As part of my duties as an intern at the Centre for Effective Dispute Resolution (CEDR), I have been able to attend a course on Advanced Negotiations. These courses are much like the CLE courses required by the ABA to stay current on accreditation. Here, the delegates come from around the world to get a certificate in advanced negotiations. Their professions vary from typical business person, to blossoming mediator, to lawyer. Despite their unique backgrounds, one thing remains the same: most are looking to transition into new areas and believe that negotiation skills will add value and increased flexibility to their field of expertise.
The conference is set up as a 7-day course but it is divided into 3 modules, each two months apart. The first module took place in the lovely Redding, England in an old Victorian building converted into the Woffield Park Resort. The three instructors touched on various negotiation topics and the delegates had an opportunity to apply their new found knowledge during role-plays (many of which I helped write!). One of the exercises was particularly illuminating.
The group was divided into two separate rooms. Group A was asked to answer “Yes” or “No” to the following question: “Is the population of Tajikistan greater than or less than 5 million.” They were then asked to guess the population. Group B was asked to do the same thing except instead of 5 million, the question asked if the population is greater than or less than 20 million. The average population estimate in Group A was 5.5 (with a range from 3 to 11) while the average in Group B was 20 million (with a range from 13 to 38). Although this seems like a simple exercise, it demonstrates the great power of anchoring. In fact, the population of Tajikstan is around 6.25 million if anyone was curious! The delegates based their population estimate not on any knowledge but on the size of the initial population.
In a study by Chris Guthri and Dan Orr, they found that “on average, for every dollar increase in an initial anchor, the final settlement rises by 49.7 cents.” Among experienced negotiators, this amount falls to 37 cents, but this is still demonstrative of the power of an anchor. Even when the anchor is extremely unreasonable, negotiators are affected. In negotiations, first offers fall within the insult zone, credible zone, or zone of potential agreement. As human beings, we are influenced at a deeply psychological level. A credible anchor is more likely to affect a negotiator than an offer in the insult zone. Often, a ridiculous first offer will still cause a negotiator to pause and subconsciously try to find an explanation for why the offer might be a reasonable. When the other party makes the first offer, it is important to “reject the relevance and appropriateness of your counterpart’s anchor” and instead consider the affect of a different anchor. Numbers impact how we make decision, so its important to prepare a counter-offer that re-anchors the negotiation to terms more favourable to you.
Travelling throughout Europe, I have found myself fin lots of situations bartering with street vendors. At times, I have been without much power to negotiate: when buying an umbrella amidst the pouring rain of London or when buying a scarf in the unseasonably freezing weather of Rome. At other times, I am free to negotiate until I have the best deal. Typically, a negotiation starts like this. I say, “How much?” The vendor states a price. And the negotiation dance begins. Knowing what I know about anchors, sometimes I don’t ask “how much” and instead throw out a first offer. This works particularly well when I have a ballpark figure of the value of the item I am attempting to buy. However, this doesn’t always work as planned. I offered 5 Euros for a scarf and the vendor accepted! I ended up buying the scarf because it was a fair enough price, but I walked away knowing that I could have gotten a better deal! Anchoring is power, but preparation is key if you are going to throw out the first offer!