Don’t be held in place by the anchoring effect! Know when to weigh anchor!

Once a number is put on the table, it can exert an untoward effect on those around the table. The “anchoring effect” of the first number put forward in a negotiation or discussion powerfully, yet often unconsciously, shifts both sides closer to that number. Even wholly unrelated anchors weigh down (or up) the subsequent number, as is persuasively explained by Daniel Kahneman, Thinking, Fast and Slow (Farrar, Straus & Giroux 2011) in Chapter 11. The next time you want a discount from a law firm, start with a figure like 25 percent. It will anchor the subsequent negotiations. If you want permission to buy software, mention early on “an ROI of perhaps 50% or more” and let that anchor work its subliminal charms.

This distorting effect surprises no psychologists and is well understood. What Kahneman also illuminated for me is the effect of a cap or floor. If a general counsel decrees that budgets have to be prepared for all matters expected to cost more than $50,000 in external fees, or if online research less than $1,000 requires no prior approval by the responsible in-house lawyer, those thresholds will influence everyone – they will anchor decisions involving them. Numeric guideposts, like goals, alter behavior (See my post of May 16, 2006: gaming performance metrics; Sept. 13, 2006: people try to manipulate performance metrics; and Nov. 11, 2009: the plasticity of numbers in goals.).