New Approaches to Procurement Negotiation – Anchoring

Our new briefing paper is titled “New Approaches to Procurement Negotiation – Dr Daniel Kahneman and Behavioural Psychology Suggest Some Winning Techniques”. You can download it here, free on registration.

It arose after our last BravoSolution Real World Sourcing event, which looked at the latest thinking in behavioural psychology and how it might impact negotiation strategy, approaches and ideas. We looked in particular at the work of Dr Daniel Kahneman, who won the Nobel Prize for Economics, despite being a psychologist, not an Economist!

He won the prize for showing that humans do not behave rationally in an economic sense when we make decisions. That blew big holes in many economic models and theories, which assumed consumers always behaved logically. No they don’t, said Kahneman and his collaborators in the field of behavioural psychology, they behave very illogically at times!

The session went down very well, so we have turned some of that material into this paper. In it,  we look at a brief background to Kahneman’s work and his ideas on System 1 and System 2 thinking, then we get into three concepts that are areas of interest to negotiators – Priming, Anchoring and Risk. We are featuring a few extracts here (two previous ones are here and here) and today we will look at the concept of Anchoring. That actually gives some intellectual backing to one of the oldest negotiation ideas around - making a very high / low bid to start the process. Please download the whole paper here for a lot more insight and ideas.

Anchoring

Anchoring is a variant of Priming, but with strong relevance to negotiation. It describes the way in which our thinking is guided and even constrained by the information that is put in front of us. Anchoring is the tendency for us to fix our thoughts around a particular number, point, or fact rather than thinking logically and independently about a decision.

“Anchoring” our thoughts has major implications for negotiation, in particular, but also for supplier management and other situations. It is interesting that it also takes us back to one of the negotiation tips which has been around for many years, and may have proved to be better advice than the “sun in their eyes” idea we mentioned earlier. More on that later.

In Kahnemann's words, "Anchoring occurs when people consider a particular value for an unknown quantity before estimating that quantity." The estimates then stay close to the initial number considered, even if there is little logic to that. This is one of the most tested and robust results in experimental psychology; it is an absolutely proven phenomenon, and some of the experimental evidence is quite astounding.

In a somewhat frightening example quoted in Thinking, Fast and Slow, German judges were asked to throw a dice before being asked what sentence they would give for a particular crime. The dice came up with either the number 3 or 9. When the dice said 9, the average sentence was 8 months. When it said 3, the average was 5 months!

The implication for procurement is very clear in the negotiation arena. Whatever number gets anchored in your brain is in danger of becoming the starting point - and indeed the expectation - for the negotiation. You may work up or down from there, but it is difficult not to mentally accept that number as an anchor for the discussion.

Download the paper now to find out how Anchoring might help or hinder our performance in negotiations.

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