Resolving the First-Offer Dilemma in Business Negotiations

Should you make the first offer? Few questions related to negotiation have yield more academic attention and debate among practitioners. The conventional wisdom among some: Don?t make the first offer, or risk ?showing your cards? and perhaps unknowingly giving away some of the bargaining zone. Others provided experimental and real-world evidence that making a first-offer allows you to ?anchor? the negotiation favorably, particularly if you have a good sense of the bargaining range and (even better) your counterpart does not.

In a series of studies, researchers Ashleigh Shelby Rosette of Duke University, Shirli Kopelman of the University of Michigan, and JeAnna Abbott of the University of Houston provide new evidence that might reconcile these competing perspectives. They asked MBA students to negotiate a single-issue price deal and recorded who made the first offer, the amount of the offer, and the deal outcome.

Subjects then were asked questions about their emotional state, such as whether they felt anxious during talks and whether they were satisfied with the outcome. The negotiators who made first offers felt more anxiety than those who did not ? and, as a result, were less satisfied with their outcomes. Yet, backing up prior studies, those who made first offers did better in economic terms than those who did not.

The implication? If you value only the economic outcome of your deal, make a first offer in order to anchor the negotiation in your favor. But if you value satisfaction with the negotiation process more than the outcome itself, you may want to avoid the stress and anxiety of making the first offer.

The authors also recommended finding a ?personal antidote that would prevent feelings of anxiety from emerging altogether.? For example, ?some negotiators may find it helpful to role-play making the first offer and repeat this behavior in a safe simulation setting until they feel comfortable enacting it in a real world negotiation.?

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Source: http://www.pon.harvard.edu/daily/business-negotiations/resolving-the-first-offer-dilemma-in-business-negotiations/

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