We document how starting prices differentially impact outcomes in negotiations and auctions. In negotiations (where the number of actors is often predetermined), starting prices drive cognitive processes, leading individuals to selectively focus on information consistent with, and make valuations similar to, the starting value. Thus, starting high will often lead to ending high in negotiations. Conversely, in auctions (where the number of actors is determined during the course of the auction), low starting prices catalyze social processes that can lead to higher final prices: Low starting prices lower barriers to entry and increase the number of bidders; produce more sunk costs for early entrants; and lead participants to infer greater value from this increased bidding activity, resulting in herding behavior. By examining the differential intrapsychic and interpersonal processes that starting prices activate in negotiations versus auctions, we offer a first step toward a more complete understanding of anchoring effects in economic interactions.
Galinsky, Adam, G. Ku, and T. Mussweiler. "To start low or to start high? The case of auctions vs. negotiations." Current Directions in Psychological Science 18 (2009): 357-361.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.