How and Why Different Forms of Expertise Moderate Anchor Precision in Price Decisions

Abstract

Abstract. Increasing price precision leads to linearly stronger anchoring effects for amateurs, but highly precise anchors can backfire for experts. Previous research focused on experts bargaining about an object within their expertise domain (e.g., real-estate agents negotiated about a house listed at €978,781.63). This leaves unknown whether too much precision backfires for experts because of their (a) general negotiation expertise, (b) domain-specific pricing knowledge, or (c) the combination of general expertise and price-knowledge. Our pre-registered report seeks to replicate the too-much-precision effect and to experimentally separate general negotiation expertise from domain-specific price-knowledge. Seasoned experts (real-estate agents) negotiate about an object either within (house) or outside (motor yacht) their domain of expertise. We measure experts’ willingness to pay (WTP), counteroffer, self-ascribed versus other-ascribed competence, and their self-ascribed versus other-ascribed price-knowledge. Based on responses of 400 professional real-estate agents, we replicate the advantageous anchor precision effect and illustrate that too much precision backfires regardless of whether agents negotiate within (house) or outside (yacht) their domain of expertise. Mediation analysis suggests that, consistent with previous research, the impact of precise anchors is due to the competence attributed to the negotiation opponent. Our results offer insights into the psychological mechanisms and theoretical understanding of anchor precision.

How Attribution-of-Competence and Scale-Granularity Explain the Anchor Precision Effect in Negotiations and Estimations

“…al., 2016; Mason et al, 2013). Because highly precise numbers can have opposing effects depending on a person's negotiation expertise (Frech, Loschelder, & Friese, 2019)-which is not part of the present research question-we opted for moderate precise offers in the present experimental manipulations of trailing zeros.…”

Knowledge of precise offers as a negotiating tactic does not reduce its effect on counteroffers

“…Precision has also been investigated in negotiations by comparing precise offers to round offers. Precise offers have been found to result in less adjustment and final prices that are closer to the initial offer compared to round offers (Frech et al, 2019;Loschelder et al, 2014Loschelder et al, , 2016Loschelder et al, , 2017Mason et al, 2013). Loschelder and colleagues have found that perceptions of the competence of the negotiator providing the offer mediates the relationship between precision of the offer and willingness to pay judgments (Frech et al, 2019;Loschelder et al, 2016;Loschelder et al, 2014Loschelder et al, , 2017.…”

“…Although several studies have found support for perceived competence of the other party as a mediator for anchor type on counteroffers (Frech et al, 2019;Loschelder et al, 2016;Mason et al, 2013), a competing explanation is that precision results in a reduced, or more fine-grained, scale. Janiszewski and Uy (2008) tested this explanation and found differences in level of precision based on type of anchor, with round anchors producing round responses (73%) compared to precise under anchors (49%) and precise over anchors (46%).…”

Anchoring Effects: Resolving the Contradictions of Personality Moderator Research

“…Recent research on the precision of anchors has made use of the model. Besides precision being an indicator of expertise (Frech et al, 2019;Loschelder et al, 2016;, it could also influence peoples representation of numbers to be more fine-grained . argued for fine-grained adjustment by showing that precise anchors lead to precise estimate, which could also be due to some sort of linguistic conventions .…”

“…However, when it comes to precise estimates that are needed for a priori power analyses (and the determination of the necessary sample size), even a collection of 24 effects and a sample size of almost 1000 individuals do not yield a definite answer. First, anchoring effect sizes depend on multiple design features, such as the extremeness of anchors (e.g., Chapman & Johnson, 1994) and the expertise of the respondents (e.g., Frech et al, 2019). Second, even minor design choices have been shown to have a non-negligible impact on effect sizes (Landy et al, 2020) especially if the effects are large (Olsson-Collentine et al, 2020) as is the case for anchoring.…”