An anchoring effect is a cognitive bias which is very important to recognise in negotiation.

This phenomenon involves the tendency to rely heavily on the first piece of information (the “anchor”) presented when making decisions. The first piece of information serves as a reference point, significantly influencing subsequent judgments and decisions. This is even if that first  information is irrelevant or arbitrary.

Understanding how anchoring works in negotiations can give negotiators a crucial advantage, allowing them to either exploit or mitigate the effect depending on the situation.

The Power of the First Offer

At its core, the anchoring effect occurs when the first piece of information presented in a negotiation—such as a price, salary, or deadline—sets the stage for all subsequent discussions. This initial figure, whether it is a high or low offer, tends to anchor the negotiation in ways that subtly influence the parties’ expectations and judgments.

Research in behavioural economics has demonstrated how anchoring affects decision-making. In one well-known study, participants were asked to estimate the percentage of African nations in the United Nations after being exposed to an arbitrary number (e.g., 10 or 65). The results showed that those who saw a higher anchor (65) estimated a much higher percentage than those exposed to the lower anchor (10), despite the number being irrelevant to the task. This illustrates how the first piece of information can distort perceptions and decision-making.

In a negotiation context, the anchoring effect works similarly. If one party makes the first offer, it can set the tone for the entire negotiation. A high anchor, for instance, might nudge the final agreement toward a higher price, even if the opposing party believes the true value is lower. Conversely, a low anchor can drive the outcome downward, potentially leading to a deal that’s more favourable for the party making the offer.

How to Use Anchoring Effectively

For negotiators looking to gain an advantage, using anchoring strategically can lead to more favorable outcomes. The key is to make the first offer, which allows you to set the anchor. By offering a high price or favorable terms, you position the negotiation in your favor. However, it is crucial that your anchor is realistic and based on solid data. An anchor that is too extreme can backfire, making the other party feel manipulated or alienated.

Effective negotiators also understand that anchoring isn’t just about the numbers. Language, tone, and timing are also critical components in setting the anchor. A well-delivered, confident opening statement can have just as much influence as a numerical figure, priming the other party to think in a certain direction.

Mitigating the Anchoring Effect

On the flip side, negotiators who are aware of the anchoring effect can take steps to counter its influence. The most effective way to do this is to remain calm and skeptical when faced with an initial offer. It is essential to resist the temptation to accept the first number presented and to instead reframe the discussion based on the merits of the deal. Asking for more information, challenging assumptions, or simply taking a step back to reassess can help counteract the bias introduced by an anchor.

In addition, research suggests that being aware of anchoring can diminish its impact. By consciously recognizing that the first offer may not reflect the true value, negotiators can recalibrate their expectations and avoid being swayed by irrelevant figures.

Final Thoughts

The anchoring effect is a double-edged sword in negotiation. Mastering its use and defense can significantly enhance your bargaining power and help you achieve more favorable outcomes. Whether you’re haggling over a car, negotiating a business deal, or discussing your salary, anchoring can set the stage for success. By understanding this psychological principle, you’ll be better equipped to make strategic decisions and avoid falling into cognitive traps.

In the world of negotiation, the right anchor can mean the difference between a good deal and a great one.

Creative commons acknowledgment for the photograph.