is the Anchoring Effect?
The anchoring effect 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.
The anchoring effect is considered a “bias” because it distorts our judgment, especially when the bargaining zone is unclear. This knowledge of the anchoring bias in negotiation can help us make and respond to first offers more effectively.
Especially in negotiations around price, the party who makes the first offer often gets the lion’s share of the value. That can be due to the anchoring effect, or the tendency for the first offer to “anchor” the bargaining that follows in its direction, even if the offer recipient thinks the offer is out of line.
However, the anchoring effect can be more or less helpful, depending upon how it is used. For example, negotiation researchers have found that precise numerical first offers are more effective than rounder offers. For example, a house with a list price of $255,500 is likely to attract higher bids than houses with list prices of $256,000 or $255,000.
Another potential pitfall is presenting an overly aggressive offer, which risks derailing negotiations if it causes the other side to question your credibility or to wonder whether a negotiated agreement is even possible.
What if the other side makes the first offer? You can counter the anchoring effect simply by recognizing the move. However, don’t make the common mistake of responding with a counter offer before defusing the other side’s anchor.
If someone opens with $100, and you want to counter with $50, before presenting your number, you need to make clear that $100 is simply unacceptable. If you don’t defuse the anchor first, you are suggesting that $100 is in the bargaining zone.
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The following items are tagged anchoring effect:
What impact do cognitive biases have on bargaining scenarios? Work by negotiation researchers Russell B. Korobkin of UCLA and Chris P. Guthrie of Vanderbilt University suggests how to turn knowledge of four specific biases into tools of persuasion. … Read More
When or when not to make the first offer in negotiations is a question many expert negotiators ask themselves when approaching business negotiations, real estate transactions, or even interpersonal negotiations with friends and family. In this article drawn from negotiation research, we offer negotiating skills and negotiation tips for when, and when not, to make … Read More
Back on July 11, 2000, U.S. president Bill Clinton welcomed Israeli Prime Minister Ehud Barak and Palestinian Authority Chairman Yasser Arafat to a summit at Camp David aimed at resolving the Israeli-Palestinian conflict once and for all. The summit covered various contentious issues, including territory, settlements, security, and the status of refugees. After about two weeks, … Read More
What salary negotiation skills can you use if a potential employer asks you about your past salary? If you earned a competitive wage, your concern may be whether the new employer can afford you. … Read More
It’s said that you never get a second chance to make a great first impression, and that certainly can be the case in negotiation. A weak handshake or a gruff demeanor can color how we see someone for a very long time. Similarly, make an unambitious or poorly worded first offer, and you’re much less … Read More
The prospect of sharing information with a negotiating counterpart can be scary – it can fix your counterpart into a position at the negotiation table you didn’t intend (an example of the anchoring effect). … Read More
The following question regarding the anchoring effect was asked of Program on Negotiation faculty member and Harvard Business School and Harvard Law School professor Guhan Subramanian. … Read More
Do you know how to negotiate price? Is there a better way to approach this type of negotiation that differs from other negotiation strategies? In this week’s Dear Negotiation Coach column, we answer the question. QUESTION I’m trying to decide whether to make the first offer in a price negotiation. I’ve heard arguments in favor of both … Read More
We tend to have strong intuitions about which personality traits help or hurt us in negotiation, but does research on the topic confirm our hunches? Does personality in negotiation matter? Before we explore this topic, please answer “True” or “False” in response to the following questions: 1. Extroverted negotiators tend to perform better than introverted negotiators. 2. Agreeable … Read More
A town government and a private fuel-oil company have a standing contract that they have renewed for several years in a row. The contract is again up for renewal, and the town manager is under pressure from his constituents to reduce the city’s heating costs and avoid tax increases. The city’s fuel-oil consumption has remained … Read More
Opening offers have a strong effect in price negotiations. The first offer typically serves as an anchor that strongly influences the discussion that follows. In research documenting price anchoring, psychologists Daniel Kahneman and Amos Tversky found that even random numbers can have a dramatic impact on people’s subsequent judgments and decisions. … Read More
Negotiators seeking to break through the mythical fixed-pie mindset can try the following three proven strategies, suggested by Max Bazerman for finding mutually beneficial tradeoffs. … Read More
People tend to irrationally fixate on the first number put forth in a negotiation—the anchor—no matter how arbitrary it may be. Even when we know the anchor has limited relevance, we fail to sufficiently adjust our judgments away from it. This is the anchoring effect. … Read More
While you might choose many processes for conducting your negotiations, we recommend the following three steps of a mutual-gains approach to negotiations: … Read More
In 2015, the government of Greece approached the European Union regarding a new bailout package by requesting a six-month loan extension. The request was rejected within five hours. Four months later, Greece offered new budget proposals in return for an extended bailout package. This time, the proposal led to agreement. The anecdote begs the question, Do … Read More
Increasingly, business negotiators recognize that the most effective bargainers are skilled at both creating value and claiming value—that is, they both collaborate and compete. The following 10 negotiation skills will help you succeed at integrative negotiation. … Read More
As they contemplate how to bargain salary, job candidates are often at a disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into a negotiation tends to strongly influence the final outcome. Unfortunately for candidates, the wage or wage range that employers give in a job listing or … Read More
Goal setting affects performance. In a review of goal-setting research, negotiation scholars Deborah Zetik and Alice Stuhlmacher of DePaul University found that when negotiators set specific, challenging goals, they consistently outperform those who set lower or vague goals. … Read More
As you may have noticed, the first offer made in a negotiation often has a significant influence on the final outcome. In their research, psychologists Daniel Kahneman and Amos Tversky documented that the first number introduced in a negotiation serves as an “anchor” that can be impossible to ignore—no matter how irrelevant, outrageous, or insulting … Read More
In business negotiations, a little power is better than none at all, right? After all, if talks with a prospective client fail, we’d rather have a few unpromising leads to turn to rather than none. … Read More
Should you make the first offer in a negotiation? Typically yes, abundant research on the anchoring bias suggests. What is anchoring in negotiation? In negotiations centered on price or another figure, the party who moves first typically benefits by “anchoring” the discussion that follows on her offer—even if the anchor is arbitrary. For example, the … Read More
Job candidates are often eager for compensation negotiation tips, and with good reason: they tend to be at a bargaining disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into the discussion can strongly influence the final outcome—and the wage or wage range cited by employers is likely … Read More
In salary negotiations, job candidates are often at a disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into the discussion tends to strongly influence the final outcome. Unfortunately for candidates, the first figure mentioned in a negotiation often is not in their favor. For example, when opening salary … Read More
In negotiation, the party who makes the first offer often gets the lion’s share of the value. That can be due to the anchoring effect, or the tendency for the first offer to “anchor” the bargaining that follows in its direction, even if the offer recipient thinks the offer is out of line. Yet plenty of … Read More
It stands to reason that devoting less time to relatively unimportant choices should free you up for more meaningful pursuits and increase your overall satisfaction. But how does the concept of satisficing apply to your most important decisions and negotiations? … Read More
The party that makes the first offer in a negotiation generally gets the best deal, multiple negotiation studies suggest. The first offer presented serves as an anchor that draws subsequent offers in its direction. … Read More
What should your first offer be in a negotiation? The question doubtless has led to sleepless nights for negotiators who understand that the first offer in a negotiation tends to have a strong anchoring effect on the haggling that may follow. Because even extreme offers can pull the discussion in their direction, the question of how … Read More
When talks stall, it’s tempting to jump to conclusions: “It’s purely a price gap.” “They’re being unreasonable.” “We’re not communicating well.” “We’re in a weak position.” … Read More
Fans of the television show Friends got a treat last month when Netflix made all 236 episodes of the blockbuster hit available to stream online. At first glance actors Lisa Kudrow, Jennifer Aniston and the rest of the star-studded cast might not be your first pick to peg as formidable negotiators, but at the height … Read More
In 1975, Leigh Steinberg launched his career as a sports agent with what appeared to be a tough negotiation. The Atlanta Falcons had chosen Steinberg’s client, rookie quarterback Steve Bartkowski, as their first pick in the first round of the National Football League (NFL) draft. The Falcons had other choices they could turn to if … Read More
In past issues of Negotiation, we’ve reviewed the anchoring effect – the tendency for negotiators to be overly influenced by the other side’s opening bid, however arbitrary. When your opponent makes an inappropriate bid on your house, you’re nonetheless likely to begin searching for data that confirms the anchor’s viability. This testing is likely to … Read More
Adapted from “The Enduring Power of Anchors,” first published in the Negotiation newsletter, October 2006. In the Negotiation newsletter, we have reviewed the anchoring effect—the tendency for negotiators to be overly influenced by the other side’s opening bid, however arbitrary. When your opponent makes an inappropriate bid on your house, you’re nonetheless likely to begin searching … Read More
Adapted from “Should You Make the First Offer?” by Adam D. Galinsky (Professor, Northwestern University). First published in Negotiation Newsletter. Whether negotiators are bidding on a firm, seeking agreement on a compensation package, or bargaining over a used car, someone has to make the first offer. Should it be you, or should you wait to … Read More