The Cost of Showing Your Hand

By Tessa Marie


Should you provide the first number in a salary negotiation?

What are the Risks? And more importantly, what are the Benefits?


All sauces have the same structure, according to author Margaret Neale (2015) by using this analogy to demonstrate that while not all sauces have the same ingredients, they can be made by simply understanding the framework then using whatever materials are available. In examining the benefits and costs of making the first offer it is crucial to remember that no two negotiations are exactly alike.


There are two main benefits to making the first offer;


  • The power of anchoring

  • Initial offers act as a springboard into the negotiation


There are however, two main costs;

  • Giving away information

  • Having that first offer be accepted


When the first offer (most often a quantitative number) is given it serves as an “anchor” because it changes the way the second mover thinks about the negotiation. Authors Lewicki, Saunders, and Barry (2015) describe this as a cognitive and judgmental bias;

“That offer was much lower than I expected; perhaps I’ve misconstrued the value here and should reconsider” - Authors Lewicki, Saunders, and Barry (2015) (2015, p. 152).

These biases impact negotiators on a psychological level causing the second mover to question and doubt their own reasoning. Bio-Psychologists attribute the pre-frontal cortex as being primarily responsible for decision making and problem solving, this anchor impacts the negotiator on a neurological level by giving the brain something to make sense of and create a heuristic based on that initial information. Maaravi, Ganzach, and Pazy (2011) also illustrate the influence of anchoring, “the anchoring heuristic is highly robust. It affects judgments.” (2011, pg. 245) As


Psychologists Galinsky, Seiden, Kim, and Medvec, (2002) studied the cognition process in negotiations “substantial psychological research suggests that, more often than not, negotiators who make first offers come out ahead.” (2002, p.272) Anchoring impacts the perception of the negotiation because it impacts future offers.


Second, making the first offer acts as a springboard into the negotiation, by getting the ball rolling on what the counter offer will be. Researchers Johnson and Cooper (2009) identify the importance of utilizing the first offer to measure the possible concessions.


“First offers provide an insight into the degree of concessions the negotiation will provide.” (2009, p.164)


This springboard identifies the extent to the diverging interests of the parties and ultimately if the negotiation will be cooperative or competitive


For example in a Public Forum debate both sides know the strengths and weaknesses of a topic. At the beginning of each debate, the judge flips a coin to see who goes first. The first speaker, (the loser of the coin toss) is always at a slight disadvantage, because the opposing side knows their arguments first, and can, therefore, respond to their arguments faster.


While there is no coin toss in negotiation, it is true that whoever makes the first offer is providing the opposing side with information. Galinsky and Oesch (2004) discuss the importance of information in negotiations.


“By receiving the opening offer, the argument goes; you'll gain valuable information about your opponent's bargaining position and clues about acceptable agreements.” (2004, p.1)

Knowledge is the ball game when negotiating, knowing what cards you and your opponent are holding are key to a successful negotiation and providing that information first may come at a high cost. The second major cost to making the first offer is, of course, to take the risk that it might be accepted. The first mover experiences high levels of dissatisfaction when they realize they could have asked for more or less with the initial ask. “These results suggest that having one’s first offer immediately accepted produces thoughts of how one “could have done better” (Galinsky, Seiden, Kim, and Medvec, 2002, p. 275).


The negotiation is over without having ever really started. Known as the “winner's curse” to settle quickly on an item and then subsequently feel

discomfort about a negotiation win that comes too easily. (Lewicki, Saunders, and Barry (2015)


BENEFITS AND COSTS OF FIRST OFFERS 4

Thus causing the first mover to question if they received the best deal, as the ironic bittersweet nature of the winner’s curse is how unsatisfying it is. “Finding decreased satisfaction for the immediate acceptance of a first offer would appear to be consistent with previous discussions of the “winner’s curse” (Galinsky, Seiden, Kim, and Medvec, 2002, p. 274).


“There are two tools that can help maximize the effects of making the first mover. First timing, and second the power of BATNA’s.


Authors Sinaceur, Maddux, Vasiljevic, Nuckel, and Galinsky (2013) investigated the factor of timing in negotiations. “Specifically, we investigated whether negotiators would be more likely to meet the parties’ under- lying interests in final agreements when making first offers later rather than earlier in the negotiation.” (2013, p. 816)


This research shows that the later parties give their first offer, the more time they have to establish a relationship, find out information, and come up with a more creative solution.


“Making a late first offer may be more efficient because late offers will tend to be made at a time when the parties are more likely to focus on exchanging information about their interests." (2013, p. 815)

Therefore, having patience pays off in negotiations.

Second, the more powerful the negotiators alternatives or BATNA’s, the more likely they will get to their target. Lewicki, Saunders, and Barry (2015) recommend having alternative options.


“Negotiators with stronger BATNAs are more likely to make the first offer in a negotiation and appear to negotiate better outcomes." (2015, p. 33).

Having other options relives the pressure from the negotiation, Neale stresses that this is the negotiators greatest weapon, having the ability to walk away. (Neale, 2015) The more practice we have, the better we will be at the negotiation table. With each experience we cultivate more tools to utilize in the negotiation process.

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THIS BLOG WAS MADE WITH 100% LOVE & PASSION FOR NEGOTIATION, WHICH I HAVE HAD LOTS AND LOTS OF HELP LEARNING AND RESEARCHING. HOWEVER, MY ADVICE IS JUST THAT, ADVICE - IT IS NOT TO BE TAKEN AS AN EXPERT OPINION. IF YOU FEEL THAT SOMETHING IS INCORRECT OR NOT CITED PROPERLY PLEASE FEEL FREE TO REACH OUT VIA EMAIL.

 

- LOVE TESSA

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