No, I am not talking about sailing, but about a cognitive bias known as anchoring. “Cognitive bias” is defined as “…a systematic error in thinking that occurs when people are processing and interpreting information in the world around them and affects the decisions and judgments that they make.” (https://www.verywellmind.com/what-is-a-cognitive-bias-2794963)
“Anchoring“ is defined as “the tendency to rely too heavily on the very first piece of information you learn.” (Id.) For example, in a negotiation, the first amount suggested by which to settle the matter will often set the “anchor” or the field of expectations.
I raise this issue because the Harvard PONS blog raised the point often discussed in negotiation classes that contrary to traditional thinking, it is often better to be the first party to suggest the first amount even if you are the defendant. Traditional thinking holds that the defendant should wait for the plaintiff to be the first to suggest an amount because the defendant may start with too high of a number (thereby possibly paying more than necessary) and the first amount offered by plaintiff will provide insight into plaintiff’s ultimate goal. (See, “Negotiation Advice; When to Make the First Offer in Negotiation” by Katie Shonk ,September 8, 2020)
As an example of the power of anchoring, Ms. Shonk recites the classic study by Amos Tversky and Daniel Kahneman in the 1970”s:
[They] asked study participants to estimate the percentage of African countries that belong to the United Nations. Each participant was given a random number, determined by the spin of a roulette wheel, as a starting point. They were then asked to guess whether the actual quantity fell above or below that random value and make their best estimate of that actual quantity. Despite the fact that the participants knew their starting point was completely arbitrary, it significantly affected their estimates. Even when the researchers paid participants for their accuracy, the anchoring effect continued to powerfully affect their judgments.(Id.)
So, while research indicates that the party who drops the first anchor may have the upper hand in the negotiations, it should be used with caution. As noted above, if one drops the wrong anchor- either too high or too low- this cognitive bias can work against you. (Id.) Rather, you should consider using this cognitive bias when you know both what is your zone of possible agreement (ZOPA) and the ZOPA range for the other party: that is what she will find acceptable. (Id.) But, if the other party has a much better idea of their ZOPA then you do, your use of anchoring is liable to backfire. The example given is a job interview; the potential employer has a much better idea of salary range than the interviewee. (Id.) So, instead, the potential employee should try to get as much information about the employer’s salary ranges, first.(Id.)
This blog post points out the obvious: if both sides have a very strong sense of what is their respective ZOPAs, it will be most difficult to drop the anchor. “Take the case of a long-standing relationship between a supplier and customer with open books. Because each side is already aware of the other side’s profit margins, negotiators will be more resistant to being anchored.” (Id.)
And obviously, if neither side knows very little about their or the other side’s possible zones of agreement, then either party will be trying to pin the tail on the donkey blindfolded in attempting to make the first offer or demand.
In sum, the use of anchoring can be very powerful in a negotiation if you have a sense of the range in which the other party is willing to settle. Otherwise, you are merely guessing by making the first offer which could backfire and set the resolution back a step or two.
…. Just something to think about.
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