Should you make the first offer in negotiation? It’s a perennial question, one that has attracted considerable debate. In a recent study published in the Negotiation Journal, researchers Yossi Maaravi, Ben Heller, and Aharon Levy find that negotiators’ relative power affects their first offers. Here, we take a closer look at issues related to power and negotiation.
Alternatives, power, and negotiation
In negotiation, the first offer can have a significant effect on parties’ outcomes, as it tends to anchor the offers that follow. For example, if you offer a job candidate $60,000, they might counter at $65,000, and you might settle at $62,500. But if you opened with $55,000, they might counter at $60,000, and you might settle at $57,250.
This example hints at how power and negotiation intertwine. A negotiator’s greatest source of power is typically their BATNA, or best alternative to a negotiated agreement—the path they will explore if the current negotiation doesn’t pan out. For the job seeker, a strong BATNA would be one or two other appealing job offers; a weak BATNA would be no good prospects. A strong BATNA gives you the freedom to ask for what you need—and walk away if you don’t get it. A weak BATNA can lead you to ask and settle for less than what you want.
“No, you go first”
In one study, Joe Magee, Adam Galinsky, and Deb Gruenfeld found that negotiators with a strong BATNA were more likely than those with a weak BATNA to make the first offer in a negotiation. In addition, they write, “making the first offer produced a bargaining advantage” for these high-power negotiators.
Negotiators with weak BATNAs may be reluctant to make the first offer, but should they be? Maaravi and colleagues explored this question in their study. They asked negotiators to imagine themselves in the role of a job candidate or a recruiter and to imagine a situation that gave them various levels of power in the current negotiation, as reflected in the strength of their BATNA (for example, the candidate might have a high, medium, or low salary offer from another company).
Next, the participants were asked whether they would prefer to make the first offer or let their counterpart make it. Then they were asked to imagine they were making the first offer. After that, they were asked for their reservation price, or walkaway point: for candidates, the lowest salary they would accept; for employees, the highest salary they would offer.
Only 13.2% of low-power candidates wanted to make the first offer, as compared to 31.3% of high-power candidates. For participants (both candidates and employers) who made first offers, those with stronger BATNAs made more ambitious offers. In addition, low-power participants asked for less than they would have been offered if they had gotten a first offer from a counterpart with low or medium power. Low-power candidates benefited from moving first only when facing high-power counterparts. In this case, these powerful counterparts made aggressive first offers, which those with low power would have been wise to avoid by anchoring first.
Low-power negotiators appeared to be anchored by their lack of power and made unambitious first offers. As a result, they ended up with worse deals than they would have if they had waited for their counterpart to make the first offer.
The researchers tested whether low-power participants could be induced to make more ambitious offers by learning a strategy called “considering the opposite.” The strategy, developed by Charles G. Lord, Mark R. Lepper, and Elizabeth Preston in a 1984 paper, involves getting out of a cognitive rut by thinking about information that is inconsistent with what you believe to be true. For a low-power negotiator who is thinking about making the first offer, this would involve considering their “ideal or preferred outcome,” or target price, according to Maaravi and colleagues.
In an online experiment, the researchers used the same scenario as in the previous study, except that participants were all given weak BATNAs. In addition, some were encouraged to focus on their target rather than their BATNA. Though those playing the job candidate did make higher first offers when taught the debiasing strategy, they would have done better if they had waited for their counterpart’s offer. Those in the role of the employer who read the debiasing strategy did not make more ambitious offers.
The results highlight that it is difficult to avoid being anchored by a weak BATNA. So, when you don’t have much power, it may be wise to wait for your counterpart to make the first offer—unless they have a strong BATNA. Overall, this research on power and negotiation suggests that the answer to that age-old question about whether to make the first offer is, “It depends.”
What other effects of power and negotiation have you observed?