There are lots of opportunities
for negotiation these days. Bargain
hunters wander through weekend garage sales and haggle with the sellers. Car buyers have to settle on a final price
for a car with a dealer. House hunters
send proposals back-and-forth trying to decide on a selling price for a house.
There is a lot of interesting
psychology in these negotiations.
The first thing that happens in
most negotiations is that either the buyer or the seller makes an offer. That initial offer serves as an anchor.
Research on the rules that people use to make judgments suggests that we
often use a strategy called anchoring and
adjustment. According to this
strategy, we start with some anchor point and the adjust our belief about the
true value based on other information.
In the case of a negotiation, we
know that people try to buy low and sell high.
So, if the buyer makes an offer, the seller knows that the initial offer
needs to be adjusted upward to get a fair price.
The key question is how much that
offer should be adjusted.
This issue was addressed by Yossi
Maaravi, Yoav Gonzach, and Asya Pazy in a paper in the August, 2011 issue of
the Journal of Personality and Social
Psychology. They were interested in
the role that persuasive arguments might play during negotiations.
Because people use the initial
offer as an anchor, many people have suggested that including a persuasive
argument for why the anchor is correct may minimize the amount that people
adjust the anchor when making their counteroffer in the negotiation. For example, if you are interested in buying
a house, the seller might ask for $350,000, arguing that the house was newly
renovated and is near good schools.
Maaravi, Gonzach, and Pazy argued
that when people hear an argument in favor of the initial offer, they think of
counter-arguments. These
counterarguments may actually push the counteroffer further away from the
initial offer than it would have been had there been no persuasive
argument. Someone looking at a house
might find all the areas that still need renovation and think about other
houses even closer to the better schools in town and give a low offer on the
house.
They supported this view in a
number of studies. In one of the four
experiments in this paper, half the people played the role of the seller of a
factory, while the rest played the role of the buyer. Everyone received detailed information about
the factory.
In some groups, the seller was
asked to make the first offer. For half
of these groups, the seller also had to give arguments in favor of their
offer. In this case, the counteroffers
by the buyer were lower when the seller made arguments in favor of the initial
bid than when the seller gave no arguments.
The buyers were asked to write down reasons for their counteroffers, and
they gave more reasons for making a low bid when they were responding to
arguments by a seller than when there were no arguments. The final price the group agreed on was also
lower when the seller made arguments with the initial offer than when no
argument was made.
The opposite pattern was observed
for groups where the buyer went first.
In this case, sellers generated more reasons why the buyer’s initial
offer was bad when the buyer made arguments along with the initial offer than
when there were no arguments. The
sellers made higher counteroffers when there were arguments along with the
initial offer than when there weren’t.
Finally, the purchase price was higher when the buyer made arguments
than when there were no arguments made.
Putting all this together, then,
it appears that it is hard to be persuasive when negotiating. People enter negotiations knowing that the
other party is an adversary. Each side
wants to get the best deal, and so they treat every piece of information given
by the other party with skepticism. They
find reasons why persuasive arguments are flawed and use those counterarguments
when adjusting the anchor set by the initial offer.
What does this mean for you?
If you are involved in a negotiation,
it is probably a good idea to make the first offer. That initial offer serves as an anchor. However, after you make that initial offer,
resist the temptation to give reasons to justify that initial bid. Instead, let the other party come back with a
counteroffer. Chances are, that
counteroffer will not be adjusted as far away from your initial offer as it
would have been if you had made arguments in your own favor.
