How the first number pulls
The first number put on the table drags everyone's estimates towards it, even when it's arbitrary; learn to use it and to resist it.
Anchoring
People often estimate by starting from a number they've just seen and adjusting away from it, and they tend to adjust too little. In a negotiation, the first number on the table becomes the reference point for everything that follows.
A seller asks $12,000 for a car worth about $9,000. Even a buyer who knows that often finds themselves thinking "maybe $11,000?" The $12,000 has become the starting line.
Tversky and Kahneman, 1974.
A wheel is spun in front of each group.
It is rigged to stop at 10 or at 65.
Then: "What percentage of African countries
are in the UN?"
Group A saw 10
Group B saw 65Group A median guess: 25%
Group B median guess: 45%
A number everyone knew was random moved
the answers by about 20 points.The question had nothing to do with the wheel, and people could see it was chance. The number still became the place their thinking started.
Check yourself
In the wheel experiment, what did the random number change?
- Nothing, because people knew it was random
- How confident people felt, but not their answers
- People's estimates: a median of 25% after seeing 10, and 45% after seeing 65
- Only the answers of people who didn't know any geography
Show the answer
People's estimates: a median of 25% after seeing 10, and 45% after seeing 65
Yes. The wheel was obviously chance and unrelated to the question, yet the groups' typical answers were about 20 points apart.
EXPERTS TOO
The estate agents who didn't notice
In a study by Northcraft and Neale (1987), real-estate agents toured the same house and valued it, but were shown different listing prices. Their valuations moved with the listing price they'd seen. Most of them said the listing price had not influenced them.
Experience helps you know the market, but it doesn't switch the effect off, and the effect is hard to feel from the inside. That's why the defence is a habit, not willpower.
Anchors pull in both directions
- A high asking price makes a later "discount" look generous, even if the final price is still high.
- A low offer makes a later small raise look like real progress.
- Anchors aren't only prices. "This usually takes six months" anchors time; "everyone signs the standard contract" anchors terms.
- Because the first number pulls, it often pays to be the one who puts it down. Lesson 4 is about exactly that.
Check yourself
Experienced professionals aren't affected by anchors.
Show the answer
False
False. In the Northcraft and Neale study, experienced estate agents' valuations moved with the listing price they were shown, and most didn't realise it had influenced them.
The seller opens at $12,000 for a car worth about $9,000
Accepting the anchor
"Could you do $11,500 instead?" It sounds like bargaining, but you're now arguing about the size of a discount off their number. Even a big win lands far above the market.
Re-anchoring
"That's well above what similar cars sell for. Based on three listings at around $9,000, I'm looking at $8,300." Calm, specific, and it puts your justified number on the table as the new reference point.
How to resist an anchor
- Know your numbers before you hear theirs
Target, walk-away point and market data, written down in advance (lesson 2). A number you've already written is much harder to drag.
- Don't bargain from their number
"Could you do $11,500 instead of $12,000?" quietly accepts $12,000 as the starting line.
- If it's extreme, say so calmly
"That's well above what I've seen for this model." No outrage needed; just don't let it pass as normal.
- Put your own justified number down
Give the number and the reason in one breath: "Based on three listings at around $9,000, I'm looking at $8,300."
- Point to objective criteria
Market prices, published pay data, an expert valuation, what was agreed last time. A reason both sides can check beats a number either side just likes.
Check yourself
Omid is looking at a car worth about $9,000. The seller opens at $12,000. What's his best response?
- "Can you do $11,500?"
- "That's ridiculous, you're trying to rip me off."
- "That's well above what similar cars sell for. Based on three listings at around $9,000, I'm looking at $8,300."
- Say nothing and offer $11,000 to be safe
Show the answer
"That's well above what similar cars sell for. Based on three listings at around $9,000, I'm looking at $8,300."
Right. He names the gap calmly and re-anchors with his own number and a reason the seller can check.
Objective criteria
Standards that don't depend on either side's will: market prices, published pay data, expert valuations, precedent. The fourth point of principled negotiation (lesson 1). They turn "your number against mine" into "what does the evidence say?", which is harder to argue with and easier to agree to without losing face.
"What's that price based on?" is a fair question to ask of any anchor. If the answer is "that's just what I want", you've learned it's a wish, not a standard.
Check yourself
Does each reply resist the anchor or accept it?
- "What's that price based on?"
- "Could you knock $500 off that?"
- "Three similar listings are around $9,000, so I'm at $8,300."
- "Six months sounds long, but I suppose we can try for five."
- "Published pay data for this role says $55,000 to $65,000."
- "OK, so meet me somewhere between your price and mine?" after a very extreme opening
Show the answer
Resists the anchor: "What's that price based on?", "Three similar listings are around $9,000, so I'm at $8,300.", "Published pay data for this role says $55,000 to $65,000."
Accepts the anchor: "Could you knock $500 off that?", "Six months sounds long, but I suppose we can try for five.", "OK, so meet me somewhere between your price and mine?" after a very extreme opening
Lesson recap
- People adjust too little from the first number they see, so the first number in a negotiation pulls on everything after.
- A wheel everyone knew was random moved guesses by about 20 points (25% vs 45%).
- Experienced estate agents were anchored by listing prices too, and mostly didn't notice.
- To resist: know your numbers first, don't bargain from theirs, name an extreme anchor calmly and put down your own justified number.
- Objective criteria such as market prices, pay data and precedent beat a number either side just likes.
- For your prep sheet: the objective criteria I can point to.