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
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the 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.
Why are first offers so influential in negotiation? In their groundbreaking research about the anchoring effect, 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. Not surprisingly, then, that negotiation research consistently shows that the person who makes the first offer typically comes out ahead, price-wise.
This anchoring effect leads us not just to give too much weight to the first number put on the table, but also to inadequately adjust from that starting point.
When your counterpart has dropped an anchor, the first and perhaps most important step is to recognize the move, since you can’t defend against something that you don’t see coming.
The price anchoring effect has strong implications for price anchoring in negotiation. For example, if you enter a job interview hoping for a salary of $75,000, but the interviewer only offers you $50,000, you may find yourself making a counteroffer of $55,000—far less than the $80,000 you would have asked for if you had made the first offer.
If you want to learn more about the anchoring effect and salary negotiations, download our free special report, How to Negotiate Salary: Learn the Best Techniques to Help You Manage the Most Difficult Salary Negotiations and What You Need to Know When Asking for a Raise. Salary negotiations are often stressful and challenging. But with the right strategies, you can negotiate your employment terms with ease.
The following items are tagged the anchoring effect:
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
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
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
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
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
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
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
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
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
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
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
QUESTION I’m trying to decide whether to make the first offer in a price negotiation. I’ve heard arguments in favor of both points of view—that is, going first versus sitting back and waiting for the other side to go first. Which tends to be the more effective strategy? ANSWER Negotiation is often a balancing act between learning about … 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
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