27 Apr. What Means Anchoring in Negotiations?

Anchoring in a negotiation involves "naming your price" or fixing your negotiating position through declaration of goals that may or may not be readily apparent to your counterpart. Anchoring has the effect of shifting the negotiation away from a collaborative process to one of haggling. It’s start with an opening statement, that usually is followed by a counteroffer.

What is the ANCHORING Bias?

A well-known cognitive bias in negotiation and in other contexts, the anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand.
Economists Amos Tversky and Daniel Kahneman first documented the anchoring bias in multiple experiments. Even most experienced negotiators can be powerfully affected by anchors in negotiation, research shows.

Why are ANCHORS so effective?

When conditions are uncertain, high anchors draw our attention to the positive qualities of the item or individual (as in the case of a salary negotiation) being discussed, and low anchors draw attention to defects, according to Columbia Business School professor Adam Galinsky.

Why should I throw the first ANCHOR?

Making a first offer will allows you to “anchor” the negotiation favorably particularly if you have a good sense of the bargaining range, your zone of possible agreement, and even better, your counterpart does not. The decision of whether to make the first offer generally should be based on four factors:
 
1.     Your knowledge of the range of options that should be acceptable to both sides—and your assessment of the other side’s knowledge of the ZOPA. When you believe the other party likely knows more than you do about the size of the ZOPA, you will have difficulty anchoring effectively. Before dropping an anchor in such situations, arm yourself with as much information as possible.
 
2.    If both sides have a strong sense of the zone of possible agreement (ZOPA), as in the case of a longtime relationship between a supplier and customer with open books, anchors are unlikely to have a strong impact.
 
3.    If neither side knows much about the size of the zone of possible agreement (ZOPA), you may be able to effectively drop an anchor, though you could risk being too concessionary or too demanding.
 
4.    If you know a lot about the other side’s pain points, you can make an aggressive first offer with confidence and expect that your offer will anchor the discussion to your advantage.
 

What should I do if my counterpart drops the first ANCHOR?

The first and perhaps most important step is to recognize the move and defuse the other side’s anchor in the negotiation. A common mistake is to respond with a counteroffer before defusing the other side’s anchor in negotiation. 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. Defuse the anchor clearly and forcefully: “I’m not trying to play games with you, but we are miles apart on price.” If you don’t defuse the anchor first, you are suggesting that $100 is well within the bargaining zone (ZOPA). After defusing the anchor, move quickly to your counterproposal, with the caveat that mentioning the anchor explicitly and repeatedly might validate it. Then, when making a counteroffer, be sure to explain why it is fair and justifiable.
 
What are your opinions on making the first offer? Share your experiences in the comments.
 
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Author: Jutta Portner

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