Explain how the anchoring bias can be strategically used in a negotiation to influence the final agreement, providing a specific example of how a high initial offer might shift the perception of subsequent counteroffers.

The anchoring bias is a cognitive heuristic where individuals rely too heavily on the first piece of information offered (the "anchor") when making decisions. In negotiations, this bias can be strategically used to influence the final agreement by setting an initial anchor that is favorable to one's position. The initial offer doesn't have to be a reasonable one, just one that effectively puts the negotiation in an area where subsequent discussions are swayed in a direction that is beneficial to the person who set the initial anchor. This happens because subsequent offers, counteroffers, and the final agreement are often considered in relation to that initial anchor, even if the anchor is completely arbitrary or outside what might be seen as "fair" or market value.

A high initial offer can drastically shift perceptions of counteroffers. Here’s how it works: When someone makes a high initial offer, say in a negotiation for a used car, it creates a mental reference point. Even if this initial price is significantly above the car's actual value, it affects how the opposing negotiator perceives subsequent offers. A lower counteroffer, which would seem completely reasonable in most contexts, may seem like an extremely good deal when it's being compared to the high initial anchor. The initial anchor pulls the negotiation upward. The same exact lower counter offer might be seen as insulting and unrealistic if the initial offer was low, or around fair market price.

For example, consider a scenario where you're negotiating the purchase of a piece of art. If the seller starts by asking for $10,000 (a high anchor), and you counter with an offer of $5,000, even though $5,000 might be the fair market value, it will feel like a much more significant reduction than it would have had the seller initially asked for $6,000. The high anchor makes the $5,000 offer feel like you're getting a huge bargain and it biases your judgment, making the purchase seem more attractive than it would have seemed otherwise. The seller may also agree to your $5,000 price quicker because it seems to be close to $10,000 and he has anchored on that price. Let's say the seller started with a price of $6,000, and the buyer offered $5,000, the seller might hold off for a bit longer knowing they had not set an extremely high initial asking price.

The key aspect is not just the initial number itself, but how it colors the perception of subsequent numbers. The negotiation process becomes a process of adjustment and concessions from the anchor rather than a true consideration of intrinsic value. When negotiators are anchored high, they tend to offer more, they perceive concessions as more meaningful and the final settlement tends to be in favor of the person who set the initial high anchor. If you are the one negotiating, and the counterparty sets a very high initial asking price, your counter offer should seem unreasonable to them since your perception of a fair price will tend to be much lower. By using a high initial anchor in a negotiation, one can frame the subsequent offers in such a way that the other party feels they are getting a great deal, which can create a much better chance of a favorable outcome.