Going for a rounder offer will likely entice more bidders, who see an opportunity for negotiation. These results suggest that the past advice that advocates high precision in offers needs some modification. In these cases, research has shown that offers that are highly precise often risk scaring away potential negotiators by conveying a sense of inflexibility. In contrast to this, in many real-world negotiations, first offers are often presented before the parties involved even start their negotiations. Prior studies have demonstrated a precision-related advantage operates under the premise that the parties involved have already decided to negotiate. Accordingly, counterparts tend to cave in. Offers that are precise tend to convey that you have a clear sense of the value of the commodity you are selling, and also that you are unlikely to be flexible on your price. Generally speaking, the more precise your listing offer, the stronger of an anchor it is likely to create. In general, the fewer zeros you have at the end of your offer price, the more precise it is said to be. The latest research on negotiating makes clear that the precision of your offer, in other words, how detailed your listing price is, are much more important. When making an opening in a negotiation, our main focus is usually how low or high it should be. It’s no surprise that the anchoring effect is heavily involved in negotiation. In case you avoid defusing the anchor first, you are subconsciously suggesting that $100 is the zone for bargaining. Before you present your number it is important to make clear that starting at $100 is simply unacceptable. AS an anchoring example, let’s say somebody chooses to open with $100, and you wish to counter that offer with $50. In this case, avoid making the common error of responding with a counteroffer before you choose to defuse the other side’s anchor. What will happen in case the other side makes the first offer? You can counter the impact of the anchoring effect by simply recognizing when somebody is attempting it. These kinds of offers risk derailing negotiations, to begin with, particularly when they cause the other side to question one’s credibility such that one wonders if a negotiated agreement is even possible. For instance, a house with a list price of $255,500 will most likely bring in higher bids than houses that have list prices of $256,000 or $255,000.Īnother way in which the anchoring effect can negatively impact decision-making is when one is presented with an overly aggressive offer. As an anchoring effect example, researchers of negotiation strategies have found that numerical first offers that are precise are much more effective than rounder offers. Depending on how it’s used, the anchoring effect can be more or less helpful. This usually is due to our tendency to ‘anchor’ the bargaining that follows in its direction, even in cases where the recipient might think that the offer is out of line.
The party who puts forth the first offer often gets the lion’s share of the value. Anchoring is particularly useful when it comes to negotiations in price. It comes into use in cases of negotiation, since it can help us make as well as respond to first offers a lot more effectively. Since this habit distorts our judgment, anchoring is considered a type of cognitive bias. ‘The Anchoring Effect’ is a cognitive heuristic wherein human beings tend to rely heavily on the very first piece of information offered to them, known as ‘the anchor’, when making decisions.
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