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anchoring effect

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.

To learn more about the anchoring effect and other negotiation strategies, download our FREE report, Business Negotiation Strategies: How to Negotiate Better Business Deals, right now!

 

 

The following items are tagged anchoring effect:

Negotiation Advice: When to Make the First Offer in Negotiation

Posted by & filed under Negotiation Skills.

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

Price Anchoring 101

Posted by & filed under Negotiation Skills.

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 Price Anchoring 101

Michael Scott, Negotiation Genius? Lessons from TV Negotiations

Posted by & filed under BATNA.

Business negotiators can get useful advice from a variety of sources, from books to blogs to training and classes—and even, as it turns out, from TV shows. As you may have noticed, negotiations frequently play out on TV: from hostage negotiators on police procedurals to fast-talking lawyers in corporate boardrooms to the real-life entrepreneurs and … Read More

Should Salary Expectations Be a Laughing Matter?

Posted by & filed under Business Negotiations.

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 salary expectations. Unfortunately for candidates, the first figure mentioned in a negotiation often is not in their favor. … Read Should Salary Expectations Be a Laughing Matter?

How Timing Can Influence the Anchoring Effect

Posted by & filed under Dealmaking.

Back on July 11, 2000, we were offered an excellent case study on the anchoring effect when 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, … Read How Timing Can Influence the Anchoring Effect

Negotiation research you can use: When offers are more appealing than requests

Posted by & filed under Negotiation Skills.

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

How to Bargain Salary: Laughing Matters?

Posted by & filed under Salary Negotiations.

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 How to Bargain Salary: Laughing Matters?

Effective Negotiation Techniques: Strive for a Precision Advantage

Posted by & filed under Negotiation Skills.

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

The Anchoring Bias Can Get Talks off to a Strong Start

Posted by & filed under Negotiation Skills.

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

Compensation Negotiation Tips for Salary Bargaining

Posted by & filed under Salary Negotiations.

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

When Forming First Offers, Take Precision into Account

Posted by & filed under Dealmaking.

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

The Enduring Power of Anchors

Posted by & filed under Negotiation Skills.

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 The Enduring Power of Anchors

Anchors Away?

Posted by & filed under Negotiation Skills.

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 Anchors Away?

Making the first move

Posted by & filed under Daily, Negotiation Skills.

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 Making the first move