All of us, at some point of time, have haggled with a street hawker, at times successfully, at times to no avail. How to Bargain Better with that inflexible street hawker? Most often, the shop keeper will quote an outrageous price which stands at the extreme end of your acceptability, while you would quote a price that is diametrically at the opposite end. This would lead to a no-win situation from which neither party benefits.
To understand how to bargain better and fix a value for the product that you are going to buy, you need to understand what is known as anchoring. Let me ask you a question.
Was Nelson Mandela 114 years old when he died?
Most likely, when you read this question, you would know that he was not 114 years old. However, hazarding a guess, there is a good chance that you would quote an age for Mandela that is close to 114. This effect is known as anchoring in behavioral psychology. It has been scientifically proven that our brains are susceptible to anchoring biases and knowing about this can help you in a lot of situations including negotiations.
Nobel Prize winner Daniel Kahneman in his book, Thinking Fast and Slow, explains anchoring in depth. He says that anchoring bias happens in two ways. It could be as a reason from the anchor towards a rational value approach, or it could be caused by your being biased by the number and hence anchoring was acting as a suggestion for you to make a choice.
How Do I Use Anchoring Better?
So how do you use this anchoring effect while bargaining a price with a street hawker. The first thing you should strive for is to gain the first mover advantage. If you can quote a price before the street hawker quotes his own, then your price will act as the anchor for further negotiations.
But what if the street hawker goes on to quote the price first. In that case there are two approaches that you can take. The first one is to make a dramatic exit by making your disapproval of the price known to him. Another approach is to use your reasoning skills to bring the price down to the minimal offer that the opponent would accept. In trying to figure out this price, you should be aware of your brain’s bias towards the anchor that the hawker had set up.
This strategy is particularly helpful in single issue negotiations like this where price is the only issue that needs to be settled. To understand more about anchoring, Daniel Kahneman’s book (Thinking Fast and Slow) is a very good source. Besides dealing with anchoring, it also explains many other biases and judgment errors that we tend to make unknowingly.