Anchoring and Adjustment

Psychological phenomenon known as anchoring involves having a preconceived idea and adjusting decision-making based on it.

What Are Anchoring and Adjustment?

Anchoring is having a preconceived idea of something and adjusting your decision-making around that preconceived notion. This can happen in all areas of life, including negotiations. Anchoring is when you start a negotiation with an extreme position, either high or low, and then adjust your decision around that initial number. This can be helpful in some situations because people tend to stay close to what they initially think the value of something is.

Adjustment is the act of changing your initial position once you’ve anchored on an extreme idea. That may sound a lot like what anchoring is, but the difference is that you don’t necessarily start at the extreme. Anchoring is when you start at the extreme, which is usually either way too high or too low, and then you adjust. On the other hand, adjustment is when you take the time to understand the seller’s perspective before you even state your initial position. This allows you to start at something more reasonable and gives you an opportunity to adjust once you’ve understood the seller’s position.

For example, if you’re negotiating the price for a car, a house, or any other item and feel like the seller is unreasonably high on their asking price, what do you do? Most people would try to negotiate with the seller until they get as low of a price as possible. This isn’t always an easy feat to accomplish, though. 

How Do Anchoring and Adjustment Help You Negotiate?

As mentioned above, the idea behind anchoring and adjustment is to anchor on a high or low position and then slowly adjust down or up from that original position. When you start with a low position, the seller will very likely start with a high position and you both will end up meeting somewhere in the middle. This is exactly what you want in a negotiation – you want to meet somewhere in the middle so you both walk away happy. Anchoring and adjustment can help you accomplish this goal by starting off with an extreme position and then slowly adjusting your decision-making to end up somewhere more reasonable.

Anchoring and Adjustment in Business and Finance

Anchoring and adjustment are useful in business and finance as well. Because people tend to stay close to what they initially think something is worth, you can use this to your advantage when trying to sell something. This is known as the theory of relative worth, and it relies on anchoring and adjustment to help you sell something for more than it’s worth.

Let’s say you’re trying to sell your used truck. You know that the value of the truck is around $5,000, but you want to get as much as possible for it. You start by stating that the truck is worth $10,000 and then you slowly adjust your decision-making down to $5,000. If the person you’re selling to starts with a low offer of $2,500, you can anchor on that $10,000 number you initially stated and make the buyer adjust to $5,000 – the price at which you wanted to sell.

Anchoring and Adjustment in Supplier Negotiations

Just like negotiations in your personal life, anchoring and adjustment can help you get a better deal in negotiating with your supplier. This technique can be helpful in negotiations because it shows the seller that you’re serious about the price that you’re asking for. It also shows them that you’re actually willing to negotiate and aren’t just trying to lowball them. Anchoring and adjustment demonstrate that you’ve done some research and know what the item is actually worth.

When negotiating, it’s important to remember that everyone has a unique style. There isn’t a right or wrong way to negotiate; every person is different. That’s why it’s important to understand how anchoring and adjustment can help you get a better deal. Ultimately, you want to be able to meet somewhere in the middle so that both parties walk away from the negotiation happy.