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Aspirations, Anchoring, and Negotiation Result

negotiation-result

Summary

Discover why anchoring can obtain a better result on the final terms from your opponent in all your negotiations. Learn how to set appropriate aspiration levels.

by Charles B. Craver

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When people prepare for negotiations, they spend considerable time thinking about the factual issues, the legal doctrines, the economic matters, and anything else they consider relevant. They frequently spend no more than ten to fifteen minutes pondering about their negotiation strategy. In fact, most negotiators begin an interaction with only three things in mind that directly relate to their encounter:

  1. where they plan to begin;
  2. where they hope to end up; and
  3. their bottom lines.

Once they declare their opening positions, they wing it thinking of the interaction as wholly unstructured. They are mistaken. Negotiations tend to be quite structured. They move from the Preliminary Stage during which the parties establish their identities, and set the atmosphere for their interaction. They then proceed into the Information Exchange during which capable negotiators ask open-ended questions designed to induce the other side to reveal their underlying needs and interests and their bargaining intentions. Once this “value creation” stage is completed, and the parties have a good idea of what can be distributed between the parties, they shift into the Distributive Stage which involves “value claiming” as the negotiators advance the items available for distribution. When they begin to approach an actual agreement, they enter the Closing Stage as they work to solidify their agreement. Negotiators who move too swiftly to achieve the certainty of an accord tend to yield more than more patient opponents, and they close more than half of the gap remaining between the parties when they’ve arrived at this point in their interaction. Once the parties attain the final terms, they should use the Cooperative Stage to see if there is any way they might be able to expand the overall pie, while enhancing their current positions at the same time. They should strive to reach the Pareto superior point at which neither can gain further without the other sustaining a loss. If they can establish which items may have ended up on the wrong side of the table, they can exchange these terms for issues each would prefer to have and achieve more efficient final agreements.

In this article, I would like to discuss two factors which significantly affect agreements reached by negotiators:

  1. their preliminary aspiration levels and
  2. the anchoring effect of their initial positions.

I. Importance of Beneficial Aspirations

When I teach my negotiation class to law students, I give them an early exercise in which the parties must attempt to resolve a typical personal injury claim. I give them the information relevant to their exercise, and ask them to complete an accompanying questionnaire. In that questionnaire, I ask those representing the claimants how much they hope to obtain, and I ask those representing the defendants how little they hope to pay. I then ask them to negotiate with each other and try to achieve settlements. As soon as they are done, I ask them to answer another question: How well do they think they have done compared to other negotiators in the class? Are they well above average, above average, average, below average, or well below average?

I then prepare a table listing their questionnaire answers and the actual terms agreed upon. For this particular exercise, I typically obtain agreements that vary from about $300,000 to $2,000,000 even though they all possessed the identical information. I then discuss their preliminary assessments and their final outcomes. Claimants who thought they might obtain $4 or $5 million tend to get at least $1.5 million or more. Individuals who only believed they could get $1 million tend to have agreements in the $500,000-$750,000 range. Defendants who thought they would have to pay $1,000,000 tend to pay $1,500,000 or more, while those who believed they should settle for $300,000 or $400,000 tend to be in the $500,000 to $750,000 range. I do this to graphically demonstrate the direct correlation between their preliminary aspiration levels and their final outcomes.

People who want more when they negotiate usually get more and individuals who don’t want as much generally don’t get much. One of the best students I ever had told me that whenever he received a negotiation exercise, he attempted to determine the best deal he could hope to obtain for his side. He then added some things until his position seemed unreasonable. He then worked to defend his seemingly unrealistic position until he became comfortable defending it. Only then did he begin to interact directly with his opponents. Week after week he cleaned his adversaries out. At the close of the term when we discussed the most successful bargainers, several of his opponents indicated that he was not really that good a negotiator. They said that when they got down to the end of their interaction, he seemed so certain he was right; they thought maybe they were wrong. In one sentence, they deftly defined the art of negotiating.

By developing a solid and positive aspiration level and convincing himself that he deserved what he was seeking, this person had the ability to obtain optimal results for himself. The confidence he expressed induced less confident opponents to accept his assessment and move in his direction. This is a factor I have noted in all of the students who have done well in my classes over the past thirty years. They are able to establish good aspirations and defend their positions forcefully.

When individuals prepare for bargaining encounters, they must gather all of the relevant information and start to ask themselves how well they could realistically hope to do. When in doubt, they should reach a little higher, remembering that no one can hope to obtain more than they think they can achieve. They have to be especially cautious when setting their aspiration level. If they set it too low, they will achieve less beneficial results than they could have achieved. On the other hand, if they begin with wholly unreasonable objectives, they may either turn off their opponents or cause them to lose interest from the outset or produce non settlements that could have been avoided had they had more realistic goals.

When setting their aspiration levels, negotiators have to not only consider their own side’s circumstances, but also those of the other party. How much does that side need to realize a deal? What happens to that party if they fail to reach any agreement? If that side’s non settlement options are worse than this side’s alternatives, this side has the greater bargaining power. What bargaining leverage does that side possess, and what are their objectives likely to be? If they think that party will set modest objectives, they should plan to exploit this weakness by persuading that side that they can’t hope to achieve too much.

The second part of my questionnaire concerns how the participants feel once they have reached agreements. I find the information given by the answers to this question especially revealing. Claimants who have obtained the most beneficial deals think they are average or below average, while those who have attained the least beneficial terms think they are average or above average. Why? Those who anticipated outstanding deals – $4 or $5 million – are disappointed that they were only able to get $1.5 to $2 million. On the other hand, the individuals who only hoped to get $1 million are especially pleased with anything over $750,000. The students on the defence side tend to have a more realistic picture, since they understand that they would have to pay something. Nonetheless, the defendants who thought they would have to pay at least $1 million tend to be pleased with anything under $1.2 or $1.3 million, while those who hoped to pay no more than $600,000 or $700,000 are disappointed with anything over $1 million.

From the answers to these last questions, I point out a paradox that affects most negotiators. Those persons who are the most satisfied at the conclusion of an interaction are apt to achieve less beneficial results than those who are less satisfied. Those who did not hope to obtain much were able to come close to their preliminary goals and they were happy. Those who established more generous goals are disappointed by their failure to get everything they wanted. I then tell my students that they should feel comfortable at the end of bargaining encounters if they believe they did all right even though they are disappointed that they didn’t do better. On the other hand, when they are completely pleased with their results, they should be nervous. What else might they have obtained had they only established higher initial objectives?

Persons who usually obtain everything they want when they negotiate should raise their aspiration levels. They must do this in increments to prevent future disasters. They should initially raise their goals by five or ten percent. If they continue to get most of what they desire in the coming weeks, they should increase their goals by another five or ten percent. They should continue this practice until they start to come up short. If they never feel disappointed at the end of their negotiations, they should recognize that they have probably failed to establish sufficiently elevated aspiration levels.

II. Impact of Anchoring

Many negotiation teachers instruct students to begin their interactions with reasonable positions that will encourage their opponents to respond in kind. This win-win approach will permit the bargaining parties to achieve results that are fair to both sides. The problem with this advice is that is empirically untrue. The fact that one side has begun with a reasonable position does not pressure the other side to respond with a similarly realistic offer. In fact, manipulative opponents can use opportunistic behaviour to seize the advantage. They can begin with a less generous offer and implement strategic tactics to obtain better deals for themselves.

The beginning positions articulated by people when they negotiate significantly affect the final terms they achieve. When someone begins with a reasonable opening offer, their opponent begins to believe he or she will do better than they initially imagined. They are emboldened. They increase their goal and articulate a less generous position than they might have expressed to take advantage of the other side’s naivety. On the other hand, if they initially receive a lower generous opening offer, they begin to doubt their preliminary assessment. They think that they will not be able to do as well as they originally hoped. As a consequence, they lower their expectation level and begin to think they will have to give the other party a better deal for that side than they hoped.

Individuals who use a cooperative negotiation style should be cautious not to announce reasonable opening offers unless they are absolutely certain they are interacting with persons who share their philosophy and will reply in kind. If they have any doubts, they should always formulate initial positions that offer them more bargaining room. They must remember that less generous offers are inclined to undermine opponent confidence, while more generous offers tend to embolden those parties.

To demonstrate the impact of anchoring, I provide my students a fact pattern describing a typical motor vehicle accident. They all receive the exact same fact information and are told they represent the defendant. They are advised of the initial demand they have just received from the plaintiff lawyer and asked how much they think they will have to pay to settle the matter. I vary only one factor. Half of the students are told they have been given a $60,000 demand, while the other half are told they have received a $30,000 demand. Those facing a $60,000 demand indicate that they will have to pay more than those facing a $30,000 demand. In many cases, those facing the $60,000 demand reveal that they will have to pay more than $30,000 to settle the case.

I generally suggest that negotiators should start with opening offers that are as far away from where they hope to end as they can – and which they can rationally defend. If they begin with wholly impractical positions, they lose credibility and undermine the likelihood they will achieve agreements. On the other hand, if they begin with positions which don’t favour their own side, they put themselves at a distinct disadvantage.

One other reason for beginning with opening offers that favour one’s own side pertains to the use of “bracketing.” Negotiators tend to move from their opening positions toward the centre. If people can entice their opponents to articulate the opening position, they can reply with an initial offer that places their goal in between the parties’ opening positions. As the parties make reciprocal concessions, they can proceed to use bracketing to keep their objective near the midpoint between their present positions. If they do this successfully, they can often achieve better deals than they could have obtained had they not started with a position which placed their objective near the midpoint between the parties’ opening offers.

III. Conclusion

Negotiators should always remember the importance of beneficial aspiration levels and the affect of anchoring. People who hope to achieve better deals tend to do so, while those with lower aspirations are inclined to generate less generous results. It thus behoves individuals preparing for bargaining interactions to establish high, but rationally defensible, goals. They should also value the impact of anchoring. When they begin with high demands or low offers, they begin to undermine opponent confidence and influence those persons to question their preliminary assessments. On the other hand, when they begin with modest demands or overly generous offers, they embolden opponents and prompt them to contemplate better deals than they preliminarily thought possible. If they can induce their opponents to articulate the first offer, they should use bracketing to maintain their objective between the parties current positions. As the participants move toward the midpoint between their respective positions, this may allow them to achieve optimal results for their own side.

Persons who usually obtain everything they want when they negotiate should increase their aspiration levels. They must do this in increments to avoid future disasters. They should initially raise their goals by five or ten percent. If they continue to get most of what they want in the coming weeks, they should raise their goals by another five or ten percent. They should persist with this practice until they begin to come up short. If they never feel disappointed at the end of their negotiations, they should recognize that they have probably failed to establish sufficiently elevated aspiration levels.

Charles B. Craver is the Freda H. Alverson Professor of Law at George Washington University.

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