Who
Goes First?
By Alain Burrese
All negotiations must start somewhere, but who should go first? Many advocate that it is better to wait for your opponent to make the first offer in negotiations. In the bestseller “What They Don’t Teach You at Harvard Business School,” Mark H. McCormack advises to let the other person go first. His reasoning is that the offer tells you something about what the other person is thinking, and sometimes the other party’s first offer is higher than the opening or even closing figure you may have in mind. If you are selling an old clunker and hope to get at least $1000 for it, you know you have it made when someone drives up and offers $1,200.
It does not matter if you are bidding on a business, seeking agreement regarding compensation, or bargaining over the clunker above, someone has to make the first offer. If both parties attempt to adhere to the common wisdom of waiting for their opponent to go first, the negotiations may not get vary far.
I agree with McCormack that you can gain valuable information about your opponent’s bargaining position and clues regarding what may be an acceptable agreement by receiving the opening offer. However, I also agree with Adam Galinsky in his July 2004 article for “Negotiation,” (Harvard Business School Publishing) titled “Should You Make the First Offer?” He stated that even though waiting for your opponent to make the opening offer makes intuitive sense, “it fails to account for the powerful effect that research suggests, more often than not, that negotiators who make first offers come out ahead.”
First offers have an anchoring effect. Galinsky shares psychological research into human judgment that found that how we perceive a particular offer’s value is highly influenced by any relevant number that enters the negotiation environment. Numerical values that pull judgments toward themselves are known as anchors. First offers have a strong anchoring effect in situations of ambiguity and uncertainty. They can exert a pull throughout the rest of negotiations. Anchors even influence people’s judgments when they know that the particular anchor should not influence them. Two researches testing this theory had real estate agents inspect a house and estimate its appraisal value and its purchase price. The agents were provided high and low anchors by the researchers who manipulated the house’s list price for their study. While you would expect experts to be immune to the anchoring effect, all of the agents’ estimates were influenced by the list price. In another study, German mechanics were asked their opinion of the value of a car after being given an anchor price by the car’s owner. The mechanics estimated the car to be worth DM 1,000 (Deutsche Mark) more when they were given the higher anchor.
The reason anchors work lies in the fact that every item under negotiation has both positive and negative qualities. High anchors direct attention toward positive attributes while low anchors direct attention to flaws. When selling a car, a high anchor may lead you to focus on the low mileage and pristine interior, while a low anchor may draw focus toward the balding tires and worn belts. This anchoring research suggests that making the first offer in negotiations will anchor the negotiation in your favor and that making the first offer affords a bargaining advantage.
The answer to “Who goes first?” or “Who begins the negotiation?” is “it depends.” Research shows that it can be very advantageous to make the opening offer and anchor the negotiation in your favor. Traditional wisdom of waiting for your opponent to go first can also be advantageous toward your position. When determining if you should make the first offer or not, you must know how accurate and complete your information is. If the other side has more information than you regarding the item to be negotiated, or about the relevant market or industry, you can be much better off waiting for the first offer. In this situation, if you want to anchor the negotiation by going first, you should first gather additional information before making an offer. You must be well prepared to make the first offer and anchor the negotiation in your favor.
Additionally, before deciding if you will make the first offer or wait for the other side to go first, you should consider elements of the negotiation such as your opponent’s style, the negotiation culture, the need to reach an agreement, and the alternatives that are available to both sides. All of these may influence your decision on who should go first.
I will discuss how much your opening offer should be in a future column. For now, remember there are advantages to waiting, and there are also advantages to going first. There is no definitive rule for who goes first. There are only considerations while planning your negotiation strategy, and the successful negotiator always has a planned strategy.
Alain Burrese is a mediator and attorney with Bennett Law Office, P.C. in Missoula, MT. He conducts mediations and settlement conferences as well as speaking and training in negotiation and mediation. He can be contacted at: www.bennettlawofficepc.com or (406) 543-5803.
This article first appeared in "The Montana Lawyer" February 2006 issue.
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