Starting point bias and final offer arbitration: a classroom experiment

This simple classroom experiment demonstrates the existence of starting point bias or the anchoring effect. When asked to place a dollar value on a non-market good such as health of worker injured on the job, students' estimates can be easily manipulated by suggesting an initial value. In an arbitration setting, this ease of manipulation can cause runaway offers by opposing sides. Major League Baseball solves this problem by the use of Final Offer Arbitration which force the arbitrator to choose one offer or the other without the possibility of compromise which limits the parties' incentives to submit false valuations.