Tag Archives: anchoring

Range Offers vs Point Offers in Negotiation for Advantageous Settlements

Daniel Ames

Daniel Ames

Many people hesitate to present a negotiation offer as a range of values because they are concerned that co-negotiators will anchor on the lower value in the range as a “reservation price” or “bottom line.”

Malia F Mason

Malia F Mason

In fact, range offers may lead to stronger outcomes, according to Columbia University’s Daniel R. Ames and Malia F. Mason.
They compared range offers with point offers in laboratory studies of negotiations.

First offers can be powerful anchors, despite their risk of bias and marginal accuracy, reported University of Chicago’s Nicholas Epley and Thomas Gilovich of Cornell.

Nicholas Epley

Nicholas Epley

Even more influential aredual anchors” in range offers because they signal a negotiator’s knowledge of value as well as politeness.
Ames and Mason suggested that
negotiator credibility and knowledge of value increase anchor potency. 
Coupled with interpersonal relationship “capital”, these factors determine settlement outcomes.

Thomas Gilovich

Thomas Gilovich

Range and point opening offers can have varying impacts, depending on perceived preparation, credibility, politeness, and reasonableness of the proposer.

Ames and Mason tested three types of negotiation proposal ranges:

  • Bolstering range, which includes the target point value as the bottom of the range and an aspirational value as the top of the range.
    This strategy usually yields generous counteroffers and higher settlement prices, and is a recommended approach.
  • Backdown range, which features the target point value as the upper end of the range and a concession value as the lower offer.
    This approach often leads to accepting the lower value and is generally not recommended.
  • Bracketing range, which spans the target point offer and tends to have neutral settlement outcomes for the offer-maker.
    Compared with point offer-makers, bracketing range offers provided some relational benefits because they were seen as less aggressive.
Martin Schweinsberg

Martin Schweinsberg

Extreme anchors can be seen as offensive, and may lead to negotiation breakdown, according to INSEAD’s Martin Schweinsberg with Gillian Ku of London Business School, collaborating with Cynthia S. Wang of University of Michigan, and National University of Singapore’s Madan M. Pillutla.
Somewhat surprisingly, they found that negotiators with little power were more likely to walk away from extreme anchors.
Also surprisingly, high-power negotiators were equally offended.

Gilliam Ku

Gilliam Ku

Previously, Mason and team showed the benefit of precise single number offers, and the current research shows the value of less precise range offers.

Mason and team argue that point offers and range offers are independent and interactive informational processes with influence on settlement values: “…bolstering-range offers shape the perceived location of the offer-maker’s reservation price, (and) precise first offers shape the perceived credibility of the offer-maker’s price proposal.

  • When do you prefer to present a precise, non-rounded negotiation offers instead of a negotiation range?

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Nothing to Lose: Effective Negotiating Even When “Powerless”

Michael Schaerer

Most negotiators prefer to have alternatives as a “fall back position.”
However, having no alternatives and less power than co-negotiators can improve outcomes, found INSEAD’s Michael Schaerer and Roderick Swaab with Adam Galinsky of Columbia.

Alternatives enable negotiators to gain concessions from co-negotiators because they have a BATNA – Best Alternative To a Negotiated Agreement, defined by Harvard’s Roger Fisher and William Ury.

Roger Fisher

Roger Fisher

When an alternative is weak, it can undermine negotiating outcomes more than having no alternative because it establishes an “anchor point” based on competing options.

Anchoring is a frequent cognitive bias characterized by overvaluing one piece of information, according to Hebrew University’s Amos Tversky and Daniel Kahneman of Princeton.

William Ury

William Ury

Typically, negotiators anchor on the value of their alternatives when making their first offer, so people with weak alternatives generally make lower first offers than those with no alternative.
“Lowball” first offers based on few or poor alternatives usually undermine a negotiator’s final outcome.

Professional athletes and their agents provide many anecdotal examples of negotiating better deals when they have no “back up” offers and “nothing to lose” because they can set ambitious anchor points.

Amos Tversky

Amos Tversky

In a separate study of job negotiation, Schaerer and team asked a hundred people whether they would prefer to negotiate a job offer with a weak alternative or without any alternative.
More than 90 percent indicated that they would prefer to enter the negotiation with an unattractive alternative offer, confirming the popular assumption that any alternative is seen as better than no alternative.

Another of Schaerer’s lab studies asked volunteers to imagine they were selling a used music CD by The Rolling Stones.
They randomly assigned participants to three groups and gave each group different information about their alternatives, ranging from:

  • No offers (no alternative),
  • One offer at USD $2 (weak alternative),
  • A bid at USD $8 (strong alternative).
Roderick Swaab

Roderick Swaab

Volunteers in each group proposed a first offer, and rated the degree of power they felt.
Not surprisingly, people with the strong alternative felt the most powerful and those with no alternative felt the least powerful.

However, people with a weak alternative felt more powerful than those with no alternative, but they made lower first offers, signaling less confidence than participants with no alternative.
Having alternatives, whether poor or attractive, may make people feel powerful but can undermine negotiation performance.

Schaerer’s team further explored this paradox by pairing participants as a  “seller” who was offering a Starbucks mug during a face-to-face meeting, and a potential “buyer.”

Adam Galinsky

Adam Galinsky

Before the meeting, the seller received a phone call from “another buyer,” who was actually a confederate.
For half of the “sellers,” the potential buyer either made a low offer or declined to bid.

“Sellers” without an alternative offer said they felt less powerful, but made higher first offers and received considerably higher sales prices than negotiators with a an unattractive alternative.

In another situation, half of the “sellers” concentrated on available alternatives (none, weak, or strong) and the remaining negotiators focused on the target price.

Volunteers with unappealing alternatives negotiated worse deals than those without other options when they focused on alternatives, but “sellers” avoided this pitfall by concentrating on the target price.
This is another validation of focusing on the goal when alternatives are weak, and of the power of first-offer anchors.

Negotiators with non-existent or unappealing alternatives benefit from caution in setting modest first offers driven by feeling powerless.
Instead, the situation can be reconstrued as an opportunity to set audacious goals, reflected in an ambitious opening offer.

  • How do you overcome lowball anchoring when you have few negotiation alternatives?

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“Precise” Offers Provide Negotiation Advantage

Malia F Mason

Malia F Mason

Opening negotiation offers typically “anchor” the discussion and shape settlement values.
Many people make opening offers in “round” numbers like $10 instead of “precise” numbers like $9.
However, “round number offers” were less powerful than “precise” offers in negotiations, found Columbia’s Malia Mason, Alice J. Lee, Elizabeth A. Wiley, and Daniel Ames.
This finding suggests that negotiators can improve their outcomes by specifying offers more precisely, such as $103.

Y Charles Zhang

Y Charles Zhang

Precise first offers more potently anchored the negotiation range than round number proposals, perhaps because those who proposed precise offers were perceived as more confident, credible, and “well-informed” regarding actual value.

Norbert Schwartz

Norbert Schwartz

This finding complements observations by University of Michigan’s Y. Charles Zhang and Norbert Schwarz of University of Southern California that consumers have less confidence in precise estimates when they doubt the communicator and when they engage in less “cooperative conversational conduct norms” during negotiations.

H Paul Grice

H Paul Grice

These norms, defined by Berkeley’s H. Paul Grice in Grice’s maxims, which advocate communicating:

  • Briefly,
  • Clearly,
  • Relevantly,
  • Truthfully,
  • Offering only as much and content as required.

Despite the apparent advantages of more precise offers, these could signal “inflexibility” to some co-negotiators.
As a result, people who received precise offers generally made more conciliatory counter-offers, leading to smaller adjustments and more favorable final settlements.
Precise offers also led to better final deals even when the negotiator opened with a less ambitious, but precise offer.

Martin Schweinsberg

Martin Schweinsberg

Another benefit of precise offers is that they are less likely to offend a co-negotiator by signaling aggression or greed, according to INSEAD’s Martin Schweinsberg collaborating with Gillian Ku and Madan M. Pillutla of London Business School’s and Cynthia S. Wang of Oklahoma State University.
Ambitious first offers may lead a negotiation partner to walk away from the discussion, resulting in an impasse or stalled progress toward a final settlement.

Gillian Ku

Gillian Ku

In addition, negotiators who see themselves in a lower-power position are more likely to walk away, even though both low-power and high-power negotiators were equally offended by extreme offers.
Though an extreme offer may result in high rewards, it can be a more risky strategy than offering a more moderate precise offer.

Manoj Thomas

Manoj Thomas

Another advantage of more precise offers is that buyers may not recognize their actual magnitude:  Buyers underestimated the size of precise prices, particularly under uncertain conditions in studies by Cornell’s Manoj Thomas and Vrinda Kadiyali with Daniel H. Simon of Indiana University.

In fact, U.S. homeowner participants in their lab said they would pay a higher price quoted in precise numbers than when stated in round number in the team’s analysis of actual residential real estate transactions in two U.S. markets.
In fact, buyers actually paid more when list prices were precise in experiments by Thomas and team.

Vrinda Kadiyali

Vrinda Kadiyali

Precise offers provide some of the benefits of favorably anchoring negotiation discussions while reducing risks of extreme offers.

-*How effective have you found “precise” opening offers in achieving your negotiation goals?

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Do You Have Agreement Bias? Accept Bad Deals?

Taya Cohen

Taya Cohen

Agreement bias is the tendency to acquiesce in negotiation, even if that decision results in a disadvantageous outcome in business and interpersonal relationships.

During negotiation, participants may enter a “negative bargaining zone,” when their positions and interests diverge so much that there is little possibility of crafting a win-win resolution.
Skillful negotiators usually end the discussion if it is unlikely to move beyond the “negative bargaining zone.”

Leigh Thompson

Leigh Thompson

However, negotiators may be vulnerable to accepting a disadvantageous deal for several reasons, explained Carnegie Mellon’s Taya Cohen and Leigh Thompson of Northwestern with University of Toronto’s Geoffrey J. Leonardelli.

◦       Sunk Costs: Individuals may wish to achieve a resolution, even a bad one, to feel value was gained from the time and effort invested in the negotiation,

◦       Image: Participants may wish to be seen as likeable,

◦       Erroneous Anchoring: Individuals may assume that their interests and the negotiation partner’s are mutually exclusive, and may overlook innovative, “integrative” solutions,

◦       Strength in Numbers: Negotiators who are outnumbered by the opposite negotiation team are likely to acquiesce to suboptimal deals.

Geoffrey J Leonardelli

Geoffrey J Leonardelli

Negotiating teams tend to be less susceptible to agreement bias when discussions enter a negative bargaining zone, found Cohen, Thompson, and Leonardelli.

Solo negotiators demonstrated more agreeable behavior, and were more likely to agree to unfavorable conditions.
However, when solo negotiators were joined by only one person, they avoided agreement because they accessed additional decision support.

Douglas Jackson

Douglas Jackson

Agreement bias occurs in lower-stakes situations than person-to-person negotiation – anonymous surveys, reported Douglas Jackson, then of Educational Testing Services and Penn State.
This “yea-saying” propensity, called acquiescence bias, is triggered when people agree to survey items, no matter the content.

Samuel Messick

Samuel Messick

A major contributor to acquiescence bias was social desirability concern, confirmed in research by Jackson and his  ETS colleague Samuel Messick in a factor analysis of Minnesota Multiphasic Personality Inventory (MMPI) items.

Robin Pinkley

Robin Pinkley

In addition, faulty judgments can lead to poor negotiation outcomes like agreement, noted SMU’s Robin L. Pinkley, Terri L. Griffith of Santa Clara University, and University of Illinois’s Gregory B. Northcraft.

Terri Griffith

Terri Griffith

Pinkley’s group demonstrated ineffective outcomes when negotiators:

  • Accurately processed faulty and incomplete information (information availability errors),
  • Inaccurately process valid or complete information (information processing errors).
Gregory Northcraft

Gregory Northcraft

-*How do you guard against agreeing to bad deals?

-*How do reduce the possibility of Information availability errors and information processing errors?

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