Anchoring Effect in Negotiation

ANCHORING EFFECT IN NEGOTIATION

GROUP 24

Author Note

        This research proposal is done by Ruby and Stephanie of the Department of International Business and Trade Management of Ming Chuan Univesity. Any questions regarding information used in this proposal should be directed to the email sfaalimae@gmail.com.

ABSTRACT

        This paper will seek to explore the effect of anchoring in negotiation. Two groups of participants  (12 men and 12 women) will be given information on a negotiation table. Offers will be made to participants as anchor points. We predict that the initial offers (anchor points) will affect the outcomes of the negotiations. Other factors we predict that will also influence the outcomes are reference point and counteroffers. The research limitation would also be discussed.

INTRODUCTION

        Anchoring is a cognitive bias that occurs when people rely heavily on the first piece of information they are presented with and in this paper we will look at it with regards to negotiations in a business setting and how it affects the outcomes. It has a significant role in how people make decisions whether we are aware of it or not.

LITERATURE REVIEW

        Anchoring bias keep negotiators and opponents from opportunities and prevent them from getting as much as they could out of a negotiations (Bazerman, H. M., & Neale. A., M (1994). Negotiating Rationally. Macmillan Inc. New York, Maxwell Macmillan, Toronto, Canada). Negotiators sometimes make quick decisions at the first course of action. They often assume you must gain at the expense of others. They anchor their choice on the first piece of information they get. Also the way in which the information are presented influences them and they rely too much on it with out checking to disconfirm the information. Negotiators are sometimes over confident on what they could get from the negotiation (Bazerman & Neale, 1994). According to Bazerman & Neale, (1994) people are more likely to take information at face value. Korobin of UCLA and Guthrie of Vanderbilt University argue that by using an irresistible offer at an negotiation opening will not only influence what the other side thinks but may change their belief about the agreement.

        Research by (Adam & Mussweiler.2001.Vol.81) says that anchoring often affects negotiations that include numbers. Example, Northcraft and Neale (1987) had real estate agents looked over a property and estimated the value of it, price and purchase price. They manipulated the price by giving both high and low anchors. The prices estimated by the real estate agents were influenced by the list of prices given to them. According to (Adam & Mussweiler, 2001) the prices the real estate agents list for the property would be use as first offers for negotiation. The real estate people however denied they were anchored by the list of prices and said that they use the features of the property to estimate the price. This shows that anchors affect the first demands negotiators made.  Initial offer of the opponent affects the counteroffers, reference points and results in the negotiations (Adam &Mussweiler, 2001).

        This study will seek to extend the knowledge we have on the effect anchoring has on negotiation. It is always uncertain in any negotiation what the outcome would be. Each group has its own interest in this type of setting and would seek to exploit it to their advantage. Participants were chosen from several companies to take part in this study. As discussed above anchoring, reference point and counteroffers plays an important role in negotiation. We hypothesized that anchoring information has a bias effect in negotiation. We also hypothesized that the outcome will also be influenced by reference point and counteroffers. Lastly we also predict that whoever make the first offer will have a better outcome.