A fundamental issue in any negotiation is who should make the first offer. What does the psychological research and negotiation theory say?
According to Professor Leigh Thompson Northwestern University Kellogg School of Management, “there is a widespread, almost unquestionable, assumption that it is wise and strategic to let the other person talk first—and that it is suicidal to make the first offer.”
In his article, “Negotiation Tips: Who’s on first?,” he goes on to discuss that there is virtually no research that supports the claim that letting the other party open first is advantageous. In fact, it he claims it can backfire—and lead to a worse outcome than imagined.
Thus, contrary to the commonly held wisdom, people who make the opening offer in a negotiation tend to have the upper hand.
The advantage is owed to something psychologists call “the anchoring principle.” An initial offer is an anchor around which the subsequent negotiations pivot. The other party responds to the anchor by suggesting an adjustment to it, thereby giving the anchor credibility. The tendency is to insufficiently adjust away from the anchor set by the opening offer.
Drake Baer reporter and author on strategy, leadership, and organizational psychology at Business Insider, discusses this topic in his article, “Here’s Why You Should Always Make The First Offer In A Negotiation.”
In a salary negotiation, for example, whoever makes the first offer establishes the range of possible variation from that anchor. If you start high, the hiring manager may adjust the figure down slightly. But that’s typically a stronger position than starting low and trying to negotiate up.
“Most people come with the very strong belief they should never make an opening offer,” says Leigh Thompson, a professor at Northwestern University’s Kellogg School of Management. “Our research and lots of corroborating research shows that’s completely backwards. The guy or gal who makes a first offer is better off.”
Marketers use the anchoring principle to trick you into thinking something is cheaper than it actually is. A “discount” tag that still shows the original price on a pair of pants is a prime example, since you tend to focus on the deal you’re getting rather than the price you’re paying.
In a negotiation, you can use that bias to your advantage. “Whoever makes the first offer essentially drops an anchor on the table,” Thompson says. “I might say that your opening offer is ridiculous, but nevertheless, unconsciously, I’ve been anchored.”
What’s more, the opening offer helps orient the other person’s perception of the value of what’s being negotiated for. An aggressive opening offer makes people consider the positive qualities of an object, since it forces them to decide whether it’s worth the cost, says Columbia Business School professor Adam Galinsky. On the other hand, a low opening offer makes people stingily consider what might go wrong, since lower prices are associated with negative qualities.
“My own research suggests that first offers should be quite aggressive but not absurdly so,” Galinsky says. “Many negotiators fear that an aggressive first offer will scare or annoy the other side and perhaps even cause him to walk away in disgust. However, research shows that this fear is typically exaggerated. In fact, most negotiators make first offers that are not aggressive enough.”
To start with a high but not overly aggressive offer, you could just introduce a number — rather than explicitly ask for it.
Harvard Law School’s Program on Negotiation details why:
“The most effective anchors further reduce risk because, rather than placing firm offers on the table, they merely introduce relevant numbers. A job applicant may state his belief that people with his qualifications tend to be paid between $85,000 and $95,000 annually, or he might mention that a former colleague just received an offer of $92,000. This assertion is not an offer; it’s an anchor that affects the other side’s perceptions of the zone of possible agreement.”
The next time you enter a negotiation, don’t play coy. Put your offer on the table first.