In our last post, we explored how to make negotiation offers that result in higher value outcomes.
But we didn’t discuss the vexed, long-debated question of who should make the first offer in a negotiation. Let’s explore it.
Question: Did Gandhi die before or after 140 years old?
If you said ‘before’, you’re right. Now guess exactly how old he was when he died.
Hard to imagine, but your guess is going to be higher as a result of being exposed to the words ‘140 years old’ (Strack and Mussweiler, 1999). This artificial elevation of your answer to the Gandhi question is because of an effect called anchoring – and it can have a powerful impact on our judgments (Tversky & Kahneman, 1974).
In fact, research shows that this effect even extends to seemingly irrelevant anchors. Behavioural economist Professor Dan Ariely of Duke University, author of Predictably Irrational, offered a range of products to the subjects of a 2003 experiment. Each subject was first asked if they’d pay a price determined by the last two digits of their social security number. The subjects were then asked the maximum price they were actually prepared to pay. Subjects with high social security numbers were prepared to pay over 57% more than subjects with lower numbers. The anchors (in this case, the social security numbers) were entirely unconnected, but they still affected the price subjects were willing to pay.
How does anchoring apply to your next salary negotiation, you might ask?
Make the first offer
It can seem nerve-wracking, but here’s the research-backed reality: in most cases, making the first offer will get you a better outcome.
Indeed, one thorough analysis of negotiation experiments showed that every extra dollar proposed in a first offer corresponds to about 50 cents more in the final agreement (Grant, 2013).
It’s because your initial offer serves as an anchor around which the negotiations revolve. Your counterpart will respond to the anchor by suggesting an adjustment to it, thereby giving the anchor credibility. And the tendency is for them to insufficiently adjust away from the anchor set by your opening offer.
Social psychologist, Thomas Mussweiler, explains the reason for this: negotiations “typically involve a great deal of uncertainty on both sides.” And since it’s usually difficult to assess the intrinsic value of something, we instead use the most immediately available information – such as the other side’s opening offer – as the basis for a ‘relative’ response.
Sure, your counterpart’s final offer may be below your initial offer, but the anchoring mechanism will define a zone of negotiation which leads to the end result being closer to the anchor point you requested than if you left the first offer to your counterpart.
Present a high anchoring range
How do you decide on your anchoring point? Let’s use a salary negotiation as an example.
Don’t offer just one figure; rather, present a salary range. Not only will you seem more flexible, you’ll increase your chances of achieving a better outcome.
Assuming you’re aiming for a salary of $80,000, there are four ways of creating your anchor range:
- Backdown Range: Request $70k – $80k (with your target at the top)
- Bracketing Range: Request $75 – $85k (with your target in the middle)
- Bolstering Range: Request $80k – $90k (with your target at the bottom)
- Bump Up Point: Request $90k (a single high anchor point)
Research has found that the bolstering range results in the highest salary (Ames and Mason, 2015).
Request a precise range
You can further improve your outcome by requesting a precise range – say from $82k to $88k.
Research has found that precise (unrounded) values cause people to adjust shorter distances from anchor points (Thomas & Morwitz, 2008). When your anchor is precise, your counterpart will remain closer to it.
Don’t get positional
Be careful when applying this advice. Anchoring is powerful. But it’s tempting to couple your anchor with a fixed, positional, take-it-or-leave-it mindset. That need not be the case. See our last post for tips on how to create high value outcomes without being positional.
Try our free Harvard-based negotiation planner here to get started. To learn more about interest based negotiation, we recommend the book “Getting to Yes by Roger Fisher & William Ury.”