How To Make A Smart First Offer
Anchoring bias, or focalism, is a term often used in psychology that defines the human tendency to rely too heavily on a specific piece of information when making decisions. Oftentimes, an anchoring bias will cause an individual to overly rely on specific information or values and subsequently adjust the information to account for other elements in the decision-making process. I.e., buying a used car and focusing only on the mileage to determine the car’s value instead of taking other factors into account, such as engine maintenance and accident information.
Research on anchoring bias has demonstrated that one may be able to gain an edge in negotiations by making the first offer, which can effectively anchor the dialogue in their favor. The decision to make a first offer should be two-fold and based on the zone of possible agreement, or ZOPA. One should be knowledgeable in the range of options that will be acceptable for both parties and make an assessment based on the other party’s knowledge of ZOPA.
When the other side has a stronger knowledge of the ZOPA, negotiating effectively may prove difficult. In these situations, it is advisable to arm yourself with as much information as possible before making a move. If both sides equally understand the ZOPA, anchors are not likely to have a strong impact on the dialogue. However, if neither party is overly knowledgeable about the size of the ZOPA, then you may be able to effectively anchor the negotiations in your favor, while taking care not to come off as concessionary or demanding. If you have more knowledge about the ZOPA than the other party, you will have the ability to make an aggressive first offer with the expectation that your offer will anchor negotiations in your favor.
During negotiations, it is important to recognize if the other side anchors first. A common mistake made during a negotiation is responding too quickly with a counter offer and not attempting to resolve the other party’s anchor. For example, say you are offered $50 for an item but wish to counter with $90. Before addressing the other party with your counterproposal, it is important to forcefully defuse their anchor by emphasizing the fact that their original offer is not in the bargaining zone, and explain why your counter offer is both fair and justifiable. Be mindful of the mid-point rule, which is the mid-point of the first reasonable offer and counteroffer, as that will be the best predictor of the final amount you may receive.