What is Anchoring in Negotiation?
Should you make the first offer in a negotiation? Typically yes, abundant research on the anchoring bias suggests.
In many negotiations, the party who moves first typically benefits by “anchoring” the discussion that follows on an offer—even if the anchor is arbitrary.
The anchoring bias, or 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.
In their groundbreaking research from the 1970s, psychologists Daniel Kahneman and Amos Tversky showed that when we’re asked to make a judgment in the face of uncertainty, we are easily swayed by the first figure that’s introduced into the conversation, however irrelevant, outrageous, or insulting it may seem. The first number serves as an “anchor” that’s almost impossible to forget.
There is one situation in which making the first offer is not to your advantage: when the other side has much more information than you do about the item to be negotiated or about the relevant market or industry.
This doesn’t mean you should sit back and let the other side make the first offer. Rather, this is your opportunity to level the playing field by gathering more information. The well-prepared negotiator will feel confident about making the first offer and anchoring the negotiation in their favor.
And if the other side does make the first offer? Base your counteroffer on the same information you would use to construct a first offer, namely your ideal outcome and your knowledge of the other party’s alternatives and likely reservation price.
To learn more about anchoring, and how to negotiate successfully, you can download a complimentary copy of our special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, right now!
The following items are tagged anchoring: