Getting (More of) What You Want

One of the most common questions that negotiators raise is “Who should make the first offer?” This is an important question, since a negotiation can only start in earnest once one of the parties makes a first offer and the other party responds.

In some of your negotiations, you may have made the initial offer, and, in others, you may have received it. So, in your experience, was there a difference when you made the first offer compared to when you received the first offer? Even if you kept track of the outcomes of both kinds of exchanges, negotiations are often very different, and it may be hard to compare directly the result of one negotiation to that of another. Still, the odds are that you strongly prefer one way to the other.

When asked, executives as well as graduate and undergraduate students (and their parents!) overwhelming believe that receiving the first offer gives them a competitive advantage. Indeed, about 80 percent of participants in our negotiation workshops and classes prefer to receive rather than make the first offer. When asked why, the typical response is that whoever makes the first offer gives away information, giving the receiving party an informational advantage.

Receiving the first offer certainly gives you information about the issues and the positions on those issues that are attractive to your counterpart. You now have a starting point. Having this information advantage can give you insight into how you might want to respond. Think about negotiating the salary of a new position. What if you waited for your potential employer to make an offer and it turned out to be significantly higher than your aspiration. What a great outcome! You are being offered much more than you expected, and this was only the start of the negotiation! The point is that it is possible for someone to value your potential contributions more highly than you yourself value them. The employer might have said, “What would it take to get you here?” If you had made the first offer, you might have named a relatively low figure—and probably would have gotten it and would settled for significantly less than you might have received otherwise!

Second, by making the first offer, you allow your counterparts to identify any congruent issues—thereby giving them an advantage in the negotiation. For example, Thomas’s request that the tires to be mounted at the location next to his office would alert the dealer, who also happens to favor that location, that location is a congruent issue. She might simply agree, or she might use that information strategically by demanding a concession on another issue in return for agreeing to Thomas’s preferred location.

Some of our students have suggested that Thomas might be better off by not asking for his favored location in his first offer, thus denying the dealer the opportunity to identify location as a congruent issue. However, such a suggestion implicitly assumes that Thomas knows that location is a congruent issue. If he did not, the location he misleadingly proposed might actually be the dealer’s favored one—one she would surely accept.

There can be substantial risks associated with making the first offer so perhaps the 80 percent who prefer to receive the first offer are on to something. Consider Margaret’s experience when she was in the market to purchase a new home. Her real estate agent (with whom she spent a considerable amount of time touring potential properties) spontaneously offered the advice that “he who speaks first has lost.” Margaret was a bit surprised by the emphatic nature of her statement and asked the agent how she came to that conclusion. She looked at Margaret, surprised at her question, and said, “Everyone knows that making the first offer is a bad thing to do.”

On the long drive to the next property, Margaret thought about the agent’s statement. She was a successful real estate agent in an industry where sellers list their homes for sale and set a listing price. In effect, they have made the first offer. If making a first offer were such a bad idea, why wouldn’t sellers, rather than listing a price, simply advertise that their homes were for sale and that they were willing to entertain offers?1 In fact, according to realtors, the selling price is typically between 95 and 97 percent of the listing price.2

In contrast, the scientific literature indicates that making a first offer is often advantageous. So there is obviously a disconnect between most peoples’ intuition (“receiving the first offer is better than making the first offer”) and what academics recommend. As we will discuss next, the decision is more nuanced than to always or to never make the first offer.

The most powerful effect of a first offer is to create an anchor. Much as a physical anchor creates a drag, the first offer in a negotiation anchors the starting point of the negotiation, setting the agenda and starting points for valuing the issues and allocating the benefits. Experienced negotiators expect the first offers to be extreme: The offering party is asking for more than he reasonably expects to get. As a result, when your counterpart receives your first offer, he will rationally discount that offer. If you list your home for $1.5 million, potential buyers expect that you would be willing to take something less than $1.5 million. But of course, potential buyers do not know how large the discount is that you will accept.

In a world of rational actors, the discount (or adjustment as it is often called) by the potential buyer would, on average, exactly offset the seller’s exaggeration, offsetting the effect of the anchor. However, psychologically, it is a much different story because you are unsure about the “true” value of the object.

In response to this uncertainty negotiators search for clues to assess the worth of the issues under consideration—an obvious reference point is the (first) offer they just received. As a result of using it as a reference point, they are influenced by that offer. From this reference point, they adjust their assessments based on a variety of factors, such as their knowledge that the counterparty’s offer must be in its best interest and the reliability and perceived diagnostic value of the clues, to arrive at their estimate of value.

The power of an anchor has less to do with the quality of the information than it does with how vivid or salient the receiving party perceives that information. In fact, even an arbitrarily chosen reference point or anchor will influence value estimates,3 and the adjustments you make away from these points will be insufficient.

Perhaps one of the earliest and most impressive demonstrations of the strength of the anchoring effect was conducted by two psychologists, Amos Tversky and Daniel Kahneman.4 You may recognize Kahneman’s name as a winner of the Nobel Prize in Economics in 2004 and as the author of the recent book Thinking Fast and Slow.

In an early experiment, Tversky and Kahneman had participants estimate the percentage of African countries in the United Nations. Each person was given a starting point that was determined by the spin of a random number wheel. They then had to decide whether the number generated by the wheel was higher or lower than what they thought the correct percentage of African countries in the United Nations was and then give their best estimate of the correct percentage.

Even though the participants were aware that their starting point was the result of a random process (the wheel was literally spun in front of them), their final estimates were influenced by the number generated by the wheel. Although the wheel appeared to be generating random numbers from 1 to 100, in reality it was rigged, stopping at either 10 or at 65. And here is the surprising result: the median estimate of African countries in the United Nations of those who saw the wheel stop at the number 10 was 25, while the median estimate of those who saw the wheel stopping at the number of 65 was 45.

So how could this random number affect the participants’ estimate of the percentage of African nations in the United Nations? Obviously, there was no logical reason to expect that the number generated by spinning the wheel had any relation to the actual number of African nations in the United Nations—and hence it could not have been informative, or in any way diagnostic, of the true number. So it is unlikely that the participants believed that the random number generated by the wheel had any relation to the percentage of African Nations in the United Nations—yet the participants in the experiment were clearly influenced by this anchor when answering the experimenter’s question. Further, even when the researchers offered to pay the participants based on their accuracy, the anchor still had a significant impact on their estimates.

So if such an obviously nondiagnostic anchor were influential, think how much more powerful the effect of an anchor would be if it appeared to be diagnostic of the actual value. Margaret investigated this question in a study coauthored with her colleague Gregory Northcraft, when both were colleagues at the University of Arizona.5 The two of them talked a real estate agent in Tucson, Arizona, into helping them identify a house that was about to go on the market. Then, they got permission from the owner of the house to use the property in an experiment and assembled a group of real estate brokers to serve as a focus group. They asked what type of information brokers would need to value a residential real estate property. In addition, they asked the focus group how skillful they were in estimating the true or appraised value of residential real estate. Although they used different words to describe their expertise, the brokers reported that they could assess the value of a residence within 5 percent of its true value.

Then Margaret and Gregory took the results of this focus group and created a ten-page packet of information about the house. The first page of the packet was a facsimile of the standard Multiple Listing Service (MLS) sheet for the property that was about to come on the market. The remaining nine pages included a copy of the MLS summary of residential real estate sales for both the entire city and the immediate neighborhood of the house for the last six months, information including listing price, square footage, characteristics of the property for houses in the same neighborhood that were currently for sale, that had recently sold, that had sold but the sale was not complete, that had previously been listed but did not sell and had been removed from the market, and the MLS listing sheets for homes in the immediate neighborhood currently for sale.

They then created four different packages. While each package had the same last nine pages, the first page—the facsimile of the MLS listing sheet had one major difference in each of the four packets: listing price. As their real estate focus group had indicated that they could assess the value of a residence within 5 percent of its true value, taking the average assessment of the property by three independent appraisers, they created an MLS sheet that had a listing price that was 12 percent higher than the appraised value, 4 percent higher, 4 percent lower, or 12 percent lower than the appraised value.

If the focus group were correct, they would not be able to distinguish between the “house” that was listed at 4 percent higher or lower than the appraised value; but they should clearly be able to tell that the “house” with the listing price 12 percent higher than the average appraised value was overpriced; and that the one with a listing price 12 percent lower was underpriced.

The actual house was then included in the realtors’ weekly real estate tour. Agents viewed it as they normally would with any property just coming on the market. When they arrived at the house, they received one of four packets and were asked to assess its appraised value; the listing price they would set for this house were they the seller; the most they would pay if they were the buyer; and finally, the least they would accept if they were the seller. They were also asked to describe how they arrived at these four figures and to identify important considerations in making their assessments.

FIGURE 7.1

Based on data from G. B. Northcraft and M. A. Neale, “Experts, Amateurs, and Real Estate: An Anchoring and Adjustment Perspective on Property Price Decisions,” Organizational Behavior and Human Decision Processes 39 (1986): 228–241.

So how did the agents assess the value of the house? Figure 7.1 illustrates the findings of this study. As you can see from the figure, the listing price had a major impact on the agents’ assessment of the value of the property. The higher the listing price, the higher the agents’ estimation of the value of the property.

Figure 7.1 illustrates the stark discrepancy between what the agents said they did and what they actually did. While the results showed that listing price was highly influential in the valuation of the property, only 19 percent of the agents mentioned listing price as a factor they considered. In fact, slightly fewer than 75 percent of the real estate agents described their valuation decision as a computational process in which they took the average price per square foot of houses that had recently sold and multiplied that number by the number of square feet in our property. They then adjusted that figure for the unique aspects and conditions of the house. What you should notice is that if they, indeed, had used such a strategy, the arbitrary variations in the listing prices would have had no effect on their assessment. But since listing price was the only thing that varied across the four packets, the differences observed by Margaret and Gregory must have come from the influence of the listing price!

But even when explicitly asked about listing price, the majority of the focus group indicated that they paid no attention to it. After all, how are listing prices determined? If deciding on a particular real estate agent, the potential seller might identify a small number of agents who have been successful and then ask each of them to assess the property. While the agents would also discuss many issues with the potential seller (the specific marketing strategy of the agent, the state of the real estate market in that location, the type of improvements that should be done before the house would be ready to be shown, etc.), the one thing that is most likely to grab the attention of the seller is the price at which the competing agents believe the house should be listed. If there were multiple agents, the potential seller may favor the agent who names the highest price. So clearly agents have an incentive to overstate the listing price. In turn, it seems completely reasonable that realtors should ignore listing prices. Yet, as the results show, they are woefully unsuccessful at doing so. And the more subjectivity or uncertainty associated with the object, the more influential the anchor.6 And these are trained professionals!

While this may surprise you, it turns out there was no difference between amateurs and experts in how influenced they were by the anchors of listing price. The only difference was that the experts claimed that they had a very explicit computational strategy while the amateurs admitted that they looked at the listing price and decreased their assessment of value depending on the condition of the property. Thus, what the experts said they were doing was not what they were actually doing. They may not have explicitly considered the listing price in the way that the amateurs did, but the anchoring effect was as powerful on them as it was on the amateurs!

Why do first offers have such impact? An important reason is that they focus the receiving party’s attention on his or her reservation price and that of the issuing party on the aspiration price.

To understand this effect, consider that your first offer should be an optimistic assessment of what you could achieve in this negotiation (i.e., your aspiration). Thus, when you make a first offer, you are focused on an aspirational level of outcomes. At the same time, such a first offer focuses your counterpart on his or her reservation price. In fact, if your offer were below his reservation price he might be thinking about strategies that could get him to the level of his reservation price so that an agreement would be possible. Thus, by making the first offer, you take advantage of your counterpart’s urge to come to an agreement and focus him on his reservation price while maintaining your focus on your aspiration. You maintain your expectations about an optimistic outcome and, at the same time, subtly prime your counterpart to focus on getting to his reservation price.7

However, the anchoring effect on the party receiving the offer is less effective the more prepared he is, mainly because careful preparation creates alternative anchors such as aspirations. Indeed, this positive effect of preparation is reinforced if the receiving party keeps its focus on its aspiration.

But interestingly, preparation also works for the party making the first offer by helping that party maintain focus on its aspirations. Think back to Chapter 2. Your aspiration influences your expectation and can direct your focus and offset the power of your counterpart’s first offer. Having optimistic aspirations or challenging goals can enhance your ability to achieve better negotiated outcomes.8

To maximize this effect, when preparing for a negotiation, excessive focus on your alternatives may make you an underachiever! Using your alternatives as a standard by which to judge an acceptable outcome makes your safety net your goal, and will cause you to systematically underperform in your negotiations. Keeping your aspiration firmly in mind, on the other hand, will provide additional psychological leverage that can help you extract more value in the negotiation.

Designing a First Offer

Let’s assume for a moment that you have decided to make the first offer. What are the characteristics that make a first offer more effective? First, you probably want to make a first offer that will set the anchor as favorably for you as possible, subject to it not being dismissed out of hand by the receiving party. That means that you want to make as aggressive a first offer as you can, “just this side of crazy.”9 But while that is a colorful description, of course it is hardly an actionable prescription.

When situating your first offer just this side of crazy, your offer has to be considered by your counterpart and not just dismissed out of hand. So while you typically do not expect your counterparts to accept your first offer, you want them to give your offer serious consideration and not simply walk away.

The challenging aspect is that what your counterpart will perceive as crazy depends on a number of factors, such as cultural expectations (how extreme is extreme?), your counterpart’s level of preparation, the justification for your offer, and—surprisingly—how “rounded” or “precise” is your offer.

What makes an offer extreme differs considerably across cultures. When traveling internationally, you get a first-hand opportunity to observe different definitions of extreme. For example, we have observed that the first offers and counteroffers that are given by carpet sellers in Istanbul are quite different from the equivalent offers and counteroffers by a carpet seller in Zurich (even when the sellers were of Turkish origin).

However, culture is not something that changes only when you cross national boundaries. Cultures and their impact can differ dramatically within a country, a region, or even across organizations within a region. The culture of one group or division can differ dramatically even within the same organization. Imagine how negotiations between engineers and marketers in a high-tech firm might differ in what they think of as this side of crazy.

Second, the effect of an anchor also depends on the uncertainty of the value of the issue or issues. The more uncertain or ambiguous the value is, the more influential the anchor will be. Issues may be more or less ambiguous because of their inherent uncertainty or lack of predictability. However, it is more likely that the uncertainty stems from a lack of preparation. The less prepared you are for a negotiation, the more power the first offer has to influence your judgment of what is reasonable.

Third, the presentation matters. First offers, counteroffers, or requests in general are more influential when they are accompanied by an explanation or justification. Classic studies in social psychology clearly demonstrate this. For example, people standing in line are more likely to allow others to “cut” if they give a justification for their request (“I am in a hurry”). Interestingly, the quality of the justification is not as important as the fact that a justification is given. But if you are going to provide a justification for your offer, the more objective justification is the more powerful anchor. For example, when you are negotiating a move forward in the airport security screening line, “I am in a hurry because I am about to miss my plane” is likely to work better than simply “I am in a hurry.”10

Fourth, the more relevant the anchor appears to be, the more it will influence the receiving party.11 For example, researchers asked people “Is the freezing point of vodka 32 degrees F?” followed by a request to identify the freezing point of vodka. Most of us would view the anchor of 32 degrees F as diagnostic because 32 degrees F is the freezing point of water. Thus, much as we would be influenced by the listing price of a residence, we would more influenced by this anchor than we might be by an anchoring question such as “Is 30 the average number of days in a month in the Gregorian calendar?” in trying to figure out the freezing point of vodka.

Probably the most surprising effect of the effectiveness of anchors is that the numerical form of a first offer—that is, how round or seemingly imprecise it is—significantly influences how informative recipients view that offer and how much influence it has on the ultimate outcome. Research has found that the more (seemingly) precise an offer, the more it binds the target; the more “round” the offer, the less influential—or the more the receiving party will adjust away from the anchor.12 What this suggests is that the precise offers are more anchoring than are their less precise cousins (but equally accurate—remember that high school math class where the distinctions between precise and accurate were discussed?). It turns out that, for example, houses sell for more when their listing prices were precise ($1,423,500) rather than round ($1,500,000) even when the round number was larger than the “seemingly” precise number!

So, what makes an anchor powerful? Anchors influence assessment of value because negotiators are rarely in a situation where they have perfect knowledge of the deal and of their counterparts’ alternatives and aspirations. In trying to assess a likely point of agreement for a deal, negotiators look for cues that provide information about the interests and preferences of their counterparts. Anchors can provide that perspective. More important, the power of an anchor lies in its subtle ability to influence negotiators’ judgments of value. The more unprepared you are for the negotiation, the more influence anchors will have on what you think is reasonable. The more objective the anchor appears, the more it appears to be a reasonable starting point. And the more objective and precise the first offer, the more easily you accept its validity.

YOU MADE THE FIRST OFFER: WHAT’S NEXT?

You just made the first offer to your counterpart. Now what? There are at least three possibilities: Your counterpart could (1) end the negotiation by accepting your first offer; (2) she could simply walk away by saying you should come back when you have a reasonable offer; or (3) she could make a counteroffer.

From a purely rational perspective, you might think that (1) is the preferred outcome. After all, you made the first offer, and you got what you wanted. Yet as we discussed in Chapter 2, while this might hold true economically (although it tells you that your counterpart values the item more highly than you expected), it isn’t the case psychologically: Having your counterpart accept your first offer almost guarantees that you’ll feel less satisfied than you would have if you and they had negotiated a different outcome—even one that made you worse off. When you made the first offer, you did not expect it to be accepted precisely because of your assessment that it was an extreme and one-sided outcome. So, when that offer is accepted, it calls into question your basic assumption—that the first offer was extreme and one-sided.

Indeed, research shows that negotiators are much more dissatisfied when their first offer is accepted than they are with the same objective outcome if an agreement is reached after rounds of offers and counteroffers.13

If, on the other hand, your counterpart takes option (2) and walks away after saying she will not even respond with a counteroffer, it will be pretty clear that you have wandered into crazy land. This puts you in a difficult position: Without a counteroffer, the only way to continue the negotiation is for you to make a unilateral concession. You have to make another offer—and that offer is likely to entail a significant concession from your first offer. And in making this unilateral concession, you have let counterpart know how important an agreement is for you: that you are not willing to let her walk away.

At that point, you have lost significant power in this negotiation. When you make that unmatched concession, you have essentially rewarded your counterpart for not negotiating! You made a first offer, she started to walk away, and you conceded. Now your counterpart is even less likely to make a concession; it makes more sense for her to hold out, keep walking, and see how much more you will concede.

One alternative is to have a partner who can step into the negotiation and replace you, because by conceding you have made it too clear that you won’t walk away from this negotiation. If there is any hope of getting a reasonable deal, it will require someone else to take over, preferably someone whom the counterpart does not associate with you, someone who can reestablish his own willingness to walk away. But you are done.

So stepping into crazy land is something to avoid—as is making too low an offer. You don’t want to get your first offer accepted, nor do you want your counterpart to end the negotiation by walking out. Rather, what you want is a counteroffer. So the best first offer really is the most extreme offer that your counterparts will seriously consider. Once they make a counteroffer, you will have achieved the goals of the first offer: You will have anchored your counterparts with an offer, and they will have responded with a counteroffer, creating that range between the two points that defines the playing field for a particular negotiation.

Now consider the choice that most folks believe is the better option: receiving the first offer. When is receiving the first offer a good idea? What is it about receiving the first offer that makes it so attractive to negotiators?

WHEN TO WAIT FOR THE FIRST OFFER

Receiving the first offer gives you a strategic advantage when the potential value of the information conveyed by the offer outweighs the value of the anchoring effect of making the first offer. This will occur when your counterpart is poorly prepared—and you are well prepared.

If you are negotiating with a counterpart who does not do much in the way of systematic planning or preparation to understand her perspective or yours, she may make an error in her assessment of what she wants, and that error may be in your favor. Your unprepared counterpart may also reveal much more in her first offer about how she values the issues, giving you insights into what she believes to be an extreme opening position. Since you are well prepared, you can learn about how she values the issues while remaining relatively uninfluenced by the effect of the anchor contained in the first offer.

Consider a negotiation where you have unique and private information and you are confident that your counterpart does not know. If you were trying to buy a painting, the value of that painting may be quite different to you if you were a casual buyer of art from what it might be if you were an art collector. As an individual collector, the value of a particular painting may depend on your knowledge of the artist, the state of your personal collection, and other factors that might be unique to the specific interaction between you and this particular piece of art. So the value that is potentially available in this interaction is a function of you. Another art collector might value this same piece of art in a very different way. In contrast, if you were simply a buyer of art, the unique component of the perspective that you bring to the table might be much more equal to that brought by your counterpart (you bring the money, the counterpart brings the art).

Let’s move from the world of art sales to the more mundane setting of a flea market. You are spending a Saturday afternoon, strolling through a flea market—looking for something interesting. Passing a small kiosk, you notice a large work table that was fashioned out of cement blocks that is for sale. Although singularly unattractive, it, nonetheless, caught your eye. The seller had glued some interesting tiles to the center of the work table to make it more attractive. It is these tiles that have attracted your attention. The tiles, it turns out, were made by Grueby—a famous arts-and-crafts artisan. Given the context (flea market, concrete table), you conclude that it is highly unlikely that the seller is aware of the famous provenance of his decorative tiles.

So, in this case should you make the first offer? Will the anchoring effect or the informational effect dominate? Since you recognize the value of the Grueby tiles, that knowledge is likely to anchor you to a much higher value than your counterpart is expecting if he were ignorant of their provenance. If you propose a price dramatically higher than the seller expects, however, you may raise his suspicions about either your state of mind (“I have a real sucker here”) or, more importantly, the knowledge that would cause you to offer such a high price for his tiles. Either way, odds are he’ll try to get you to pay considerably more than he had planned because of your first offer. What should you do? The answer: Let him make the first offer and then use that offer to assess what he knows. If he makes a first offer that demonstrates his lack of knowledge about the tiles, then you can negotiate at the level that he has set with his first offer. If you are successful at reaching an agreement, then the seller will be happy with the sale of the work table, and you will be happy with your purchase of those rare Grueby tiles. Now all you have to do is to figure out how to get that cement block table home so you can remove the tiles!

In the same vein, if you truly believe that your counterparts have a very different, higher metric for valuing the issues over which you are negotiating, then you should entice them to make the first offer. If you truly believe that your potential employer will make you an offer that is substantially greater than your current compensation, you don’t want to anchor her with your current compensation figure, possibly signaling that you would be willing to take less than she was offering. So if you honestly believe that your counterpart values your capabilities much more highly than your current compensation would suggest, see what she has to say first.

Finally, you may choose to receive the first offer if you have great uncertainty about the value of the object to your counterpart. For example, assume that you know that your counterpart’s reservation price is either 10 or 1,000—but you don’t know which. If you were to make the first offer, you either run the risk of making it too high or having her walking away. Thus, by having her make the first offer, you can infer whether her valuation is high or low.

Of course, by receiving the first offer, you subject yourself to the anchoring effect of your counterpart’s offer. However, the better informed you are, the less impact the first offer will have in anchoring you.14 The more you know about the issues over which you are negotiating, the more certain you can be about what you want and what you value. The more certain you are, the less your assessment of value will be swayed by that first offer. The better prepared you are compared to your counterpart, the more resistance you have to the anchoring effect and the greater the potential to take advantage of the unexpected information contained in the counterpart’s first offer. But don’t get confused: No matter how well you have prepared, you will be influenced by your counterpart’s first offer. It is not a question of if but rather a question of how much.

BOTTOM LINE: WHO SHOULD MAKE THE FIRST OFFER?

So, let’s go back to the original question—should you make or receive the first offer? There may be times in which you want to receive the first offer, and situations in which you will do better by making the first offer. Recent research helps us distinguish which is preferable in various situations.

Researchers recently looked at the impact of making the first offer across different cultures, when negotiators had differing levels of power, when negotiations were over single issues (such as price), or when the negotiations involved multiple issues that were distributive, integrative and congruent in nature. In all of these situations, negotiators who made the first offer did better. Further analysis of the data suggested that it was on the allocation of the distributive issues (such as price) that the first offers had their effects. Making the first offer did not influence the relative outcomes on the integrative or congruent issues.

To help you make the decision, let’s consider what happens when you make the first offer and there are congruent issues. Assume first that neither party is aware that a given issue is congruent. The receiver can exploit this information by choosing a trading strategy that accepts that extreme offer (which, of course, is not extreme since the issue is congruent) in return for a concession on another issue. Alternatively, she can choose a direct strategy and accept the counterpart’s offer on the congruent issue, possibly gaining goodwill. Either way, the person receiving the offer has a choice.

Now assume the negotiating parties are not equally well informed and that the better-informed party knows (or suspects) that some of the issues being negotiated are congruent. Then the choice of whether to make the first offer depends on weighing the relative impact of forgoing the benefits from setting the anchor compared to the value of knowing which issues are congruent and having the option of choosing a trading or direct strategy.

As this example indicates, information and preparation are key in any negotiation. So in deciding which approach makes you better off—making or receiving an offer—you need to assess both your and your counterpart’s relative preparation. To help you do that, we have organized your options into a table that has sixteen different possibilities. How prepared are you about your interests (high or low) and about your counterpart’s interests (high or low)? How prepared are they likely to be about what they want (high or low) and how much insight do they have about your interests (high or low)? For example, you could be very knowledgeable about your interests and not knowledgeable about the interests of your counterpart or you could be knowledgeable on both or knowledgeable on neither. In each of these sixteen possibilities, we have made a recommendation.

Take a look at Matrix 7.1. To make it more accessible, we have blacked out the possibilities that reflect your not being prepared about what your interests and preferences are. After getting this far in the book, that simply is not an option! More importantly, consider the grey and white possibilities. In the grey zone, you should proceed with caution. You have not analyzed the negotiation from your counterpart’s perspective. Some of these possibilities reflect mutual ignorance—you both don’t have insight into the interests of the other. The white possibilities reflect the sweet spot in your preparation. You are knowledgeable about you and your counterpart. In some of these situations, your counterpart is also quite knowledgeable and, in others, less so. You know your interests and your counterparts know theirs. But each of you has little insight into the other.

What may be very surprising to you is the dominance of “make” recommendations: 75 percent of the recommendations are “make the first offer.” Compare this to our survey findings that 80 percent of negotiators prefer to receive the first offer. At the very least, you may need to be more proactive in making the first offer than you’d prefer. But more important, remember that this is not a simple, binary question. To get more of what you want, you need to analyze the situation, your behavior, and the behavior of your counterpart to determine the best course of action for yourself. Sometimes that will require you to make the best offer; at other times it will require you to wait for it.

SUMMARY

Who knew that figuring out when you should make the first offer would be this complicated? Here, we attempt to distill the lessons in this chapter to their most important elements. In sum, you should consider the following in deciding how to initiate the negotiation:

• Analyze the situation to determine if the effect of the anchor or the effect of the information asymmetry is more powerful. If it were unclear, ambiguous, or equivalent, consider making the first offer.

• Anchors do work, even when negotiators are knowledgeable about the value of the issue. They are just more effective the less precise the knowledge of the receiving party is.

• The offer should be as extreme as you can make it while still getting your counterpart to respond—unless you are trying to get an auction going. We discuss that exception in Chapter 13.

• The numbers contained in the first offer should appear precise rather than rounded (even if no such accuracy objectively exists).

• The basis or justification for the offer should accompany the offer. The more objective that basis or justification appears to be, the more influential the offer.