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Aspirations, Anchoring, and Negotiation Results

By Charles B. Craver

When people prepare for negotiations, they spend hours and sometimes days thinking about the factual issues, the legal doctrines, the economic matters, and anything else they consider relevant. They usually spend no more than ten to fifteen minutes thinking about their negotiation strategy. In fact, most negotiators begin an interaction with only three things in mind that directly relate to their encounter: (1) where they plan to begin; (2) where they hope to end up; and (3) their bottom lines. Once they announce their opening offers, they wing it thinking of the interaction as wholly unstructured. They are incorrect. Negotiations tend to be quite structured. They move from the Preliminary Stage during which the parties establish their identities and the tone for their interaction. They then move into the Information Exchange during which proficient negotiators ask open-ended questions designed to induce the other side to disclose their underlying needs and interests and their bargaining objectives. Once this "value creation" stage is over and the parties have a good idea of what is available to be divided up, they move into the Distributive Stage which involves "value claiming" as the negotiators vie for the items available for distribution. When they begin to approach a real agreement, they enter the Closing Stage as they work to solidify their deal. Negotiators who move too quickly to achieve the certainty of an accord tend to concede more than more patient opponents, and they close more than half of the gap remaining between the parties when they reached this point in their interaction. Once the parties achieve final terms, they should use the Cooperative Stage to see if there is any way they might be able to expand the overall pie and simultaneously improve their current positions. They should strive to reach the Pareto superior point at which neither can gain further without the other sustaining a loss. If they can determine which items may have ended up on the wrong side of the table, they can exchange these terms for issues each would prefer to have and achieve more efficient final agreements.

In this article, I would like to discuss two factors which significantly influence agreements reached by negotiators: (1) their initial aspiration levels and (2) the anchoring effect of their initial positions.

I. Importance of Beneficial Aspirations

When I teach my negotiation class to law students, I give them an early exercise in which the parties must try to resolve a typical personal injury claim. I give them the information pertaining to their exercise, and ask them to complete an accompanying questionnaire. In that questionnaire, I ask those representing the claimants how much they hope to obtain, and I ask those representing the defendants how little they hope to pay. I then ask them to negotiate with each other and work to achieve settlements. As soon as they are done, I ask them to answer another question: How well do they think they have done compared to other negotiators in the class? Are they well above average, above average, average, below average, or well below average?

I then prepare a table listing their questionnaire answers and the actual terms agreed upon. For this particular exercise, I usually obtain agreements that range from about $300,000 to $2,000,000 even though they all possessed the identical information. I then talk about their preliminary assessments and their final outcomes. Claimants who thought they might obtain $4 or $5 million tend to get at least $1.5 million or more. Individuals who only thought they could get $1 million tend to have agreements in the $500,000-$750,000 range. Defendants who thought they would have to pay $1,000,000 tend to pay $1,500,000 or more, while those who thought they should settle for $300,000 or $400,000 tend to be in the $500,000 to $750,000 range. I do this to graphically demonstrate the direct correlation between their preliminary aspiration levels and their final outcomes.

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October 2005