You will be able to explain anchoring and why first offers carry weight.
You walk into an electronics shop in Funan to look at a laptop. The tag says S$2,199, crossed out, and below it S$1,699. Without thinking about it, you've started to see S$1,699 as a deal. You haven't checked what the laptop sells for elsewhere, or whether anyone ever paid S$2,199. The first number has already done its work.
This module is about that effect, and what it means for the first number in a negotiation. This lesson explains how it works. The next four show you how to use it, and how to stop it being used against you.
In 1974, the psychologists Amos Tversky and Daniel Kahneman published a paper on the mental shortcuts people use when they make judgements under uncertainty. One of those shortcuts they called anchoring. When people estimate a quantity, they tend to start from whatever number is in front of them and adjust away from it. The adjustment is usually too small, so their final estimate stays close to the starting point.
What made the finding striking was that the starting number didn't have to be relevant. In one of their experiments, a number produced by something like a spinning wheel, which obviously had nothing to do with the question, still pulled people's estimates towards it. People given a higher random number gave higher answers to a factual question than people given a lower one.
The term for this starting number is an anchor. Once it's set, people judge everything else by its distance from it. S$1,699 feels cheap because it sits S$500 below S$2,199, not because of anything you know about laptops.
Negotiations are full of uncertainty about value. What is this role worth? What should this flat rent for? What's a fair fee for eight videos a month? When nobody knows the answer for sure, the first credible number on the table often becomes the reference point for everything that follows.
Think about Wei Ling's offer call from module 2. If the recruiter opens at S$5,200, the conversation tends to happen around S$5,200: will they go to S$5,400, S$5,500? If Wei Ling had opened at S$6,200, the same conversation tends to happen around S$6,200: will she accept S$6,000, S$5,900? The range they discuss, and often the place the deal lands, has moved because of who spoke first and what they said.
That's why the first offer carries more weight than it seems to. It frames the rest of the discussion. The next lesson looks at when it pays to go first, and when it doesn't.
You might expect professionals to be immune. They know their markets, so surely a stray number wouldn't move them. One study suggests otherwise. In 1987, Gregory Northcraft and Margaret Neale gave estate agents the same house to value, with different listing prices on the information sheet. The listing price shifted their valuations, even though most of the agents did not list it as one of the things they had relied on.
The practical lesson isn't that experts are foolish. It's that market knowledge gives you a defence, but a partial one. The person who has done the research in lesson 3.1, Research the market and the other side, will be pulled less than someone who hasn't, but will still be pulled. That's one more reason to collect your own data before a negotiation, so you have your own reference points sitting next to theirs.
Here's the uncomfortable part. Knowing about anchoring doesn't make you immune to it. You've now read this lesson, and if someone named a salary or a rent to you tomorrow, it would still pull your sense of what's reasonable. The effect works below the level of deliberate thought.
What protects you is a habit, done before you hear their number. Write down your own figures first: your reservation point, your target and your opening, each with its reason, as you did in module 2 and lesson 3.3. When the other side's number arrives, compare it with what's on the page, not with what feels reasonable in the moment.
Wei Ling has her note on her phone: target S$6,200, reservation S$5,500, with a sentence of reasoning for each. If the recruiter says S$5,200, she won't start thinking in terms of S$5,200 plus a little. She'll see that it's S$300 below her walk-away line, and S$1,000 below her target, and respond from there.
Most people can recall an anchor that worked on them: a sale tag, a car dealer's first price, a salary someone mentioned before they'd thought about their own number. The activity asks you to bring one of those moments back and look at how it shaped what you accepted.
Recall a purchase or negotiation where the first number you heard shaped what you accepted, and write down how it influenced you.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).