What's the most effective way to use the anchoring technique?
Barry Nalebuff recommends anchoring numbers. Chris Voss recommends anchoring expectations (i.e. "emotional anchoring"). Nick Kolenda recommends anchoring perceptions.
So, what's the best option? What's the most effective way to use the anchoring technique?
EXAMPLE
The example referenced throughout this post will be that we're business partners looking to sell some real estate. We're both trying to decide on what anchoring approach to take for a prospective buyer we'll be meeting with later.
- The real estate we're selling is worth $50,000
- The least we're willing to take is $40,000 (i.e. our BATNA: "Best Alternative To Negotiated Agreement")
- Our goal is to sell this real estate for $60,000 or more
Of course, we want to sell the real estate for a little more than what it's worth so we can make a good-sized profit.
Anchoring Numbers (Barry Nalebuff's Approach)
Nalebuff's "anchoring numbers" approach also overlaps with Daniel Pink's and Nick Kolenda's recommended anchoring approaches.
Nalebuff might recommend we start with an initial price of, say, $70,000. This is a tried and true approach that would draw up our prospect's perceived value of the property. And, that could score us a sale higher than our goal of $60,000.
Anchoring Expectations (Chris Voss's Approach)
Chris Voss calls this "getting ahead of the negatives".
Instead of starting the negotiation off with a numerical anchor, Voss might recommend we start with something like this:
You: “Look, you know, we got a price. I’ll give you the price, but you’re not going to like it. I mean, it’s going to be high. It’s really going to be high. And, I got a feeling that when I give you this price, it’s going to make you really angry, and the last thing I want to do is offend you. So, I’m scared to give you the price.”
And, in doing this, the prospect is supposed to feel like you're going to ask for their arm and leg. That way, when we give the actual price, it feels like a lot less than what they were expecting which helps them feel more comfortable with it.
What About When Presenting Options?
Here's my main reason for starting this thread.
If you've read the example from this thread, you know that you can use the anchoring technique when presenting options in order to make the option you want look better than the others by contrast.
So, in that example, a wife is trying to convince her budget-concerned husband to take a family vacation. She starts by introducing a $10,000 around-the-world trip (an option that gets immediately rejected) and then presents her second (real) option—a small trip to Disney Land. Let's say that this Disney Land trip costs $1,000.
When we used the high $70,000 anchor in the example above, it drew up the perceived value of what was being negotiated (in that case, it was the property). Similarly, when the wife used the high $10,000 anchor, it drew up the perceived value of the trip.
Here's a question:
High anchors pull up the value of what's being negotiated.
So, when the wife presented the small Disney Land trip, did the husband view that trip as being close in value to the expensive round-the-world trip because of the high anchor? Did the high anchor pull up the husband's perception of the value of a trip to Disney Land (the "anchoring" bias)?
Or, did he view the Disney Land trip as being far less valuable due to the vast difference in price (the contrast bias)?
That's a very deep, if epistemological question you pose, Ali.
Frankly, I'm not sure, and I'm not of how one could measure the difference so to reach a definitive conclusion.
That being said, if I'd have to guess, I'd say that the effect is more about "pulling up", rather than "seeing is less valuable" (ie.: devalued).
That's because they're both in the same category: trip, entertainment, and doing something together with loved ones.
So the initial feeling is probably one of joy at the possibility of still having a trip, which can still be fun, that makes the family happy... And that is so much cheaper.
So that classify as "pull up", rather than "devalue".
VARIABLES
- Her presentation
It also depends on how she presents it, though.
If she introduces Disneyland with a frame of "you refused the real cool thing, then let's do this is terrible option here, just to do something", then it's not much of a pull up.
If she presents it with a big grin, as if to say "bingo, how about this other option, which I would also love, and that is much cheaper"?
- His preferences
If he hates Disneyworld, then the pull-up effect is depressed.
If he also loves it, then the pull-up might end up even higher than the world trip.
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Those variables are very helpful, Lucio, thank you!
That might be how I determine which cognitive bias holds more influence depending on the situation.
Rereading Methods of Persuasion right now, and I think Kolenda provides a pretty solid answer to this one too.
Based on my notes, he says something along the lines of:
Kolenda: "The assimilation effect is adjusting toward the anchor. And, the contrasting effect is adjusting away from the anchor.
When someone is forming a judgment, an anchor that is very extreme (unbelievable or seemingly impossible) will trigger a contrast effect."
So, for example:
[Student turns in his essay to be graded.]
Professor: "How do you think you did?"
Student: "Actually, Ms. Green, I think I did very well this time. (With a smile) I think it's worth an 'A'."
As Kolenda notes, “the anchoring effect” can occur even in cases without clear numerical values.
So, in this case, the student is anchoring expectations high (which triggers the assimilation effect) to draw up the professor's perception of his essay when she grades it (hence why Kolenda calls this strategy "mold their perception").
However, if that student had said:
[Student turns in his essay to be graded.]
Professor: "How do you think you did?"
Student: "Ms. Green, this essay could change the world. It's more than the greatest essay you'll ever read in your entire career, it's worth being read by all of the greatest leaders in the world right now."
That would trigger the contrast effect because it uses what Kolenda calls an "extreme anchor". The anchor is so high that people start low because starting high where the anchor is would be too unbelievable.
If this doesn't make sense, let me know and I can share more of my notes on this.
So if we had to put this in simpler terms, would this be a good summary:
Unbelievably high anchors are counterproductive, while "believably high" anchors are useful
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Quote from Lucio Buffalmano on September 16, 2021, 7:21 pmSo if we had to put this in simpler terms, would this be a good summary:
Unbelievably high anchors are counterproductive, while "believably high" anchors are useful
Yes, exactly, and vice-versa.
For example, in cases where you might be the buyer, the opposite is also true:
Unbelievably low anchors are counterproductive, while "believably low" anchors are useful
Thank you Ali, I linked to this thread from the career module of PU.
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Awesome, thanks, Lucio! Here's an added note to wrap up on this thread a bit:
Quote from Ali Scarlett on May 13, 2021, 7:37 pmHere's a question:
High anchors pull up the value of what's being negotiated. So, when the wife presented the small Disney Land trip, did the husband view that trip as being close in value to the expensive round-the-world trip because of the high anchor? Did the high anchor pull up the husband's perception of the value of a trip to Disney Land (the "anchoring" bias)? Or, did he view the Disney Land trip as being far less valuable due to the vast difference in price (the contrast bias)?
In this case, Kolenda made sure to reveal that the husband is budget-concerned. And, that's what made the first, $10,000 option unbelievable. That unbelievable anchor triggered the contrast bias where the husband viewed the Disney Land trip as much better by comparison.
In a case of presenting options in a salary negotiation, I'd say it's a good idea to be aware of what your counterpart's BATNA might be (the most they're willing to pay you). That's how one can determine what anchor would be too high and, therefore, unbelievable.
So, the general rule for salary negotiations would be:
If you start with an unbelievable anchor when negotiating for your salary—if you start too high—it will trigger the contrast effect in your counterpart because they won't believe it makes sense to pay you that much. And, therefore, instead of starting the negotiation off with a high number where your anchor is, they'll start low and (might) end up paying you less than what you're worth. (In short, don't overdo it.)
This is why the anchoring technique Kolenda recommends is what he refers to as the "bolstering range" (see "Anchor Your Offer").
*Note: I just read Lucio's section on this part in PU and I think he put it better than I did :).