AI Wealth Truth (80): Why the "Anchoring Effect" Is Worth Millions in Negotiation

I. In negotiation, who should make the first offer? Common advice says: let the other side go first to get more information. But psychology research suggests the opposite.

II. This involves a psychological phenomenon: anchoring effect (Anchoring Effect).

III. What is the anchoring effect?

IV. When people make estimates, they are influenced by the first number they see. That first number is the anchor. Even if the anchor is irrelevant, estimates get pulled toward it. The anchor sets the reference frame.

V. A classic experiment:

VI. Researchers asked participants: how old was Gandhi when he died? First they showed a random number (such as 35 or 140). Those who saw 35 estimated on average in the 50s. Those who saw 140 estimated on average in the 70s. An irrelevant random number influenced judgment.

VII. In negotiation, anchoring is extremely powerful.

VIII. Whoever makes the first offer sets the anchor. If you offer 1,000,000, the other side's counteroffer will revolve around 1,000,000. The final outcome gets pulled by that anchor. The first offer controls the negotiation frame.

IX. Adjustment is usually insufficient. After seeing an anchor, people adjust, but the adjustment is often not enough. If the anchor is 1,000,000, they may counter at 700,000 and feel they won. But without that anchor, they might have started at 500,000. The anchor raises the outcome invisibly.

X. Research data: Negotiation outcomes are highly correlated with the first offer. The first mover often gets a better result. The influence of the first number is larger than you think.

XI. Anchoring is everywhere in wealth:

XII. Salary negotiations. If you state an expected salary of 500,000, the company negotiates around 500,000. If you wait for the company to open, they may start at 350,000. Setting the anchor proactively often helps.

XIII. Real estate transactions. The seller's asking price is the first anchor. The buyer's counteroffer is influenced by it. Pricing strategy shapes the negotiation.

XIV. Investment valuation. In fundraising, founders propose a valuation first. Investors' evaluations are influenced by that number. Anchoring is crucial in valuation talks.

XV. How do you use anchoring well?

XVI. 1. Make the first offer. If you have a reasonable basis, set the anchor yourself. Do not let the other side anchor first. It hurts you. Control matters more than information.

XVII. 2. Start a bit higher. Your opening offer is the anchor, and the final outcome adjusts toward it. If you open at 500,000, you may get 450,000. If you open at 600,000, you may get 500,000. A higher anchor pulls up the outcome (within a reasonable range).

XVIII. 3. Use precise numbers. Saying "52,350" works better than saying "about 50,000". Precise numbers look better grounded. Precision increases credibility.

XIX. 4. Introduce multiple anchors. Offer multiple options (high, medium, low) and steer the other side toward the middle. The middle option is often chosen.

XX. How do you defend against anchoring?

XXI. 1. Notice the anchor. When the other side opens, remind yourself it is a tactic. Do not let their anchor control your judgment. Awareness is the first step of defense.

XXII. 2. Break the anchor. If their anchor is absurd, do not negotiate on its basis. Ignore it and reset with your own anchor. Replace their anchor with yours.

XXIII. 3. Do an independent assessment. Before seeing their number, decide your target and bottom line internally. Do not let their number influence your judgment. Anchor yourself first.

XXIV. In the AI era, anchoring still applies.

XXV. AI can help you analyze market data, competitor pricing, and reasonable ranges. You can set anchors with more evidence. AI is a weapon for setting anchors.

XXVI. But AI can also be anchored. If you give AI a reference number, its output can be biased. AI is not immune to cognitive biases.

XXVII. Anchoring is one of the most underestimated negotiation skills. The first mover often gets a better outcome. The first number can be worth millions. Many people fear making the first offer because they might get it wrong. But the cost of not making an offer can be higher. Learn to set anchors and learn to defend against anchors. This is a core negotiation skill.