Most of us know by now that there is normally an anchoring bias associated with the first offer in negotiations. If the first offer for a house or to settle a dispute is $300,000, the first offer of $300,000 becomes an anchor with counter offers being above the offer if you are a seller and below the offer, if you are a buyer. Let us say that you are the seller and after consulting a real estate appraiser, your house should sell for $300,000.
In 2015 study by Daniel Ames and Malia Mason, Columbia University professors, found that expressing range offers can be a wise move in distributive negotiations, thanks to the anchoring bias.
Ames and Mason have identified three different types of ranges that negotiators use when making price offers in distributing bargaining varying from the unambitious to the bold:
- Bolstering range: A bolstering range includes the single-figure offer at one end and a more ambitious number at the other end, such as a seller asking $300,000-$325,000 for his house.
- Backdown range: A backdown range features the single-figure offer at one end and a less ambitious figure at the other end, such as the same seller asking $290,000-$300,000 for his house instead of $300,000.
- Bracketing range: A bracketing range spans the single-figure offer, such as an offer of $292,000-$315,000 for the same house.
In a pilot study, Ames and Mason asked nearly 400 U.S. participants to imagine that they were the seller in a used-car negotiation and to come up with both a single-figure offer and a range offer for the car. Among the participants, 51% constructed and bracketing range offers, 29% used backdown range offers, and only 17% used bolstering range offers. Research on the anchoring bias suggests why range offers may often be ineffective. If most people construct unambitious ranges, it’s not surprising their offers would lead to disappointing results.
The Benefits of Bolstering Ranges. By contrast, Ames and Mason found across five experiments that bolstering ranges, those that aggressively stretch the bounds of a single-figure offer, can be highly effective in price-haggling negotiations, thanks to the anchoring bias.
In one online experiment, participants were assigned the role of either buyer or seller of a used car. Those playing the seller were randomly asked to make one of several types of opening offers, including a single-figure offer, a bracketing range offer, or a bolstering range offer.
The results showed that buyers who received bolstering range offers made greater concessions and more conciliatory counteroffers that did buyers who received other types of offers. Why? Because they assumed that their sellers had more ambitious bottom lines, or reservation prices.
In addition, buyers faced with bolstering range offers were more concerned than buyers who received a single-figure offer that their counterpart would perceive them as impolite if they made an assertive counteroffer. The researchers theorized that a range offer signals greater flexibility than a signal-price offer. Consequently, recipients of range offers may prefer to counter within the suggested range. Range offers convey flexibility and accommodation.