The Anchoring Effect in negotiations

One of the most intriguing aspects of a negotiation is the “anchoring effect”, which is the perception that the first proposal, however arbitrary, will serve as an “anchor” for the entire transaction. Whoever sets the anchor first establishes the parameters of the negotiation. This is so because we tend to give a lot of importance to the first number presented and consider it as a starting point for the conversation.

It is true that the first offer has a great effect on the negotiation, especially on the price. As a lawyer with experience in advising both sellers and buyers, I have faced aggressive anchors and set many too.

Have you ever found yourself being anchored in a negotiation, getting a very aggressive first offer from the other party? How did you react? What was your counter proposal?

This is the problem with anchoring. The behavioral tendency of human beings is to REACT, rushing to put a counteroffer on the table and, thus, creating the so-called “negotiation zone”, which is the space between the proposal and the counter proposal.

But what if the anchorage is far outside your price expectations?

It is necessary to “undo” the anchoring. For this, before making a counterproposal, we need to RECOGNIZE – REFUTE – RESET. Recognizing anchoring is the first and perhaps the most important step. You need to point out to the other party that you noticed his/her movement of trying to anchor. Then, you have to refute it. Verbalize that the proposed value is unacceptable and review the assumptions of the parties. At this point, be careful not to waste too much time refuting the proposal, which may end up having the reverse effect of giving too much importance to the first offer. Finally, it is necessary to make the counteroffer, and when doing so, you must explain why it is a fair offer and not just a new aggressive “anchoring”.

It sounds easy, but it is not. Most negotiations end halfway between the proposal and the counter proposal. But sitting at the negotiating table being able to recognize these challenges helps a lot! 

By Renata Simon, partner at Candido Martins Advogados
societario@candidomartins.com.br