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
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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:
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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
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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
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
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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
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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
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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
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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
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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
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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, on … 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
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