Tag Archives: anchoring

“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.
Negotiators may improve their outcomes by specifying offers in less typical precise values.

Y Charles Zhang

Y Charles Zhang

Precise first offers more potently anchored the negotiation range than round number proposals, and those who proposed these 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.

This type of consumer skepticism also occurred when communicators engage in less “cooperative conversational conduct norms” during negotiations.

H Paul Grice

H Paul Grice

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

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

A less positive aspect of precise offers is that they could signal “inflexibility” to some co-negotiators.
However, this tactic led 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?

RELATED POSTS:

Twitter  @kathrynwelds
Facebook

©Kathryn Welds

Advertisements

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?

Follow-share-like http://www.kathrynwelds.com and @kathrynwelds

RELATED POSTS:

Twitter  @kathrynwelds
Blog – Kathryn Welds | Curated Research and Commentary  
Google+
LinkedIn Open Group Psychology in Human Resources (Organisational Psychology)
Facebook Notes:

©Kathryn Welds