Anchoring

Posted By Eric Duesdieker, Nov 7, 2011

One of the most robust conclusions of research into how people reach agreement is that final outcomes are heavily influenced by initial offers. Researchers have termed the dramatic effect that initial offers have on final outcomes “anchoring.” Researchers label the phenomenon as such because of an initial offer’s tendency to resist movement away from that offer (much as an anchor prevents a boat from drifting).

Anchoring is based upon a quirk regarding how humans evaluate situations. Most, if not all, human interactions involve an amount of ambiguity and uncertainty. For a negotiator, this uncertainty manifests itself in the pros and cons that accompany each position, argument, or value judgment that a negotiator takes into consideration when trying to reach an agreement with the other side. Anchoring seems to result from the fact that people are bad at deciding how much to discount or augment their valuations numerically when they are confronted with new or conflicting information. The greater the amount of ambiguity or uncertainty surrounding a situation, the greater people will be affected by the anchoring effect of initial offers.

The anchoring effect can be thought of as a result of people’s tendency to want clear answers even when no clear answer exists. Admitting and dealing with uncertainty is uncomfortable. As soon as a reasonable first offer is out on the table, everyone has something to cling to, and because everyone is using that offer as a referent, the final outcome will tend to be heavily shaped by that offer.

It is essential for a lawyer to know about the power of anchoring for two reasons:

First, to protect oneself from its effects by anchoring first or by “re-anchoring” by throwing out one’s own offer (it should be noted that when re-anchoring, the point is not just to throw out your own offer but to shift discussions towards explaining, and generally focusing on your offer to the exclusion of consideration of the other side’s.)

Second, a negotiator should be willing and ready to give the other side something to rely upon -- an aggressive first offer that can be objectively justified. Talk is talk but a good, solid offer is something one can rest your hat on -- or even better, one that the other guy can rest his hat on.

To read about some compelling research on the anchor effect, see Adam Galinsky, Should You Make the First Offer?, 7 Negotiation 3 (2004).