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You are here: Home / Biases & Fallacies / The anchoring effect

07/16/2015 by Sean Brady

The anchoring effect

The anchoring effect is an unconscious bias that can dramatically affect your outcome in any negotiation.

Anchoring effect

According to Harvard’s Program on Negotiation, the anchoring effect is “the tendency for negotiators to be overly influenced by the other side’s opening bid, however arbitrary.”

Consider a user car negotiation. On one lot, a salesman asks $14,999 for a used car; on another, the salesman asks $17,999 for the identical used car.

In each case the anchor is now set. Let’s say in the first case, the salesman budges just slightly and the buyer finally purchases the car for $14,449. In the second, the buyer negotiates a significant “discount” and purchases the car for $15,499. The first buyer is likely to feel they got a poor deal; the second that they had negotiated a deep discount — even though the first buyer paid $1000 less for the identical car.

The fact is, both may have paid more than the car is worth and each buyer may have received a raw deal. Let’s assume that the Kelly Blue Book dealer retail price is $13,499: the first buyer over paid by $1000; the second, by $2000.

As the folks at Harvard point out: “When your opponent makes an inappropriate bid…you’re nonetheless likely to begin searching for data that confirms the anchor’s viability. This testing is likely to affect your judgment  to the other party’s advantage.” In fact, “On average, for every dollar increase in an anchor, the final agreements rise by 37 cents.”

Unconscious biases effect our decision-making in many ways. Be wary. The only sure fire way to avoid the hazards of any bias is to discipline yourself to carefully research and vet objective evidence. Only then move to decision-making.

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Filed Under: Biases & Fallacies Tagged With: biases, decision criteria, decision-making, negotiation

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