Anchor points in negotiations - the science behind the first offer

Anchor points are one of the most talked about concepts in negotiation techniques. But what is it, and more importantly - does it really work? The research gives a clear answer: yes, and the effect is more powerful than most people think. Here we explain what anchor points are, why they work, and how to use them - or defend against them.

What is an anchor point?

An anchor point is created when one party puts their offer on the table first. The theory behind this is that the first number or proposal creates a reference point that the other party unconsciously uses in all future discussions, even if they initially had a completely different number or image in mind.

Psychologists Daniel Kahneman and Amos Tversky showed in their research that when we have to make decisions under uncertainty, we are strongly influenced by the first speech introduced into the conversation - no matter how unreasonable, irrelevant or even insulting it may seem.

The research: even experts are affected

Several studies have been conducted on anchor points with fascinating results. In one study, 52 judges were asked to read a theft case and determine the prison sentence. However, they were told that the prosecution's case would be 'determined' by a roll of the dice (rigged so that one group got low numbers, the other group high).

The results were striking: the group given low dice numbers gave an average of 5 months in prison. The group with high numbers was sentenced to 8 months - a difference of 60%!

In other words, we cannot completely escape the effect of the anchor point, even when we are aware of it.

In another study by researchers Northcraft and Neale, real estate agents were compared to students. Both groups were shown a house with different list prices. In follow-up interviews, the agents denied being influenced by the starting price, but the results showed that both groups were equally influenced by the anchor point.

Why do anchor points work so well?

A meta-study showed a correlation of 0.497 between the first offer and the final negotiation outcome. This is a strong effect.

The explanation lies in how our brain works. Anchor points not only lead us to give too much weight to the first number - we also adjust insufficiently from that starting point. Even if we try to compensate and think independently, the first number remains present in our consciousness and influences our judgments.

How to use anchor points effectively

When used correctly, anchor points can be a very powerful tool:

1. do your homework Anchor points are most effective when they are credible and supported by data. Gather relevant information to ensure your anchor point is in line with market standards or comparable examples.

2. Be ambitious but realistic Set an initial offer that is ambitious but not unreasonable. If you are selling, start higher than your target price. If you are buying, start lower. But stay within a limit of reasonableness - a completely absurd anchor point can damage your credibility.

3. present with conviction Making the first offer signals confidence and preparation, and positions you as someone who knows the value of their proposal.

How to defend yourself against anchor points

When the other side uses an anchor point against you, the first step is to recognize the tactic. A common mistake is to respond with a counterbid before neutralizing the other side's anchor point. If someone opens with 500 and you want to respond with 50, you first need to make it clear that 500 is not going to be an option for you to accept.

Neutralize the anchor point clearly and forcefully: "I'm not trying to play games, but we are miles apart in price." If you don't neutralize the anchor point first, you signal that the original number is within a negotiable range.

Executive summary

Anchor points are a phenomenon with documented real impact. Used correctly, they can give you a significant edge in negotiations. But it is equally important to be able to recognize when they are being used against you and have the tools to neutralize them.

Do you want to learn more advanced negotiation techniques and how to handle different negotiation situations? Contact us at Ponto Group to discuss how we can help your organization negotiate smarter and achieve better results.

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