A hiring firm knows that starting wages for recent college graduates with a history major is between $36,000 - $50,000. The hiring firm offers candidates $35,000 hoping to get folks hired at the lower end of the range. This is most related to which term discussed in class?

Question

A hiring firm knows that starting wages for recent college graduates with a history major is between $36,000 - $50,000.  The hiring firm offers candidates $35,000 hoping to get folks hired at the lower end of the range.  This is most related to which term discussed in class?

BlackTom AI · Accepted Answer

Consider the scenario: a firm is aware that starting wages for graduates in history span from 36,000 to 50,000, yet they offer 35,000 in an attempt to secure hires at the lower end. This setup hinges on a cognitive anchor around typical starting salaries.

Option: anchoring and adjustment. This choice directly captures the idea that the initial piece of information (the expected range up to 50,000) serves as an anchor, influencing how the offer is perceived and how subsequent judgments (about acceptability, fairness, and negotiation) are adjusted from that anchor. The firm’s 35,000 offer is an adjustment downward from the anchor, aiming to pull applicants toward the lower end of the range. Therefore, this option aligns with the anchoring and adjustment concept.

Option: Prospect Theory. Prospect Theory deals with how people evaluate gains and losses relative to a reference point and often involves loss aversion and risk preferences in decision making. While related in terms of framing effects, it does not specifically describe the two-step process of establishing an anchor and then adjusting from it to influence negotiation outcomes in salary offers.

Option: loss aversion. Loss aversion describes people’s tendency to prefer avoiding losses over acquiring equivalent gains. Although relevant to negotiation dynamics (people hate taking a loss relative to a reference point), it doesn’t capture the explicit anchoring mechanism of setting a high anchor and then adjusting downward with an offer.

Option: attraction effect. The attraction (or decoy) effect occurs when a dominant option makes another option look better by comparison, often due to a third, less attractive alternative. This scenario does not involve introducing a decoy among multiple salary options; it’s about anchoring the negotiation instead.

Option: high/low negotiation. While this term references a common bargaining tactic of presenting a high and a low offer, the fundamental cognitive bias at play here is the initial anchoring of expectations, not merely presenting contrasting offers. The core phenomenon is anchoring, not just having two numbers to choose between.

In summary, the described behavior best fits the anchoring and adjustment framework, where an initial anchor (the wage range up to 50,000) influences subsequent offers and negotiations, and the 35,000 offer represents a downward adjustment from that anchor. The other options describe related concepts but do not precisely capture the mechanism of using an initial anchor followed by adjustments in the negotiation context.

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A hiring firm knows that starting wages for recent college graduates with a history major is between $36,000 - $50,000. The hiring firm offers candidates $35,000 hoping to get folks hired at the lower end of the range. This is most related to which term discussed in class?

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