I’ve written before about priming, the tendency of us humans to adopt emotional states if we are exposed to words with emotional content. But there are other psychogical effects that can influence negotiating in unseen, and unwelcome, ways. One of the most common of these is the problem of anchoring.
What is anchoring? As Dan Orr and Chris Guthrie write in their 2006 article Anchoring, Information, Expertise, and Negotiation: New Insights from Meta-Analysis, it’s the tendency of any negotiation of numbers (like the price of a home) to cluster around the first number thrown out. Experiments have shown that this actually happens. And it can happen in odd ways. For example, social scientists have been able to influence a person’s estimate of the value of a home in Des Moines, Iowa by showing them the median home price in the far more expensive Honolulu; or, better yet, they have influenced people’s estimates of the African membership in the UN by spinning a wheel of fortune and reporting the number the arrow pointed at.
In essence, anchoring is a subset of priming, just one that focuses on numbers. Much as we can be primed by words to act in certain ways, we can also be "primed" by numbers that we see.
Like all heuristics, anchoring is often adaptive. For example, when estimating how much we will have to pay to purchase a house, it is usually reasonable for us to rely on the initial list price because it often conveys meaningful information about the actual market value of the home. Problems can arise, however, in two circumstances. First, we can get into trouble when we over-rely on an anchor. In the home purchase example, for instance, we are at risk of over-paying for the house if we are unable to adjust sufficiently away from its list price. Second, we can get into trouble if we rely on an irrelevant or uninformative anchor. If, for example, a newspaper article recounting the median home price in Honolulu influences the amount we are willing to pay for a small house in Des Moines, we are also at risk of over-paying for that home. (Likewise, if our estimate of African membership in the United Nations is influenced by the spin of a wheel of fortune, anchoring is obviously influencing our judgment in untoward ways.)
To test whether anchoring really wound up influencing actual negotiations, Guthrie and Orr performed a statistical meta-analysis on previous studies. (A meta-analysis is a method of statistical analysis that aggregates studies in the same field; performed properly, it can offer results that are more statistically sound than any individual study.) Their conclusion:
Our meta-analysis demonstrates that anchoring has a powerful influence on negotiation outcomes.
From this, they drew a few tactical recommendations. First, they leapt to the same conclusion as most do when they first hear of anchoring: bid high (or low) to start out, in order to sway your counterparty into moving their price closer to yours. Of course, most negotiators already do this, and there is only so far one can move out of a general range before it becomes obvious what one is doing, which may actually cause certain agreements to fall through.
Guthrie and Orr do identify another tactic, however, which is to use anchoring on oneself to counteract any external anchors. In other words, to the extent that one can set high explicit goals before sitting down at the table, one can counteract the anchoring effect of any opening offers at the table. (One might consider this the "I’m not going to pay a lot for this muffler" strategy.)
Guthrie and Orr also talk about the importance of using a good "outside" strategy as a way of defending against anchoring effects. What is an "outside" strategy? Basically, it’s any strategy that gets the negotiator out of her own head, since that is where the anchoring effect is happening.
This outside, ‘policy’ approach improves decision-making by changing the dimensions of the choice-set. A good example of an outside strategy is the prevention of ‘independent’ auditors from working with a bank or brokerage firm for more than, say, five consecutive years. Rather than simply advising auditors to be impartial, or expecting them to be professional and direct in delivering bad news to the company responsible for their employer’s financial growth, the outside strategy removes the threat to integrity by eliminating its source.
(Emphasis added.) Simple bans are an outside strategy, as are bright-line rules. (The controversial Federal Sentencing Guidelines were an effort by Congress to either keep judges from anchoring too low, or an attempt to impose an alternative anchor.) But so is consulting an impartial third party, such as a consultant or a local expert. And it’s possible that having a client back at home with high expectations also constitutes a good defense against anchoring; it’s certainly something that works for a number of defense counsel.