First Offers and Aggressive Offers: Optimal Negotiating Tactics

When nego­ti­at­ing ensure that you make the first offer and make sure it’s an aggress­ive one: this is almost always the optim­al nego­ti­ation strategy. That’s the con­clu­sion from a study look­ing at nego­ti­ation tac­tics and the anchor­ing effect (from the same research­ers that dis­covered the optim­al start­ing prices for nego­ti­ations and auc­tions).

One of the research­ers gives a good over­view of the study’s find­ings in an art­icle for Har­vard Busi­ness School’s Work­ing Know­ledge that provides suc­cinc­t nego­ti­ation tac­tics and reas­ons for why you should make the first offer. Top­iccs include: when you should not make the first offer, how to counter first offers, how to con­struct a reasonable—yet aggressive—offer, how to pro­tect your­self from the effects of anchor­ing, and more.

Some key points worth con­sid­er­ing (in no par­tic­u­lar order):

We might expect experts to be immune to the anchor­ing effect. Real estate agents, for example, should be able to res­ist the anchor­ing effects of a prop­er­ty’s list price because of their pre­sumed skill at estim­at­ing prop­erty val­ues. Test­ing this the­ory, [it is clear that] anchors affect the judg­ment of even those who think they are immune to such influ­ence. But why?

Every item under nego­ti­ation (wheth­er it’s a com­pany or a car) has both pos­it­ive and neg­at­ive qualities—qualities that sug­gest a high­er price and qual­it­ies that sug­gest a lower price. High anchors select­ively dir­ect our atten­tion toward an item’s pos­it­ive attrib­utes; low anchors dir­ect our atten­tion to its flaws. […]

The prob­ab­il­ity of mak­ing a first offer is related to one’s con­fid­ence and sense of con­trol at the bar­gain­ing table. Those who lack power, either due to a nego­ti­ation’s struc­ture or a lack of avail­able altern­at­ives, are less inclined to make a first offer. Power and con­fid­ence res­ult in bet­ter out­comes because they lead nego­ti­at­ors to make the first offer. In addi­tion, the amount of the first offer affects the out­come, with more aggress­ive or extreme first offers lead­ing to a bet­ter out­come for the per­son who made the offer. Ini­tial offers bet­ter pre­dict final set­tle­ment prices than sub­sequent con­ces­sion­ary beha­vi­ors do.

There is one situ­ation in which mak­ing the first offer is not to your advant­age: when the oth­er side has much more inform­a­tion than you do about the item to be nego­ti­ated or about the rel­ev­ant mar­ket or industry. […]

How extreme should your first offer be? My own research sug­gests that first offers should be quite aggress­ive but not absurdly so. Many nego­ti­at­ors fear that an aggress­ive first offer will scare or annoy the oth­er side and per­haps even cause him to walk away in dis­gust. How­ever, research shows that this fear is typ­ic­ally exag­ger­ated. In fact, most nego­ti­at­ors make first offers that are not aggress­ive enough.