Recognizing and Using Anchoring Bias in Negotiation

We can’t see the world as it actually is, without the filter of our own minds.  We can train ourselves to be better at recognizing that filter, and what impact it has on our views, analysis, and decisions.  Remember, context is everything.

What is Anchoring Bias?

Anchoring bias is the phenomenon that occurs when we are over-influenced by certain information, and allow it to serve as a reference “anchor” for our future judgment.  Here are some examples:

  • A manager is upset when she believes that her project is running 40% over budget, but then pleased when she learns the project is only 20% over budget.
  • A buyer is thrilled when he negotiates the purchase price of a house at $10,000 less than asking price.
  • When a prosecuting attorney seeks a sentence of 5 years, the defendant’s attorney suggests and secures 4 years from the judge.

What’s wrong with each of these situations?  Each individual has won a small victory by “beating” the first number in the negotiation.  But each has also ignored the most important piece of information: the base rate. The outcomes above may feel like “wins” at first glance, but are they good outcomes when you compare them to goals? 20% over budget is still over budget.  The home buyer can’t tell if the purchase is a good or bad deal without deciding what the house is actually worth.  We can’t tell if 4 years in prison is a good or bad outcome unless we know the crime, the strength of the case, and the maximum possible sentence.  Context and the goal matter.

Avoid Anchoring Bias by Keeping Your Goals in View

Avoiding anchoring bias requires attention on three things:

  • Remember your goals – outcomes are measured by how close they match your goals, not by how close they match the opening bid.
  • Remember the base rate – outcomes are measured by their absolute value, not by comparing value to the opening bid.
  • Adjust your assessments with new information – Values change, so don’t forget to update your goals and value assessment when you receive new information. Don’t mistake a dynamic situation for a static one.

Using Anchoring Bias to Your Advantage

Have you ever watched a  talented catcher make a pitcher look better than he is?  If you watch closely, after catching a ball on the edge of the strike zone, a good catcher will quickly snap his glove back into the strike zone.  By anchoring the ball to the strike zone, he can influence the umpire to call some errant pitches as strikes.

Your negotiating opponent is susceptible to anchoring bias just like you are.  So use it to your advantage.  If you are selling something in a negotiating context (a house, a car), set your opening bid high so that your buyer’s expectations are set high, and so the buyer feels like he has “won” the negotiation when you ultimately sell for your real goal.  When you are buying, do the opposite.

Above all, consider your choices and make your decisions based on what you want to achieve.  Tactics are empty without a comprehensive strategy, so remember your goals and constantly reassess those goals in light of new information that you receive in dynamic settings.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s