A high ini­tial offer in nego­ti­a­tions is more likely to lead to a high final price, yet in auc­tions a low start price is more likely to lead to a high final price.

These are the find­ings of a recent study that attempted to find the opti­mal start­ing prices for 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 behav­iour.

As Mind Hacks sum­marises: nego­ti­a­tion relies heav­ily on the anchor­ing effect (of which there are “few psy­cho­log­i­cal phe­nom­ena as robust”), whereas in auc­tions “price rise [is] dri­ven by social com­pe­ti­tion and so start­ing with a low entry point encour­ages more peo­ple to join in; once some­one has bid, they have made a com­mit­ment which is likely to encour­age them to con­tinue; and finally, more bids leads us to infer that the item has a higher value”.