The anchoring effect, also known as anchoring bias, is a cognitive bias that describes the common tendency to give too much weight to 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.
In negotiation, anchoring is 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. This is because the first offer sets a reference point for the other party, and they will tend to adjust their own offers based on that reference point.
There are a few things you can do to avoid being anchored in a negotiation:
- Do your research. The more you know about the market value of the item or service you are negotiating for, the less likely you are to be anchored by the other party’s first offer.
- Be prepared to walk away. If you are not willing to walk away from the negotiation, you will be more likely to be anchored by the other party’s first offer.
- Be aware of the anchoring effect. When the other party makes their first offer, be aware of the tendency to be anchored by that offer. Try to adjust your own offer accordingly.
By following these tips, you can avoid being anchored in a negotiation and increase your chances of success.
Here are some examples of anchoring in negotiation:
- A seller might start the negotiation by asking for a high price for their house. This high price will anchor the buyer’s expectations, and they will be less likely to offer a lower price.
- A buyer might start the negotiation by offering a low price for a car. This low price will anchor the seller’s expectations, and they will be less likely to ask for a higher price.
- A union might start the negotiation by demanding a large wage increase. This large wage increase will anchor the company’s expectations, and they will be less likely to offer a smaller wage increase.
In all of these cases, the anchoring effect can lead to a suboptimal outcome for one or both parties. By being aware of the anchoring effect, you can avoid being influenced by the first offer and negotiate a better outcome for yourself.
A great literature review on anchoring in negotiation can be found in: Lipp, W. E. & Smolinski, R. & Kesting, P., (2022) “Toward a Process Model of First Offers and Anchoring in Negotiations”, Negotiation and Conflict Management Research 16(1). doi: https://doi.org/10.34891/2022.574