Should you make the first offer in a negotiation? Typically yes, abundant research on the anchoring bias suggests.
In many negotiations, the party who moves first typically benefits by “anchoring” the discussion that follows on an offer—even if the anchor is arbitrary.
The anchoring bias, or anchoring effect, is considered a “bias” because it distorts our judgment, especially when the bargaining zone is unclear. This knowledge of the anchoring bias in negotiation can help us make and respond to first offers more effectively.
In their groundbreaking research from the 1970s, psychologists Daniel Kahneman and Amos Tversky showed that when we’re asked to make a judgment in the face of uncertainty, we are easily swayed by the first figure that’s introduced into the conversation, however irrelevant, outrageous, or insulting it may seem. The first number serves as an “anchor” that’s almost impossible to forget.
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.
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. The well-prepared negotiator will feel confident about making the first offer and anchoring the negotiation in their favor.
And if the other side does make the first offer? Base your counteroffer on the same information you would use to construct a first offer, namely your ideal outcome and your knowledge of the other party’s alternatives and likely reservation price.
What impact do cognitive biases have on bargaining scenarios? Work by negotiation researchers Russell B. Korobkin of UCLA and Chris P. Guthrie of Vanderbilt University suggests how to turn knowledge of four specific biases into tools of persuasion.
In this Special Report, we offer advice from the world of sports to help you navigate your most important negotiations. You will learn to get your head in the game, manage team dynamics, and get a competitive edge.
When or when not to make the first offer in negotiations is a question many expert negotiators ask themselves when approaching business negotiations, real estate transactions, or even interpersonal negotiations with friends and family. In this article drawn from negotiation research, we offer negotiating skills and negotiation tips for when, and when not, to make … Read
In sales negotiations, making the first offer is often a smart move. The first offer can anchor the discussion that follows and can have a powerful effect on the final outcome.
But if the other party makes the first offer, you’ll need to be prepared to frame your counteroffer carefully. What is framing in negotiation? It … Read
The party that makes the first offer in a negotiation generally gets the best deal, multiple negotiation studies suggest. The first offer presented serves as an anchor that draws subsequent offers in its direction.
Introductory negotiation courses are taught in law and business schools around the world, but are also increasingly taught to undergraduates and in all types of corporate settings. No matter the context, though, the basic elements of negotiation are roughly similar. Teaching interest-based negotiation, the Zone of Possible Agreement (ZOPA), the Best Alternative to a Negotiated … Read
What salary negotiation skills can you use if a potential employer asks you about your past salary? If you earned a competitive wage, your concern may be whether the new employer can afford you.
Increasingly, business negotiators recognize that the most effective bargainers are skilled at both creating value and claiming value—that is, they both collaborate and compete. The following 10 negotiation skills will help you succeed at integrative negotiation.
The prospect of sharing information with a negotiating counterpart can be scary – it can fix your counterpart into a position at the negotiation table you didn’t intend (an example of the anchoring effect).
The first offer dilemma in negotiations – should you make the first offer? Few questions related to negotiation techniques and negotiation strategies have yielded more academic attention and debate among practitioners in negotiation research.
Should you make the first offer in a negotiation? What about multi-issue negotiations?
It’s not a trivial question. The negotiator who makes the first offer can powerfully anchor the discussion in her favor, research has found. In fact, the first offer accounts for between 50% and 85% of the variance in a negotiation’s final outcome, Adam … Read
According to Dacher Keltner of the University of California at Berkeley and his colleagues, power in negotiation affects two primary neurological regulators of behavior: the behavioral approach system and the behavioral inhibition system. Powerful negotiators demonstrate “approach related” behaviors such as expressing positive moods and searching for rewards in their environment.
Like a contingency, a condition to a deal is a related though far less common deal-structuring technique. A condition is an ‘if’ statement like a contingency, but, whereas a contingency depends on unknown future events, a condition is entirely within the control of the parties involved.
If you needed a lawyer to help you settle a business dispute, would you prefer (a) one who was completely partisan toward your point of view or (b) one who acted as a mediator and saw both sides of the conflict?
You might assume that the partisan lawyer would work harder for you than someone who … Read
Consider this anchoring bias example from Harvard Business School and Harvard Law School faculty member Guhan Subramanian. While running a negotiation simulation in one of his classes, Subramanian noticed that one student spent a considerable amount of time explaining why $10.69 per hour would be an impossible wage rate to offer the student’s counterpart. The … Read
New to Teaching Negotiation?
If you are new to teaching negotiation or are looking to go in-depth on the fundamental negotiation concepts, the Parker-Gibson All-In-One Curriculum Package will provide you with everything you need to teach negotiation.
Parker-Gibson, one of the Teaching Negotiation Resource Center’s most popular simulations, is a two-party, single-issue, distributive negotiation between two neighbors regarding the potential sale … Read
When Amazon and Apple each began scouting locations for a new campus in 2017, we might have expected them to follow similar negotiating strategies aimed at win-win bargaining. In fact, their searches were very different:
Amazon set off a frenzy in September 2017 when it announced it was soliciting bids from cities interested in hosting its second headquarters, … Read
In salary negotiations, job candidates are often at a disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into the discussion tends to strongly influence the salary expectations. Unfortunately for candidates, the first figure mentioned in a negotiation often is not in their favor.
For example, when opening salary … Read
In negotiation, the party who makes the first offer often gets the lion’s share of the value. That can be due to the anchoring effect, or the tendency for first offers to “anchor” the bargaining that follows in its direction, even if the offer recipient thinks the offer is out of line.
Yet plenty of times, … Read
In 1975, Leigh Steinberg launched his career as a sports agent by proving that even a little power can be a dangerous thing. He faced what appeared to be a tough negotiation with the Atlanta Falcons. The team had chosen Steinberg’s client, rookie quarterback Steve Bartkowski, as their first pick in the first round of … Read
Imagine yourself in a dilemma that only a privileged few get to experience: You’ve fallen in love with a dazzling, one-of-a-kind home that’s on the market, but it doesn’t have a listing price. Instead, of using the anchoring effects of a high price tag to elicit a strong bid, the seller’s broker is encouraging you … Read
Back on July 11, 2000, U.S. president Bill Clinton welcomed Israeli Prime Minister Ehud Barak and Palestinian Authority Chairman Yasser Arafat to a summit at Camp David aimed at resolving the Israeli-Palestinian conflict once and for all. The summit covered various contentious issues, including territory, settlements, security, and the status of refugees.
After about two weeks, … Read
It’s said that you never get a second chance to make a great first impression, and that certainly can be the case in negotiation. A weak handshake or a gruff demeanor can color how we see someone for a very long time. Similarly, make an unambitious or poorly worded first offer, and you’re much less … Read
Do you know how to negotiate price? Is there a better way to approach this type of negotiation that differs from other negotiation strategies? In this week’s Dear Negotiation Coach column, we answer the question.
I’m trying to decide whether to make the first offer in a price negotiation. I’ve heard arguments in favor of both … Read
We tend to have strong intuitions about which personality traits help or hurt us in negotiation, but does research on the topic confirm our hunches? Does personality in negotiation matter?
Before we explore this topic, please answer “True” or “False” in response to the following questions:
1. Extroverted negotiators tend to perform better than introverted negotiators.
2. Agreeable … Read
In negotiation, a strong best alternative to a negotiated agreement, or BATNA, is generally regarded as our best source of power. When we know we can walk away and get a great deal elsewhere, we’ll insist on an even better agreement at our current bargaining table. Our BATNA powerfully anchors our targets, first offers, and … Read
Due to the anchoring bias, the first offer made in a negotiation often has an outsized effect on the outcome. But recent research shows that anchoring with a range offer can have an even bigger impact than a single figure.
A town government and a private fuel-oil company have a standing contract that they have renewed for several years in a row. The contract is again up for renewal, and the town manager is under pressure from his constituents to reduce the city’s heating costs and avoid tax increases.
The city’s fuel-oil consumption has remained … Read
Opening offers have a strong effect in price negotiations. The first offer typically serves as an anchor that strongly influences the discussion that follows. In research documenting price anchoring, psychologists Daniel Kahneman and Amos Tversky found that even random numbers can have a dramatic impact on people’s subsequent judgments and decisions.
People tend to irrationally fixate on the first number put forth in a negotiation—the anchor—no matter how arbitrary it may be. Even when we know the anchor has limited relevance, we fail to sufficiently adjust our judgments away from it. This is the anchoring effect.
You’ve mastered the basics of good negotiation techniques: you prepare thoroughly, take time to build rapport, make the first offer when you have a strong sense of the bargaining range, and search for wise tradeoffs across issues to create value. Now, it’s time to absorb five lesser-known but similarly effective negotiation topics and techniques that … Read
In 2015, the government of Greece approached the European Union regarding a new bailout package by requesting a six-month loan extension. The request was rejected within five hours. Four months later, Greece offered new budget proposals in return for an extended bailout package. This time, the proposal led to agreement.
The anecdote begs the question, Do … Read
It’s not uncommon in business negotiations to find yourself on the brink of impasse. You and your counterpart have exchanged a series of offers and counteroffers, and you’ve met somewhere close to the middle—but not close enough. With each side firmly rooted in its position, there may seem to be no way forward.
The Advanced Materials Search feature allows you to search for teaching materials based on nine different categories, including time required, number of parties, and the negotiation concepts you want to teach.
The Teaching Negotiation Resource Center (TNRC) is pleased to announce the launch of our new Advanced Materials Search, which allows you to quickly find the … Read
As they contemplate how to bargain salary, job candidates are often at a disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into a negotiation tends to strongly influence the final outcome. Unfortunately for candidates, the wage or wage range that employers give in a job listing or … Read
Goal setting affects performance. In a review of goal-setting research, negotiation scholars Deborah Zetik and Alice Stuhlmacher of DePaul University found that when negotiators set specific, challenging goals, they consistently outperform those who set lower or vague goals.
Imagine you’ve received a salary offer for a new job that’s less than you’d hoped for, or a client has delivered a “take it or leave it” ultimatum. While there is ample advice available to negotiators on how to make the first offer in negotiation, the question of how to counteroffer in business negotiations often … Read
Imagine yourself in a dilemma that only a privileged few experience: You’ve fallen in love with a dazzling, one-of-a-kind home that’s on the market without a list price. Instead, the seller’s broker encourages you to name your price. You’re unsure how much to offer—yet desperate to win the prize.
Leaving the sale price off of a … Read
Progress on global climate change accords has been incremental at best and nonexistent at worst. As in any negotiation, it is important to get the issues right and make sure all the relevant parties are at the table, but this is often easier said than done. Good leadership can help you ensure that both happen, … Read
Here are ten popular business negotiation articles on the Program on Negotiation website. Drawn from a variety of negotiation case studies as well as negotiation research, the following articles offer strategies for engaging in integrative negotiations aimed at creating win-win scenarios for each party at the negotiation table.
1. What is the Right of First Refusal?
Rights … Read
As you may have noticed, the first offer made in a negotiation often has a significant influence on the final outcome. In their research, psychologists Daniel Kahneman and Amos Tversky documented that the first number introduced in a negotiation serves as an “anchor” that can be impossible to ignore—no matter how irrelevant, outrageous, or insulting … Read
In business negotiations, a little power is better than none at all, right? After all, if talks with a prospective client fail, we’d rather have a few unpromising leads to turn to rather than none.
Should you make the first offer in a negotiation? Typically yes, abundant research on the anchoring bias suggests. What is anchoring in negotiation? In negotiations centered on price or another figure, the party who moves first typically benefits by “anchoring” the discussion that follows on her offer—even if the anchor is arbitrary. For example, the … Read
Job candidates are often eager for compensation negotiation tips, and with good reason: they tend to be at a bargaining disadvantage relative to the hiring organization. Due to the well-documented anchoring effect, the first figure introduced into the discussion can strongly influence the final outcome—and the wage or wage range cited by employers is likely … Read
Suppose that you and your negotiating counterpart become deadlocked after exchanging a series of offers and counteroffers. With each of you anchored on very different positions, you can’t seem to find a solution that pleases you both.
Without realizing it, we leave many of our most important decisions in negotiation up to chance. When talking to a potential negotiating partner, we may assume that we have met the best person possible to do this particular deal. We make tacit assumptions about whether we’ll negotiate in person, what we’ll discuss, how long the … Read
It may be the most burning question in business negotiation: Should you make the first offer?
Traditionally, negotiators were advised to wait for the other side to make a first offer. According to this reasoning, the other side’s offer gives you valuable information about his goals and alternatives.
More recently, however, research on the anchoring bias has … Read
The skills required for honing an effective participative leadership style have a great deal in common with those used by good negotiators. Following the May 24, 2015 municipal elections in Spain, all of those skills are being put to the test. The elections delivered a stunning rebuke to the incumbent conservative Popular Party of Mariano … Read
It stands to reason that devoting less time to relatively unimportant choices should free you up for more meaningful pursuits and increase your overall satisfaction. But how does the concept of satisficing apply to your most important decisions and negotiations?
What should your first offer be in a negotiation?
The question doubtless has led to sleepless nights for negotiators who understand that the first offer in a negotiation tends to have a strong anchoring effect on the haggling that may follow. Because even extreme offers can pull the discussion in their direction, the question of how … Read
Crumbling transportation infrastructure has become a serious issue across the country. Nowhere is this problem more acute than the nation’s capitol, where the forty year-old Metro has been plagued by ineffective, bureaucratic leadership, and is now on the verge of collapse. New Metro Chairman Jack Evans aims to tackle those problems head-on, but he drew … Read
Fans of the television show Friends got a treat last month when Netflix made all 236 episodes of the blockbuster hit available to stream online. At first glance actors Lisa Kudrow, Jennifer Aniston and the rest of the star-studded cast might not be your first pick to peg as formidable negotiators, but at the height … Read
Judges don’t make decisions based on a thorough accounting of all the relevant and available information. Instead, like all of us, they rely on heuristics – simple mental shortcuts – to make decisions.
As many past articles have noted, heuristics often lead to good decisions, but they can also create cognitive blinders that produce systematic … Read
Past Negotiation articles have highlighted many of the cognitive biases likely to confront negotiators. Work by researchers Russell B. Korobkin of UCLA and Chris P. Guthrie of Vanderbilt University suggests how to turn knowledge of four specific biases into tools of persuasion.
The power of anchors in negotiation has been demonstrated time and again. Sellers who demand more tend to get more. Indeed, the initial asking price is usually the best predictor of the final agreement.
A trio of researchers may have found an important exception to this rule, however; lower starting numbers set by the seller in … Read
In past issues of Negotiation, we’ve reviewed the anchoring effect – the tendency for negotiators to be overly influenced by the other side’s opening bid, however arbitrary. When your opponent makes an inappropriate bid on your house, you’re nonetheless likely to begin searching for data that confirms the anchor’s viability. This testing is likely to … Read
As discussed in past articles, anchoring and framing can bias important decisions in negotiation. A buyer may make a more generous offer than she intended, for example, after a seller drops anchor on a bold demand. A litigant who focuses on his chances of winning in court – a positive frame – may be less … Read
Adapted from “Blind Justice? Think Twice Before Going to Court,” by Chris Guthrie (professor, Vanderbilt University Law School), first published in the Negotiation newsletter, April 2007.
Planning to resolve a personal or business dispute in court? Consider that judges don’t make decisions based on a thorough accounting of all the relevant and available information. Instead, like … Read
Adapted from “The Enduring Power of Anchors,” first published in the Negotiation newsletter, October 2006.
In the Negotiation newsletter, we have reviewed the anchoring effect—the tendency for negotiators to be overly influenced by the other side’s opening bid, however arbitrary. When your opponent makes an inappropriate bid on your house, you’re nonetheless likely to begin searching … Read
Adapted from “Evenhanded Decision Making,” first published in the Negotiation newsletter, May 2006.
As discussed in past issues of the Negotiation newsletter, anchoring and framing can bias important decisions in negotiation. A buyer may make a more generous offer than she intended, for example, after a seller drops anchor on a bold demand. A litigant who … Read
The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises. Ocean Splash is a two-party, two-issue scoreable negotiation between a charity and a corporate sponsor regarding the number and placement of advertising banners at a fundraising walk.
SCENARIO: The U.S. Cancer Association (USCA) chapter in Sixton City is organizing its … Read
The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises. Negotiating Budget Cuts at Newtowne Hospital is a six-person negotiation among hospital administration and employee representatives to reach consensus on budget cuts in three departments.
Dr. Van Hagen, a distinguished heart surgeon, will soon join the staff at Newtowne Hospital, … Read
Adapted from “Anchors or Trial Balloons?”, first published in the Negotiation newsletter.
The power of anchors in negotiation has been demonstrated time and again. Sellers who demand more tend to get more. Indeed, the initial asking price is usually the best predictor of the final agreement.
A trio of researchers may have found an important exception … Read
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 … Read