Tag Archives: anchoring

Do You Have Agreement Bias? Accept Bad Deals?

Taya Cohen

Taya Cohen

Agreement bias is the tendency to settle 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: Participants may wish to achieve any resolution, to derive some sense of value from the invested time and effort,

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

◦       Erroneous Anchoring: People may assume that their interests and the negotiation partner’s are mutually exclusive.
As a result, they may overlook innovative, “integrative” solutions,

◦       Strength in Numbers: Negotiators who are outnumbered by the opposite negotiation team tend to agree 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 also occurs in anonymous surveys, reported Douglas Jackson, then of Educational Testing Services and Penn State.
This acquiescence bias, is triggered when people agree to survey items, no matter the content.

Samuel Messick

Samuel Messick

Social desirability concern can contribute to people’s willingness to agree in negotiations, surveys, and life, found  Jackson and his  ETS colleague Samuel Messick in a factor analysis of Minnesota Multiphasic Personality Inventory (MMPI) items.

Robin Pinkley

Robin Pinkley

Likewise, 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?

RELATED POSTS:

©Kathryn Welds

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, assuming that co-negotiators will anchor on the lower value in the range as a “reservation price.” 

This is based on the power of first offers as negotiation anchors, demonstrated in research by University of Chicago’s Nicholas Epley and Thomas Gilovich of Cornell.

Malia F Mason

Malia F Mason

Contrary to this expectation, range offers actually led to stronger outcomes in controlled studies by Columbia University’s Daniel R. Ames and Malia F. Mason. These researchers suggested that range offers provide “dual anchors” that signal a negotiator’s knowledge of value as well as politeness.

Nicholas Epley

Nicholas Eple

In addition, negotiator credibility, interpersonal style, and value awareness increase an anchor potency’s to influence settlement outcomes.

Thomas Gilovich

Thomas Gilovich

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

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.
    This approach is recommended based on this research.
  • 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 offers, 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.
In fact, even negotiators with little power in their studies were more likely to walk away from extreme anchors.
Likewise, high-power negotiators said they were offended by extreme anchors.

Gilliam Ku

Gilliam Ku

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

Mason and team argued 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?

RELATED POSTS:

©Kathryn Welds

Nothing to Lose: Effective Negotiating Even When “Powerless”

Michael Schaerer

Most negotiators prefer to have 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 late Amos Tversky and Daniel Kahneman of Princeton.

William Ury

William Ury

Negotiators usually anchor on the value of alternatives when making a first offer, and 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 examples of negotiating better deals when they have no “back up” offers and “nothing to lose,” so they can set ambitious anchor points.

Amos Tversky

Amos Tversky

In a separate study, 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 of participants preferred an unattractive alternative offer, confirming the popular assumption that any alternative is  better than no alternative.

Another of Schaerer’s lab studies asked volunteers to imagine selling a used music CD by The Rolling Stones.
Participants were randomly assigned to three groups which received different information about their negotiation situations:

  • 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 any alternative can help people feel powerful but can undermine negotiation performance.

Schaerer’s team explored this paradox by pairing a  “seller,” who offered a coffee 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 of the researchers.
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 significantly higher sales prices than negotiators with 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 with no options when they focused on alternatives.
“Sellers” avoided this pitfall by concentrating on the target price.
These findings support the benefit of focusing on the goal when alternatives are weak, and the power of first-offer anchors.

Negotiators with non-existent or unappealing alternatives can beware of making cautious first offers when they feel powerless.
Instead, negotiators can set audacious goals and make an ambitious opening offer because they have the benefit of “nothing to lose.”

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

RELATED POSTS:

©Kathryn Welds

“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 effective than “precise” offers in negotiations, found Columbia’s Malia Mason, Alice J. Lee, Elizabeth A. Wiley, and Daniel Ames.

Y Charles Zhang

Y Charles Zhang

Negotiators can improve their outcomes by specifying offers in precise values.
Precise first offers more potently anchored the negotiation range than round number proposals, and people who proposed precise offers were perceived as more confident, credible, and “well-informed” regarding actual value.

Norbert Schwartz

Norbert Schwartz

Similarly, consumers have less confidence in precise estimates when they doubt the communicator, found University of Michigan’s Y. Charles Zhang and Norbert Schwarz of University of Southern California.

A drawback of precise offers is that some co-negotiators perceive them as “inflexible.
Despite this risk, 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 precise offer.

Martin Schweinsberg

Martin Schweinsberg

Another benefit of precise offers is that they are less likely to be seen as aggressive or greedy by a co-negotiator, 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 an impasse or stalled progress toward settlement if a negotiation partner takes offense or walks away from talks.

Gillian Ku

Gillian Ku

This risk of stalled negotiation increases if negotiators see themselves in a lower-power position and receive an extreme offer.
These negotiators can be more willing to end negotiations,

Manoj Thomas

Manoj Thomas

Precise offers may obscure their actual value, found Cornell’s Manoj Thomas and Vrinda Kadiyali with Daniel H. Simon of Indiana University.
Buyers underestimated the size of precise prices, particularly under uncertain conditions:  U.S. homebuyers paid more when list prices were precise, and volunteers said they would follow this strategy in buying a home.

Vrinda Kadiyali

Vrinda Kadiyali

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

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

RELATED POSTS:

©Kathryn Welds