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Negotiations: Starting high and ending with nothing

Wednesday, January 11, 2012
posted by Rita Handrich

In October of 2011, we wrote a blog post on negotiating your salary. That post was based on research advising the negotiator to start “high”. At the time we cautioned against applying this wisdom since it was only one study. Sometimes we are prescient!  Or in this case, we were appropriately cautious/skeptical.

New research says you run the risk of alienating your fellow negotiator and having negotiations break down entirely. Common wisdom, according to the researchers, suggests aggressive first offers (high if you are selling, low if you are buying). These researchers wanted to see how often an extreme first offer results in a negotiation impasse or breakdown. Does an extreme offer signal strength, or a simply a lack of interest in being reasonable and getting the case settled?

What they found is counter-intuitive. They looked at both how often negotiators were offended by extreme first offers and the negotiator’s sense of power (i.e., how many other options do you have).

They found that extreme first offers raised the incidence of people walking away from negotiations.

Almost everyone was offended by the extreme offers but only those negotiators with lower power walk away from the negotiation.

Further, beginning with an extreme first offer did not seem to result in a superior eventual outcome for the aggressive negotiator.

You would think that those with high power (i.e., with more options) would be the first to walk away. In our experience–the party with lower power may bluster and complain, but they don’t often walk away unless they have nothing to lose. They are trapped.

We recently had a case like this where the plaintiff would end up with $4 million dollars whether he prevailed or not. If he prevailed, he would potentially end up with a higher award. There was no incentive for him to “go away” or settle even though he was a scoundrel in the eyes of mock jurors. The defendant had to choose whether to proceed and bear the cost of litigation–or give him the money. It was a tough situation and certainly one that didn’t feel “fair” to the plaintiff.

Perhaps the situation researchers used in this study (either a personal rental lease or a corporate lease) is simply too far afield from the negotiations involved in high stakes (emotionally and financially) litigation. On the other hand, the counter-intuitive finding about negotiating with the low-power party is a good cautionary tale.

Schweinsberg, M., Ku, G., Wang, C., & Pillutla, M. (2012). Starting high and ending with nothing: The role of anchors and power in negotiations Journal of Experimental Social Psychology, 48 (1), 226-231 DOI: 10.1016/j.jesp.2011.07.005

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