Who Should Make the First Move in a Negotiation: The Anchoring Bias

This week's topic goes back to negotiation and who should make the first offer. Many researchers claim that the Anchoring bias provides an edge to those who make the first offer since the human tendency supports that counter-offers tend to be proposed around the initial starting point.

But there is a way around this if you don't make the first offer...

Listen to the episode to find out more.

Download (8 MB)

Episode transcript

The transcript is generated automatically by Podscribe, Sonix, Otter and other electronic transcription services.

Ricardo (4s):
Hello, everyone. Welcome to the five minutes podcast. Today I like to talk about one thing that always come to my mind when I'm studying, preparing things on negotiation is that concept of the anchoring bias and who should make the first offer. So every time you reach a negotiation, you plan and you were ready and you were starting to negotiate. There is a dilemma. Should I save first? What is my intention? Or should I wait for the other side? So there is a lot of research that I don't want to go deep, but most of the research say that there is an anchoring bias that supports that you should make the first move.

Ricardo (49s):
And the anchoring bias tell us that people behave always towards a new starting point. So, one, one quick example, if you get lost, what is very common? It's very common that you start walking in circles around the first point you noticed that you were lost, and this is an anchoring bias because you don't want to lose. And you use that starting point as your reference. So for example, if you go and I love to study this behavior, for example, in the luxury market, most of these very high profile brands of everything that sells luxury products, they use a lot of the concept of anchoring.

Ricardo (1m 37s):
What do they do? They create a special release of a watch or a special release of a new wine or a champagne or a car, a luxury car, and what they do. They put the price they want. They, they, they don't boot up price based on the, you know, on the materials or the labor. No, they just put a price. And usually it's a very expensive and out of comparison with, I would say a normal product and they put that price as an anchor and they create that car city on that product. But that product does not aim to make profit, but that product aims to anchor all the other products of that company.

Ricardo (2m 21s):
So for example, they create the handbag that they produced. I would say a thousand bags and they charge a hundred thousand. Each of them, what happens with all the other handbags, they will have that ultra VIP handbag as an anchor to support their price. So you were creating this, it looks like a trick, but this is a human behavior. And this, if you study economic behavior, you see that kind of movement very easily. So when you make the first move, you were booting that anchor. But one question you ask me a is, but to Ricardo, when I'm doing a negotiation, there is the other side.

Ricardo (3m 6s):
We both know that we will both make the first move because then we will both anchor our options. So what happens if the other side make the first move? So the first thing you need to know is that if they anchor something that is very different from your belief or your zone of possible agreement, it's very important that you should not it a counter offer immediately. You should not do that because if you do that, you are reduce your chances of having a deal. So let's suppose a quick example that I want to hire you.

Ricardo (3m 47s):
Okay? I want to hire you to work with me and let's suppose that I did some research and that your work is worth between 40 and 60 us dollars per hour. Okay. I'm just making up a number here. And then we start talking about the job. I explained it to you. You did some research. And then we did all the rapport and all the process, and we are starting now the offers, and then you move first and then you can start by saying, look, I just need a work. And I think that my work for this case is a hundred dollars an hour, and I'm excited backing something smaller than that because I was expecting 40 to 60.

Ricardo (4m 32s):
And if you anchor in a hundred, I don't expect that you will be reducing to 40 or six. And if you do that, it will not sound nicely, right? Because you know, you are just guessing. So what I do, I should disqualify your anchor. So instead of making a counter offer and saying, Oh, I pay you 40. And then you may say, are you joking? I'm telling my valleys a hundred and you are paying 40, but what I should do instead of making a counter offer, I should disqualify your position, I should say, Oh, thank you. That's very nice. I don't want to question your Valley, but let me tell you for someone with your qualification and this and that, blah, blah, blah.

Ricardo (5m 19s):
I say I did some research on this magazine, on this report, on this company, on that company. And I saw the numbers that are very good, different from yours. So look, I'm not saying the numbers are very different. So I suggest that we stop here, this meeting, I think you should go back, do a little bit of research, take a look and come because with these starting point, it will be very hard for us Stewart, chief and agreement. Did you see that? I didn't bring any, any, absolutely. Any other position, any other number?

Ricardo (6m 1s):
I just sad that that number is not sustainable is not out whatever I okay. On this case, I would not say it's not fair, but you should disqualify. And then when you come back, you may say, look, I revisit that I have a lot of interests and I think a good number would be $70. And then I say, look, now it's far better. But you know, our expectation was quite different. Our expectation was something be doing 40 and 45. You know? So what I'm doing, I'm by presenting 40 and 45. I mean, given the range, I know I can go up to 60 and then you may say, Oh, okay, maybe I can do something because it's you.

Ricardo (6m 44s):
So I'm trying to bring them the other side too, inside my zone of possible agreement. And this is how you fight. So don't think that just by making the first offer, the other side will not have the right and the ability to disqualify that. But when you make the first move, you are putting the first stone on the game and you have a small edge when you are negotiation. Think about that when you are doing your next negotiation and see you next week with another five minutes podcast,

Menu

Resources & Insights

Products & Services

More Resources & Insights

Ricardo Vargas

Podcasts

Who Should Make the First Move in a Negotiation: The Anchoring Bias

Search in Podcasts

Latest podcast episodes

Book recommendations