The above video is a scene from the movie Stardust, in which Captain Shakespeare (Robert De Nero) can be seen attempting to sell bolts of lightening to Ferdy (Ricky Gervais), which leads them to negotiate over the sale price.
At first, Ferdy doesn’t seem too keen on the product when he says “it doesn’t seem very fresh” but regardless of this, Captain Shakespeare gets Ferdy to make the first offer (“So, name your best price”). Usually, research would suggest that whoever makes the first offer gains a trading advantage, as the final outcome tends to be in their favour (Galinsky & Mussweiler, 2001), This however is not the case in this clip as Captain Shakespeare immediately discounts the offer and tells the men to put the merchandise back on to the ship, as if refusing the offer of 150 guineas due to it being too low.
This offer does however act as an anchor for the rest of the negotiations and once this anchor is set, all of the other judgements are biased around that anchor. So, in a sale, the initial price offered sets the standard for the rest of the negotiations. Orr & Guthrie’s (2005) meta-analysis found a strong positive correlation between the initial anchor and the negotiation outcome. An example of this outcome is demonstrated by a study by Tversky and Kahneman (1974), in which participants were exposed to a random number between 0 and 100 from the spin of a roulette wheel, and then were asked to estimate the percentage of African Nations within the United Nations. Participants whose roulette wheel landed on a high number tended to give higher estimates than participants whose wheel landed on a low number. This therefore demonstrates the anchoring effect as the roulette numbers were acting as anchors for participant’s subsequent guesses.
Before making the first offer Ferdy makes sure to ask questions (“for 10,000 bolts?”). Asking questions during negotiation is very beneficial. Thompson (1991) found that seeking information during negotiations, improved the accuracy of the subjects’ judgments about the other party and led to more mutually beneficial negotiation agreements.
In response to Captain Shakespeare’s threat to leave Ferdy makes a concession, suggesting a price of 160 guineas. This gives Captain Shakespeare an idea of how much the product he is trying to sell is worth to Ferdy, and thus gives him a guideline as to the amount he can ask for. This leads him to say that he will “settle for 200”. Ferdy is not happy with this offer and continues to make concessions (“180”, “185”) but Captain Shakespeare refuses, sticking with 200.
In the end they finally agree on a sale price of 195 guineas, but unfortunately for Ferdy, with sales tax, this rounds off the deal at 200 guineas anyway and thus his haggling efforts were wasted. So, the next time you try to negotiate a price for something, I wouldn’t recommend taking a leaf out of Ferdy’s book.
Galinsky, A. D., & Mussweiler, T. (2001). First offers as anchors: the role of perspective-taking and negotiator focus. Journal of Personality and Social Psychology, 81(4), 657-669.
Orr, D., & Guthrie, C. (2005) Anchoring, Information, Expertise, and Negotiation: New Insights from Meta-Analysis. Ohio State Journal on Dispute Resolution, 21, 597-612.
Thompson, L. L. (1991) Information exchange in negotiation. Journal of Experimental Social Psychology, 27(2), 161-179.
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124–1131.
Natasha Foxon (Blog 5)