Anchoring and Adjustment What is it about the product or presentation you are offering that is attractive to the other party that will create a positive outcome. The bias of anchoring and adjustment is applying appropriate value to the service, product, or presentation being offered. An example would be purchasing a product on e-bay. One of the attractions of bidding on e-bay, is the automatic bidding feature. The buyer places a particular value upon the product. The seller may or may not have a set price. For the purpose of this example, the seller has not set a particular price.
The product is a prized, hard to find Christmas item that your three year old child must have. While you are willing to make a sacrifice, what is the sacrifice worth to you? The buyer puts into play a price that is reasonable to him/her. While also putting in the maximum amount he/she is willing to pay for the product. The minimum bid is placed at 500 dollars. A friend of yours knew you were seeking this particular item for your child and offers to sell the item for 750 dollars. An anchor has been set, a specific value on the item your child desires.
One advantage is that you can see the condition of the item, where the e-bay seller has offered a picture. Framing Outcomes Framing outcomes presents a bit more complex bias in negotiation situation. Risk is introduced as a threat to the negotiation process. This bias is one in which the negotiator must be able to know the different types of risk and guess at the risk another party is willing to accept. In the example set above, all three risks could be put into action or play. The buyer could decide to be risk-neutral and attempt to bring the friends price to the acceptable offer of the maximum bid offered on e-bay.
The second option is risk-averse which would be to accept the neighbors offer without negotiation, in other words the offer is accepted without challenge. The third option, risk-seeker would involve the person willing to accept the loss if the he/she is outbid on e-bay and thus the childs disappointment. Missing a cue such as the willingness to take risk could be vital in the outcome of the process. The neighbor in our scenario definitely has the advantage of the endowment effect. As owner of the desired item he/she is most likely placing a higher value on the prized Christmas toy that may be acceptable.
The effect of ownership serves as a bias in that the item has come to have more value, in the mind of the seller. A situation which may leave the seller holding a useless toy, once the holiday season has passed. Availability of Information This would seem to be one of the most vital parts in negotiation. The negotiator should have most if not all the information that is possibly available. However, it seems likely, that this step though important could also be easily missed. The article pointed out that information can easily be misconstrued due to the attachment a person may or may not have to the process.
Continuing in the example of the desired toy; How vital has it become in the buyers mind to attain the toy for the child? Have there been news reports showing long lines and large shortages of the availability of the toy? Have advertisements for the desired item been more frequent, thus making the item much more valuable to the child? How willing is the parent to avoid tears and disappointment on Christmas morning? In the process of negotiation the importance of information, must in some way, be mined by the negotiator to create the desired outcome.
Knowledge is always a valuable thing, whether this is revealed to the relevant parties is not important. The negotiator should know about the parties being worked with, as well as the desired outcome and that which makes the outcome desirable. Conclusion Awareness of the biases in negotiation are important to the would be person who chooses to arbitrate or mediate in decision-making. The three problems outlined above are all important and complex. The arbitrator must have the skill of being able to know the value of that outcome which is most desirable and palatable.
The negotiator should have an excellent working knowledge of human behavior and those actions that may come into play during a negotiation. The negotiator must be willing to study and learn, not only the process of negotiation, but what makes the desired outcome, just that? An arbitrator or mediator works toward an outcome agreeable to all parties, creating a win-win situation, known or unknown to the involved parties. Awareness of negotiator biases provides access to those traps a negotiator may become entangled. Through higher knowledge and awareness the would be negotiator should be able to avoid those biases before becoming a problem.