Negotiation Psychology: Anchors, Alternatives, and Fairness in Research

What does research really know about negotiation?

Hardly any topic in running a business is as full of rules of thumb as negotiating. Always name the price first. Never name the price first. Stay firm. Let the other side have something. Many of these rules contradict each other, and most are backed by anecdotes.

Yet negotiation is among the best-researched situations in psychology and economics. This article sorts out what is established. It answers one question: Which psychological mechanisms determine the outcome of a negotiation, and what follows for an owner?

To answer it, we first clarify the terms and introduce the model of the bargaining zone. Then come three fields of findings: anchors, alternatives, and fairness. At the end we weigh two views of negotiating and draw a conclusion. How to prepare practically for a single conversation is described in the guide Negotiating as an Owner.

The terms: floor, alternative, bargaining zone

Negotiating means that two sides with different interests look for an agreement that leaves both better off than no agreement. Three terms that come up again and again in research follow from this definition.

• The floor is the price below which a side declines. For the seller it follows from costs, minimum margin, and capacity; for the buyer from budget and competing offers.
• The BATNA is the best alternative to a negotiated agreement, meaning what a side will do if there is no agreement. It determines where the floor should reasonably lie.
• The bargaining zone is the range between the two sides' limits. Only if it exists is an agreement possible that leaves both better off.

These terms go back to negotiation analysis, which Howard Raiffa (1982) described systematically, and to the Harvard approach of Fisher and Ury (1981), which made the best alternative widely known.

The thinking model: the bargaining zone

The model of the bargaining zone is simple. The seller has a floor, the buyer a ceiling. If the buyer's ceiling lies above the seller's floor, there is room for agreement. Every price in this zone leaves both better off than no agreement. The negotiation only decides how the zone is divided.

The model explains two things often overlooked in practice. First, neither side knows the other's limit. Every negotiation is also an attempt to find it out. Second, the floor is not fixed. It depends on the alternative. Someone with a good other order in prospect can set their floor higher. The numbers in the worked example match the Four-Number Card from the negotiation guide, so that both articles show the same calculation.

An everyday analogy: when selling a used car, the seller knows his minimum price, the buyer her maximum. Both guess where the other's limit lies. A seller with three other interested buyers negotiates differently from one who has to get rid of the car by Friday.

First field of findings: anchors

The anchoring effect describes how a first number shapes both sides' later judgments. It works on experts too, as the article Pricing Psychology in B2B shows with the example of real estate agents (Northcraft and Neale 1987). In negotiations, the first offer is the most important anchor.

Petrowsky, Boecker, Escher, and colleagues (2025) summarized the research in a meta-analysis. They analyzed 374 effects from 90 samples with a total of 16,334 participants and added two experiments of their own with 2,121 people. An ambitious first offer improved the outcome for the person making it, if a deal was reached. But it lowered the likelihood of a deal and the other side's satisfaction.

The bargaining zone model explains this well. A high anchor shifts the division in favor of the person who sets it. If it lies far outside the zone, the other side considers a deal unlikely and walks away. So the anchor works, but it has a price.

Second field of findings: alternatives

The best alternative determines bargaining power. Someone who is well off without an agreement can calmly decline. Someone without an alternative gives in more easily. This can be read directly from the bargaining zone model: a better alternative raises your own floor and shrinks the part of the zone you leave to the other side.

For an owner, this means the most important negotiation preparation often lies not in the conversation but in the weeks before. A full pipeline, several customers instead of one large one, and a clear view of a customer's value over the entire relationship improve the alternative. How that value is calculated is described in the article Calculating Customer Value.

The number of issues negotiated also changes the zone. If you only negotiate price, you can only divide. If you discuss price, deadline, payment terms, and scope at once, you can trade and thus increase the joint gain. In an experiment, however, van der Schalk, Beersma, van Kleef, and a co-author (2010) showed a limitation: negotiations over 18 instead of six issues created more value only when participants were motivated to think thoroughly because they had to justify their approach later. Without that motivation, the greater complexity tended to lead to mistakes.

Third field of findings: fairness

The best-known experiment on fairness is the ultimatum game, which Güth and colleagues introduced to research in 1982. Two people split a sum of money. One proposes a division, the other accepts or rejects it. If rejected, both get nothing. In purely arithmetic terms, any offer above zero should be accepted, because something is more than nothing.

But that is not what happens. In a meta-analysis, Oosterbeek, Sloof, and van de Kuilen (2004) analyzed 37 papers with 75 results from many countries. On average, proposers offered 40 percent of the sum, and 16 percent of offers were rejected. The rejection rate fell the larger the sum and the higher the share offered. The authors found differences in responder behavior between world regions. With one exception, however, these could not be traced back to known cultural dimensions such as Hofstede's.

Zenkić, Millet, and Mead (2023) showed that fairness is not only a matter of quantity. In three studies with a combined 1,303 participants, responders received exactly half the sum, but in an unattractive form, such as many small coins, while the other kept large coins. A considerable share rejected, even though the amount was equal. When the same offer came from a computer, it was rejected less often than when it came from a person. The authors interpret this as people wanting to punish unfair treatment.

A related finding matters for business life. Curhan, Xu, and Elfenbein (2006) examined what negotiators feel beyond the outcome: about the terms, the process, the relationship with the other side, and themselves. According to Muir's (2007) summary, this subjective value shapes how participants approach future negotiations, especially with the same counterpart. In two studies with 169 and 205 participants, Lu, Ren, and Guo (2018) confirmed that the perceived value of the relationship in one round was associated with more cooperative behavior in the next.

Win a negotiation and lose the relationship, and you have only won the first round.

Two views: dividing or winning together?

Two views can be derived from the findings. The first sees negotiation as division. The zone is fixed, and every euro one side gains, the other loses. The findings on anchors and alternatives support this view. Those who prepare well, open ambitiously, and have a strong alternative get more out of it.

The second sees negotiation as a search for a solution that creates more value than is on the table. The findings on fairness and subjective value support this view. People reject unfair offers even when it costs them money, and they remember how they were treated. And those who negotiate several issues can enlarge the zone instead of only fighting over its division.

I consider the second view the more important one for owners, without discarding the first. Most small and mid-sized businesses do not negotiate with a customer once, but again and again. Then the other side's satisfaction, which an inflated anchor lowers, becomes a cost factor. The findings on anchors are not wrong because of this. They only say that the advantage of a high first offer is paid for with the risk of a failed deal and a disgruntled counterpart. An ambitious but justified offer combines both views. Where influencing others turns into manipulation is described in the article Persuasion Without Tricks.

What follows beyond the individual negotiation

The findings on fairness reach beyond sales. Anyone negotiating salaries, tasks, or vacation in their own business meets the same mechanisms. Employees judge not only what they get, but also how it came about. The article Fairness in the Workplace puts these forms of justice in context.

The limits of the research are clear. Most experiments work with students, small sums, and situations without history. Business negotiations have a relationship, a history, and usually more than one issue. The direction of the findings is nevertheless stable across many studies. In addition, negotiators are themselves subject to thinking errors, such as overestimating their own position, described in the article Cognitive Biases of Business Owners.

• Before the negotiation: derive the floor from costs and the alternative, not from feeling.
• Improve the alternative before the conversation begins.
• Open ambitiously but with a rationale.
• Negotiate several issues and know beforehand what each is worth.
• Pay attention to form, not only amount: an offer perceived as unfair costs more than it brings.

Conclusion: what determines the outcome of a negotiation?

We began by asking
psychological mechanisms determine the outcome of a negotiation. Three are well established. The anchor shifts the division but comes at a price in the chance of agreement and satisfaction. The alternative determines the floor and thus each side's strength. And fairness works like a currency of its own: people reject offers they perceive as unfair, even when it costs them money.

For an owner with regular customers, this implies a clear weighting. Preparation and the alternative secure your own result. Fairness secures the next negotiation. Research thus confirms an old merchant's rule with new numbers: a good deal is one both sides want to repeat.