How the Anchoring Effect Works

When a number or position is introduced in a negotiation, it sets a reference point for the discussion. Subsequent offers and counteroffers are often based on this initial anchor, even if it’s arbitrary or extreme. Once a number is heard, it becomes difficult to disregard, and it starts to influence the negotiation, consciously or unconsciously.

• Example: If you’re negotiating a salary and the employer starts with an offer of £40,000, this figure becomes the anchor. Even if you were hoping for £50,000, the final outcome is likely to be closer to £40,000 because that’s the reference point around which the negotiation revolves.

The insidious nature of this bias is that it is incredibly difficult to avoid. Once an anchor is established, it subtly colours every subsequent negotiation move, often without the parties realising how much influence it exerts.

Using Anchoring as a Negotiation Tactic

1. Setting the Anchor:

As the first party to present a number, you have the opportunity to set the anchor. By introducing a figure that favours your position, you can shape the subsequent discussion to your advantage. This is particularly effective when you have done thorough research and can justify your anchor with data or rationale.

• Example: If you’re selling a product, starting with a high initial price sets a strong anchor. The buyer’s counteroffers will likely be influenced by this figure, potentially leading to a higher final agreement than if you had started with a lower number.

2. Anchoring with Justification:

A well-justified anchor is even more potent. When you present your anchor, supporting it with logical reasoning, data, or market comparisons makes it harder for the other party to dismiss it. This increases the likelihood that your anchor will dominate the negotiation.

• Example: If you propose a budget for a project, providing detailed cost breakdowns and market comparisons alongside your anchor number makes it more credible and persuasive, steering the negotiation within your preferred range.

3. Using Anchoring to Create Movement:

Anchoring can also be used to create momentum in negotiations. By starting with an extreme anchor, you create room for concessions, making the other party feel like they are gaining something valuable as you move closer to a middle ground.

• Example: In a negotiation over service fees, you might start with a high anchor and then gradually lower your offer, making the final figure seem like a compromise, even if it still meets your original goals.

4. Anchoring with a Strategic Range:

When you introduce a 'Range Tactic' as your offer, you can use the anchoring effect to guide the negotiation towards the most favourable outcome within that 'Range'. By carefully choosing the lower and upper limits of your range, you can set an anchor that subtly influences the other party to focus on the midpoint or even the higher end of the range.

• Example: If you propose a price range of £15,000 to £20,000, you’re setting an anchor that encourages the other party to consider £17,500 as a reasonable middle ground, even if they initially planned to negotiate closer to £15,000. This tactic helps you create a favorable anchor while still appearing flexible and open to negotiation.

How Anchoring Can Work Against You

1. Falling Victim to the Other Party’s Anchor:

If the other party sets the anchor, it can be challenging to break free from its influence. Even if you recognise that the anchor is far from your ideal position, it can still pull your subsequent offers closer to that initial figure, weakening your negotiating power.

• Example: In a salary negotiation, if the employer starts with a low anchor, you might find it difficult to push the offer up to your desired range, as the initial number will skew the perception of what is reasonable.

2. Bias Towards Your Own Position:

Anchoring doesn’t just apply to numbers presented by others; it also affects your own thinking. We often anchor ourselves to our initial positions, making it difficult to adjust our expectations or consider alternative outcomes. This bias can create rigidity in negotiations, leading to less optimal outcomes.

• Example: If you have a set figure in mind for what you want to pay for a service, you might become overly anchored to that figure, making it difficult to recognize when the market or negotiation conditions suggest a higher price might be reasonable.

3. The Echo Chamber Effect:

Anchoring can be exacerbated by an “echo chamber” environment, where stakeholders reinforce each other’s positions without critically evaluating them. When a group becomes anchored to a particular expectation or position, it can lead to emotional investment and resistance to change, which undermines the negotiation.

• Example: In a team negotiation, if all members start with the assumption that a certain price is non-negotiable, they might become blind to the possibility of achieving a better deal. This echo chamber effect can lead to poor negotiation strategies and outcomes.

Strategies to Mitigate the Negative Impact of Anchoring

1. Awareness and Preparation:

The first step to mitigating anchoring is being aware of its influence. Understanding that your initial impressions can unduly affect your decisions allows you to approach negotiations more critically. Before entering a negotiation, prepare by researching a range of possible outcomes, rather than fixating on a single number.

• Example: Before a salary negotiation, research the market rate for your role in detail, so you’re prepared to counter any lowball offers with well-supported data, rather than accepting an unfavourable anchor.

2. Using Fresh Perspectives:

One way to avoid the pitfalls of anchoring is to involve a negotiator who is not emotionally attached to the position or has not been exposed to early anchoring attempts. This individual can provide a more objective view and avoid being swayed by initial numbers.

• Example: In a complex business negotiation, consider bringing in a negotiator who is focused purely on the process rather than the specifics of the deal. This person can challenge anchored assumptions and keep the negotiation flexible.

3. Changing Negotiators:

Another tactic is to change negotiators partway through the process. A new negotiator will not be influenced by the earlier positioning or conditioning language, which can allow them to approach the negotiation with fresh eyes and avoid the influence of previous anchors.

• Example: If a negotiation has stalled because of entrenched positions, bringing in a new team member or negotiator who hasn’t been involved from the start can reset the dynamics and open up new avenues for agreement.

4. Avoiding the Echo Chamber:

Managers and stakeholders must be cautious about reinforcing each other’s positions without critically evaluating them. Regularly challenge assumptions within your team and encourage open discussions about the range of acceptable outcomes. This helps prevent the group from becoming anchored to a single, potentially flawed position.

• Example: In team meetings, actively solicit alternative viewpoints and scenarios. This helps break the echo chamber effect and ensures that the team remains open to adjusting their positions based on new information or changing circumstances.

The anchoring effect is a powerful force in negotiation, capable of both advancing your interests and derailing your strategy if not managed carefully. By setting the anchor, you can influence the entire negotiation process, guiding it towards a favourable outcome. However, it’s essential to be aware of the risks of anchoring—both from the other party and from within your own team.

Understanding the insidious nature of this bias highlights the importance of preparation, fresh perspectives, and flexibility in negotiation.

Whether you’re setting the anchor or countering it, being mindful of how anchoring works can help you navigate negotiations more effectively, avoid common pitfalls, and ultimately achieve better outcomes.