Deal or No Deal: Whether to Make the First Move
A recent piece by Leigh Thompson, Professor at the Kellogg School of Management, looks at research conducted by Kellogg faculty and digs deep into the question of “Should you make the first offer, or let the other person do it?” For Professor Thompson’s original piece, entitled “Negotiation Tips: Who’s on First,” please visit Kellogg’s News & Events page.
The usual assumption is that it is wise to let the other person talk first and suicidal to make the first offer. However, Thompson’s piece explains that the research shows there is virtually no scientific evidence that supports the claim that letting the other party open first is advantageous. In fact, it can backfire and lead to a worse outcome than you imagined.
According to the anchoring principle, the first offer made in a negotiation sets up a powerful, unconscious psychological anchor that acts as a gravitational force. Stated simply, there is a strong correlation between first offers and final outcomes.
Opening offers also influence the offers that the other party (the opponent) makes. Meaning, if you open first, the other party’s counteroffer is influenced by your offer.
According to Thompson, when you do make a first offer you should keep these three points in mind:
- Hardly anyone accepts the first offer, so be sure you have room for maneuvering after you make it. If your first offer is too generous, you will not get credit for it.
- Don’t make an outrageous opening offer. Sometimes, negotiators think that they can establish dominance by making an extreme offer. However, this backfires and creates a chilling effect. A chilling effect occurs when offers are so outrageous that the other party loses all motivation to continue negotiating.
- Ideally, your offer should be at or near what you think is the other party’s BATNA (best alternative to a negotiated offer), close to the most that your buyer will pay or the least your seller will accept. Such offers are, by definition, within the realm of what the other party could actually pay (or sell for), but are not giving up unnecessary ground.
