In negotiations, one strategy leads to better economic gains, but worse relationships

Anyone who has ever negotiated a salary or purchased a car knows such conversations about money can be trying. You go in with a number in your head, a dollar figure that makes you comfortable or happy, and before you know it, you’ve accepted a job for a lower amount or spent thousands more on a vehicle than you’d intended. 

Researchers from the University of Pennsylvania and Johns Hopkins University may now better understand why that happens, due to a concept called phantom anchoring. “Phantom anchors are offers that have been on the table but have been retracted,” says Penn’s Nazli Bhatia, who studies and teaches about negotiation. “They have been mentioned but are no longer available.”  

In a car-buying example, the seller might say something like, “I wasn’t going to accept anything less than $11,000, but you seem like a nice person, so I’ll give you the car for $10,000.” The $11,000—the more aggressive but retracted number—is the phantom anchor. This idea is well-known in the business world. But Bhatia and Johns Hopkins colleague Brian Gunia discovered something new, findings they published in the journal Organizational Behavior and Human Decision Processes. 

Through multiple studies, they learned that this tactic brings an economic advantage to the person using it, but also comes at a cost to the interpersonal relationship between the parties. In other words, “you do get better counter offers, which lead to better settlement prices, but at the same time your counterpart finds you more manipulative,” Bhatia says. Those negative side effects dissipate, however, if the negotiator signifies a high level of cooperation, or justifies the phantom anchor with an objective fact, such as the Kelly Blue Book value for a car. 

The idea for the project came about when, during another experiment, Bhatia noticed participants using variations of this tactic. She was intrigued. 

She and Gunia first decided to ask salespeople, whose jobs require them to negotiate in real life, to estimate how often they use phantom anchoring. The 50 participants answered that they employ the strategy about a third of the time. Results from a second study that analyzed coded negotiation transcripts found similar incidence.

From there, the researchers conducted seven more experiments, some online, some face to face, to better understand this negotiation strategy. In one about jobs and salary, for example, the recruiter either did or did not use a phantom anchor. Some scenarios included information highlighting the recruiter’s cooperative attitude or objective information, like average salary for a similar position from a job-placement site. 

“In that last scenario,” Bhatia says, “the recruiter would say, ‘I was thinking about offering $55,000 but I can do $60,000.’ Because having the average range for this job offers something objective, the more aggressive $55,000 phantom anchor is now justified.” 

All nine studies pointed to the idea that such a tactic leads to better economic outcomes for the user, but worse interpersonal relationships. The findings surprised the researchers because in typical negotiations, less aggressive counteroffers go hand in hand with better perceptions. In other words, if I view you, the seller, in a positive light, I’ll be less aggressive in trying to negotiate. Yet here, the two concepts diverge.  

“When we started, we didn’t know what to expect,” says Bhatia, who teaches in the Wharton School and is a senior research fellow in the School of Arts and Sciences’ Psychology Department. But “I’ve been running experiments for quite some time now and I’ve never had a more robust effect. The phenomenon is quite generalizable.” 

Up next, in a new project she has just begun, Bhatia plans to look at a good cop-bad cop scenario to determine whether the phantom anchor is still seen as manipulative when one of two people involved in a negotiation uses it, but the second makes the real offer. Regardless of what that shows, the just-published results offer a sort of blueprint for negotiation success. 

“If your main goal is the economic outcome, then using a phantom anchor is advisable,” she says. “But if you’re also concerned about interpersonal interactions, then you need to use it with a bit more finesse. Make sure there is objective information to justify your anchor or signify cooperativeness. Then you can retain the economic advantage but not seem manipulative.”