Make the First Move and Drop the Anchor!- Miles Mediation
by Chris Annunziata
Someone needs to make a first offer in every negotiation. Old-school negotiators have typically let the other side make the first move, believing that the party who first put out a number tipped its hand, or ended up overpaying or leaving money on the table.
Modern negotiation theory holds the contrary opinion. Studies have shown that the party making the first offer positively influences the outcome of the negotiation; and that the benefits of making the first offer are powerful – even between knowledgeable, experienced parties. This is due to a cognitive bias known as “anchoring,” i.e., the tendency to give a greater significance to the first offer in a negotiation.
One meta-analysis conducted by Dean Chris Guthrie of Vanderbilt Law and attorney Dan Orr of several anchoring studies concluded that anchoring “has a powerful influence on outcomes . . . [with a] correlation of 0.497 between the initial anchor and the outcome.”* As they put it, “In lay terms, the 0.497 correlation means that every one dollar increase in the opening number is associated with an approximate fifty cent increase in the final sale price.”
And yes, this strong correlation exists whether the study participants were novices or experienced negotiators. When adjusted for negotiation experience, however, Guthrie and Orr’s study found a slightly lower 0.37 correlation between the opening number and the result; or to use his lay explanation above, every additional dollar in the opening number correlated to a thirty-seven cent change in the final result.
A good anchor can also put the other side “off its game.” I can’t tell you how many times I’ve brought an aggressive opening number to the other caucus room and then spent a significant amount of time debating the reasonableness of the opening number rather than discussing how best that party should proceed.
The key to making the anchoring strategy work is to make your first offer as aggressive as possible without being so unrealistic as to make the other side walk away from the table. That should give you some room to move and it allows you to define – rather than react to – the zone of potential agreement.
But what can you do if the other side has already attempted to set an anchor?
First, try not to react negatively to the other side’s initial number. Sure, the opening number may have been aggressive but remember: you’ve done your homework, you’ve spent time preparing for mediation and you know the number at which you are willing to settle.
Second, send a brief explanation of your counter-offer but be wary of editorializing too much about their first move. Send a simple message that you understand what they are trying to accomplish, you have your evaluation of the case, and you will not be swayed.
Third, be aware of – but don’t necessarily focus on – the initial midpoint. You know your top-dollar or bottom-line. It should not matter too much to you that the first few moves suggest a mid-point outside of your settlement range. What matters is the final result.
Finally, rely on your mediator. I am there to help you take stock of the situation, focus your efforts and help move you and your client toward a successful settlement.
*Guthrie, Chris and Orr, Dan, Anchoring, Information, Expertise, and Negotiation: New Insights from Meta-Analysis. Ohio State Journal on Dispute Resolution, 2006; Vanderbilt Law and Economics Research Paper No. 06-12.
To Learn More about Chris or to book him for your next mediation, check out his bio.