Adapted from “Should You Make the First Offer?” by Adam D. Galinsky (Professor, Northwestern University). First published in Negotiation Newsletter.
Whether negotiators are bidding on a firm, seeking agreement on a compensation package, or bargaining over a used car, someone has to make the first offer. Should it be you, or should you wait to hear what others have to say? How will the first offer influence the negotiation process and any final agreement?
Research into human judgment has found that how we perceive a particular offer’s value is highly influenced by any relevant number that enters the negotiation environment. Because they pull judgments toward themselves, these numerical values are known as anchors. In situations of great ambiguity and uncertainty, first offers have a strong anchoring effect—they exert a strong pull throughout the rest of the negotiation.
Anchoring research helps clarify the question of whether to make the first offer in a negotiation: by making the first offer, you will anchor the negotiation in your favor. In fact, researchers Adam Galinsky and Thomas Mussweiler have shown that making the first offer affords a bargaining advantage. In their studies, they found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer.
Galinsky’s research also shows that the probability of making a first offer is related to one’s confidence and sense of control at the bargaining table. Those who lack power, either due to a negotiation’s structure or a lack of available alternatives, are less inclined to make a first offer. Power and confidence result in better outcomes because they lead negotiators to make the first offer. In addition, the amount of the first offer affects the outcome, with more aggressive or extreme first offers leading to a better outcome for the person who made the offer. Initial offers better predict final settlement prices than subsequent concessionary behaviors do.
There is one situation in which making the first offer is not to your advantage: when the other side has much more information than you do about the item to be negotiated or about the relevant market or industry. For example, recruiters and employers typically have more information than job candidates do; likewise, buyers and sellers represented by a real estate agent often are privy to more information than unrepresented buyers and sellers are. This doesn’t mean you should sit back and let the other side make the first offer. Rather, this is your opportunity to level the playing field by gathering more information about the item, the industry, or your opponent’s alternatives to the negotiation. The well-prepared negotiator will feel confident about making the first offer and anchoring the negotiation in his favor.