What does a rigged roulette wheel have to do with the number of African countries in the United Nations, and why does the answer to that reveal probably the most determinative point of a mediation and indeed negotiation generally?
The answer lies in the 'anchoring effect', a powerful cognitive bias that shapes our judgment and decision-making, most famously identified by psychologists Daniel Kahneman and Amos Tversky. They believed that people are too heavily influenced by initial information, or ‘anchors’, when making decisions, and wanted to test how far that irrationality might go, so they conducted an experiment[1] in which participants were asked to spin a roulette wheel rigged to land on either 10 or 65. They were then asked to estimate the percentage of African countries in the United Nations. Time and again, those who spun the higher number gave significantly higher estimates than those who spun the lower one. The initial number acted as a psychological reference point for the subsequent estimate.
Anchoring and Its Impact on Negotiation Outcomes
A U.S. study in the 1990s[2] sought to apply these findings to legal settlement negotiations in which participants were given the following scenario: imagine you have a claim worth a maximum of $24,000 and you need to decide whether to settle or proceed to trial. The participants were told that the defendant had made an initial offer which they had rejected, and that a final 'take-it-or-leave-it' offer of $12,000 was now on the table. The participants were then split into two groups. Group A was told that the initial rejected offer was $2,000, while Group B was told that the initial rejected offer was $10,000.
Despite the fact that both groups faced the same $12,000 final offer, those in Group A—who had been given the lower initial offer—were significantly more likely to accept the settlement than those in Group A. The initial low offer acted as an anchor, shaping perceptions of what was reasonable or attainable.
This brings us back to the original question: anchoring is so profound that even unrelated, arbitrary anchors like Kahneman and Tversky’s rigged roulette wheel can have a material impact on decision making. In turn, studies have consistently shown the benefits of parties making the first offer as a means of creating that anchor and shaping expectations, whether in mediations or negotiations generally. Indeed, anchors can often impede rational decision making on the part of those exposed to them. Now that isn’t to say that taking extreme opening positions is a great idea either – there’s lots of examples, including a recent mediation of mine, of an extreme starting point creating an irredeemable barrier to settlement - but that might be a matter for another blog.
[1] Amos Tversky & Daniel Kalmeman, “Judgment Under Uncertainty: Heuristics and Biases”
[2] Russell Korobkin & Chris Guthrie, “Opening Offers and Out-of-Court Settlement: A Little Moderation May Not Go a Long Way”