Anchoring - Anchoring in Negotiations

Anchoring in Negotiations

In negotiations, anchoring refers to the concept of setting a boundary that outlines the basic constraints for a negotiation; subsequently, the anchoring effect is the phenomenon in which we set our estimation for the true value of the item at hand. In addition to the initial research conducted by Tversky and Kahneman, multiple other studies have shown that anchoring can greatly influence the estimated value of an object. For instance, although negotiators can generally appraise an offer based on multiple characteristics, studies have shown that they tend focus on only one aspect. In this way, a deliberate starting point can strongly affect the range of possible counteroffers. The process of offer and counteroffer results in a mutually beneficial arrangement. However, multiple studies have shown that initial offers have a stronger influence on the outcome of negotiations than subsequent counteroffers.

An example of the power of anchoring has been conducted during the Strategic Negotiation Process Workshops. During the workshop, a group of participants is divided into two sections: buyers and sellers. Each side receives identical information about the other party before going into a one-on-one negotiation. Following this exercise, both sides debrief about their experiences. The results show that where the participants anchor the negotiation had a significant effect on their success.

Anchoring affects everyone, even people who are highly knowledgeable in a field. Northcraft and Neale conducted a study to measure the difference in the estimated value of a house between students and real-estate agents. In this experiment, both groups were shown a house and then given different listing prices. After making their offer, each group was then asked to discuss what factors influenced their decisions. In the follow-up interviews, the real-estate agents denied being influenced by the initial price, but the results showed that both groups were equally influenced by that anchor.

Anchoring can have more subtle effects on negotiations as well. Janiszewski and Uy investigated the effects of precision of an anchor. Participants read an initial price for a beach house, then gave the price they thought it was worth. They received either a general, seemingly nonspecific anchor (e.g. $800,000) or a more precise and specific anchor (e.g. $799,800). Participants with a general anchor adjusted their estimate more than those given a precise anchor ($751,867 vs $784,671). The authors propose that this effect comes from difference in scale; in other words, the anchor affects not only the starting value, but also the starting scale. When given a general anchor of $20, people will adjust in large increments ($19, $21, etc.), but when given a more specific anchor like $19.85, people will adjust on a lower scale ($19.75, $19.95, etc.). Thus, a more specific initial price will tend to result in a final price closer to the initial one.