Anchoring in Negotiation: Should You Make the First Offer?

This article is an excerpt from the Shortform book guide to "Negotiation Genius" by Deepak Malhotra and Max Bazerman. Shortform has the world's best summaries and analyses of books you should be reading.

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What’s the anchoring effect in negotiation? Should you make the first offer? If so, what should it be?

According to Deepak Malhotra and Max H. Bazerman’s book Negotiation Genius, the anchoring effect refers to the first piece of information offered in a negotiation. This point determines how the rest of the negotiation will go.

Learn more about anchoring in negotiation below.

Decide Whether to Make the First Offer

At some point during your negotiation, you must decide whether to make the first offer or allow the other party to make it. According to Malhotra and Bazerman, if you’re confident you know what your counterpart’s RV is, you should make the first offer. Having an accurate estimate of their RV allows you to make a good first offer that’s sufficiently aggressive and allows you to capture the most value (as opposed to making an offer that’s too weak or too aggressive).

The authors argue that the first offer largely impacts the outcome of a negotiation because of anchoring in negotiation. The anchoring effect is the tendency for people to be swayed by the first piece of information presented. By making the first offer, you set a reference point that the other side must adapt to. For example, if you ask for a high salary in a job negotiation, you signal to the recruiter that you have a lot of value. This makes it challenging for the recruiter to justify a much lower offer.

(Shortform note: In How Highly Effective People Speak, Peter D. Andrei explains why we’re susceptible to the anchoring effect: Our perception of the world is relative and we need reference points to make sense of things. For example, a student might feel happy about their score on an exam only to be disappointed when they learn that the majority of the class scored higher. Andrei argues that you can even use irrelevant anchors to alter people’s expectations. If you’re trying to sell a boat, for instance, you might talk about the prices of luxury cars with the other party beforehand. After discussing expensive cars, they may perceive your asking price for your boat to be much more reasonable, even though it’s a different vehicle.)

Conversely, if you’re uncertain about your counterpart’s RV, you should let the other side make the first offer. This way, you avoid making an offer that’s too soft or too aggressive. 

However, if you let your counterpart make the first offer, you must resist being influenced by the anchor by shifting the focus of the conversation away from it. The more you talk about the anchor, the more it affects the negotiation. To pivot the conversation, you can reply that you view things differently than they do and shift the conversation to a different topic as a way to find common ground. Another way you can respond is by making an aggressive counteroffer and then suggesting both sides moderate their offers. You can then take control of the conversation by explaining why you made your counteroffer.

(Shortform note: You can better resist an anchor established by the other party’s first offer by creating an anchor for yourself before your negotiation. To do this, research relevant numbers and data before your negotiation—for example, the listing prices of other homes in the neighborhood in which you’re selling a house. This allows you to go into the negotiation with a preexisting frame of reference, making you less likely to be influenced by offers made by the other party.)

Anchoring in Negotiation: Should You Make the First Offer?

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Here's what you'll find in our full Negotiation Genius summary:

  • Why a good negotiation depends on your ability to create value
  • How to avoid common negotiation pitfalls and make attractive deals
  • How to decide whether or not to make the first offer

Katie Doll

Somehow, Katie was able to pull off her childhood dream of creating a career around books after graduating with a degree in English and a concentration in Creative Writing. Her preferred genre of books has changed drastically over the years, from fantasy/dystopian young-adult to moving novels and non-fiction books on the human experience. Katie especially enjoys reading and writing about all things television, good and bad.

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