How tough should you make your first offer in a negotiation? Research shows that the first offer can make a big difference in the outcome. If you push too hard for a deal, it could backfire. You will likely need to negotiate the price of a house, car or second-hand furniture. Being able to do so effectively can save you significant money.
Professor Lionel Page, a University of Technology Sydney behavior economist, said that opening offers in real-world negotiations can sometimes be intended to indicate the buyer’s “toughness”. However, it was unclear if this strategy works.
Professor Page stated, “This experiment allowed us to study whether and how the level of the opening offer influences the beliefs of buyers and sellers, their actions and the final bargaining outcome.”
Researchers conducted the experiment by using a bargaining game in which players made offers to each other for a $10 split. This was done to replicate the beginning of a normal negotiation process.
They discovered that success or failure in a negotiation was not solely dependent on the final offer made, but also on the dynamics emerging from the negotiation process.
Professor Page stated that “intermediary offers made in negotiation can be understood as suggesting either kind and compliant intentions or unkind and uncompromising.”
“And the perception of these intentions can, in turn, influence the final outcome. Low offers are perceived as disrespectful, so players react negatively and can be spiteful in their counter-offers.
“In a substantial number of cases, the responder chose a ‘‘punishing’’ counter-offer that was lower than what he believed was the buyer’s minimum acceptable amount,” he said.
He stated that in a large number of cases the responder selected a ‘punishing'” counter-offer, which was lower than what he believed to be the buyer’s minimum acceptable sum.
It is not the best strategy for negotiating to be as hard as possible.
Professor Page stated that there have been previously two contradicting views regarding first offers in negotiations.
One theory is that the low opening offer acts as an anchor that directs the final offer in the right direction.
Second, a more reasonable offer is better because it doesn’t ruin the mood or threaten the agreement.
Professor Page stated that their study supported both of these ideas.
“We found that there is a small window where an offer is lower than an equal split, but not so low that it triggers negative emotions. It was viewed as ‘fair game’ to start the negotiation at this point.”
In summary, if you want to strike a good deal, your first offer must not be too difficult or you will be subject to a sneering counter-offer.
The study: Driving a hard bargain is a balancing act: how social preferences constrain the negotiation process, by Professor Lionel Page and Dr Yola Engler was recently published in the journal Theory and Decision.