Bargaining is mastered in the streets of India. Roadside bazaars are fertile grounds for training this skill. Here, I have seen customers adopt both approaches – to walk away from unreasonable deals or to persist and bargaining hard and reach a compromise.
Every trader in a bazaar has learnt to use anchoring to his advantage. Anchoring is a phenomenon by which our mental decisions are heavily swayed by an initial piece of information. When a trader quotes Rs. 1000 for an article of clothing, he has raised its price to a particular benchmark. A real estate agent who tells us that a house is worth 3 million dollars, pushes its worth in our eyes towards this value. Other examples include “estimates” in fine art auctions and discounts offered on e-commerce websites on “original” prices.
Anchoring is prominent across businesses. How do we guard ourselves against it?
Kahneman suggests that we refrain from making counteroffers that are too far to the other side. This usually creates a gap between the parties that cannot be bridged through subsequent negotiations. Instead, he suggests that we make a scene, state how ridiculous that proposition is and refuse to continue until it is withdrawn. In the process, we convey to the other party, as well as our own mind, how absurd the anchored value is.
Coming back to the Indian bazaars, I have witnessed both approaches – walking away from ridiculous offers, or trying to bargain hard by swinging to the other side. Walking away guards us better against anchoring. When we are called back, we can set the new terms for the deal.
Inspiration: Thinking, Fast and Slow – Daniel Kahneman