Psychologists have found that when making decisions, people tend to rely too much on the first piece of information they receive. This tendency is known as the ‘anchoring effect’. By harnessing it strategically in your next negotiation, you can achieve a better result.
The definition of anchoring bias
When a person makes a judgement, the first piece of information they receive becomes an anchor. Each subsequent piece of information, rather than being assessed independently, is interpreted in relation to the anchor. For example, you are more likely to buy a $40,000 car if the first model you looked at cost $55,000. Even if the $40,000 car is actually overpriced, its price seems reasonable in comparison to the first model.
This ‘anchoring effect’ has been repeatedly demonstrated in research. During observations, psychologists found that the anchoring bias influences judgements about a range of issues such as pricing, quality and quantity.
This research has also shown that the anchoring effect is pervasive and powerful – it affects everyone, including experts and highly intelligent people. Even when people are aware of the anchoring effect, it’s hard to consciously overcome it.
Where does anchoring bias come from?
The anchoring bias is just one of many mental shortcuts that humans have evolved to support efficient decision-making. All of us make thousands of judgements each day: from what to wear through to who to trust and how much to pay. With so many decisions to make, it’s impossible to weigh each one thoroughly.
To get around this, humans have evolved many subconscious mental shortcuts. These rules of thumb help us make the numerous decisions of daily life quickly and almost effortlessly.
These rules work well enough most of the time, but they also systematically bias our thinking. Because they cause us to make decisions that aren’t strictly rational, they’re known as ‘cognitive biases’.
How does anchoring work in negotiation?
So what is anchoring in negotiation? Skilled negotiators harness the power of the anchoring bias to get a better result. In a negotiation, anchoring is the deliberate strategy of making an initial offer as a reference point (or anchor) for the rest of the negotiation. This influences the other party’s perception of what is fair and reasonable, ultimately making them more likely to accept an offer that favours you.
The theory behind this anchoring negotiation definition has been borne out by research. Studies of negotiation anchoring have consistently shown that the outcome of a negotiation is more influenced by the initial offer than by counteroffers.
Anchoring has been used successfully in many famous negotiations. For example, in 1992, Ed Rendell became mayor of Philadelphia. He promised to reduce the city’s USD$250 million annual budget deficit by reigning in the wages of municipal employees. Even before formal negotiations with unions began, Rendell put an anchoring strategy into action, repeatedly stating this goal and emphasising his willingness to endure a strike. The city’s opening offer to workers froze wages for almost three years. While workers initially went on strike, they accepted the offer after less than a day.
Is anchoring a good negotiation technique?
Behavioural anchoring is an effective negotiating technique – but it’s not always the right move.
Taking advantage of the anchoring effect means putting your position first, before the other party has an opportunity to state theirs. But being first to state a position also carries risk. When you open the negotiation, you give away valuable information about your position – information that the other party might use to revise down their offer.
That’s why an anchoring strategy is most effective when you already have the upper hand. If you have more information than the other party and a good understanding of their likely position, you can confidently open the negotiation with a demand that’s high, perhaps unreasonably so. This bold demand will become the anchor, making your later demands appear more reasonable than they otherwise would – even if they’re higher than your initial demand.
If, on the other hand, you know less than the other party and are unsure of their position, encourage them to open the negotiation. Their offer may be better than you expected, so allowing them to open means you avoid making a serious miscalculation.
What is the easiest way to learn anchoring in negotiation?
The best way to hone your anchoring negotiation techniques is through ENS’s world-class negotiation training. For more than 40 years, ENS has been helping people achieve business success by leveraging insights from psychology and neuroscience.
Negotiation anchoring is just one of the many effective negotiating techniques taught in our negotiation and influencing training courses. An ENS facilitator will explain the theory behind cognitive anchoring and share anchoring negotiation examples that show you how this negotiation strategy works in the real world. You’ll also have the opportunity to practice framing and anchoring, alongside other negotiating tactics.
As well as learning how to use anchoring in business, the ENS course will teach you how to resist being anchored yourself. You will learn:
- why thorough preparation is a must
- how to self-anchor, setting the ambitious goals that have been shown to lead to better outcomes
- when you are most vulnerable to being anchored and how to consciously guard against it
- how to predict, identify and respond to attempts to anchor you.
Become a more effective negotiator. Find the next ENS negotiation and influencing training course near you.
