For a good part of the past decade, I’ve taught negotiation skills to diverse audiences—Fortune 500 executives, generals in the U.S. Army and Air Force, and professional athletes in the NFL and NHL. They tend to excel at preparing, analyzing options, and establishing a strong position. Yet some of their communication choices fly in the face of the best data on what actually works at the bargaining table.
Negotiations start with the exchange of information. Many people view this process like playing a poker game. Why should I tip my hand before I’ve seen yours?
But in Give and Take, I cover a wealth of evidence that most people are matchers: they follow the norm of reciprocity, responding in kind to how we treat them. This means that the best way to earn trust is to show trust. If we want to receive information, we need to lead by sharing information. That said, it’s risky to give away information that could make you vulnerable. The good news is that there are two easy ways to avoid this trap. The first is a technique that I learned from Robert Adler, a negotiation professor who now serves as a Commissioner of the Consumer Product Safety Administration for the Obama administration. It’s called selective information-sharing, and it involves revealing a piece of information that’s small or impossible to use against you. In one experiment, Stanford and Kellogg students negotiated over email. When they only exchanged their names and email addresses, they reached deals less than 40% of the time. When they shared information that was irrelevant to the negotiation, schmoozing about their hobbies or hometowns, 59% reached agreement. When you open up about something personal, you send a signal that you’re trustworthy, and your counterparts will be motivated to reciprocate, matching your disclosure with one of their own. The second is called rank-ordering, and it involves listing the issues on the table, and sharing the relative importance of them. In a job offer negotiation, for example, you might say that salary is most important to you, followed by location, and then vacation time and signing bonus. Research shows that rank-ordering is a powerful way to help your counterparts understand your interests without giving away too much information. You can then ask them to share their priorities, and look for opportunities for mutually beneficial tradeoffs: both sides win on the issues that are most important to them.
But you can only find these win-win possibilities if you resist the temptation to sequence issues. All too often, people try to reach agreement on one issue at a time. “Let’s resolve the salary first, and then we’ll move on to the other issues.” When Neil Rackham’s teamtaped skilled and average negotiators, the average negotiators insisted on handling issues one at a time more than twice as often as the experts. By keeping all of the issues on the table, you have the flexibility to propose trading location and bonus for a bump in salary. Once you’ve exchanged information, someone needs to make an offer. On average, is it better to make the first offer or let your counterpart open?
When I poll executives, more than three quarters believe that it’s usually best not to make the first offer. By encouraging a counterpart to make the first offer, they assume that they’ll gain an information advantage.
There’s only one problem with this assumption: it’s wrong. One thorough analysis of negotiation experiments showed that every dollar higher in the first offer translates into about 50 cents more in the final agreement. As Adam Galinsky, a leading negotiation expert at Columbia Business School, summarizes the extensive research: “more often than not, negotiators who make first offers come out ahead.” Why? First offers serve as anchors: they set the tone for the negotiation. When we hear a first offer, we find ourselves pulled in that direction, and have trouble adjusting our own judgments. In one clever experiment, Greg Northcraft and Maggie Neale invited experienced real estate agents to inspect a house from top to bottom, and then asked them to estimate the independent appraisal value of the house. Unbeknownst to the agents, they were randomly assigned to see one of two different listing prices. Half of the agents saw a listing price of $119,900, and they estimated that the house would appraise for just over $114,000. The other half of the agents saw a listing price of $149,900, and they predicted that the house would appraise for over $128,000. The listing price should have been irrelevant; the agents had seen the house, so who cares what list price the seller chose? But the agents couldn’t escape the pull of the anchor. Beyond setting the tone, making the first offer has two other advantages: it signals confidence and strength, and it creates more flexibility to make concessions without getting stuck with a bad deal. Of course, the credibility of your first offer depends on having a legitimate rationale to back it up. If your opening is too extreme, you can offend your counterpart or damage the relationship. And if your counterpart has better information than you, making the first offer can backfire—you might miss the mark completely. But as Dan Pink notes in To Sell Is Human, we’ve moved from a world of information asymmetry to information parity. In the information age, it’s much easier to do our homework about the value of a house, a car, or a skill set by gathering benchmarking data about similar items. As a result, I tell my students and clients that if they arrive at the bargaining table unprepared to make the first offer, they haven’t prepared enough. When preparing to make a first offer, people often overcorrect. They’re so concerned about justifying their positions that they marshal as many reasons as possible. Yet Rackham found that experts give fewer reasons to back up their arguments: skilled negotiators averaged fewer than two reasons per argument, compared with three reasons per argument from the non-experts. “The more reasons advanced, the more a case is potentially diluted,” Rackham writes. “If a negotiator gives five reasons to back his/her case and the third reason is weak, the other party will exploit this third reason in their response.” Presenting too many reasons can also convey a lack of confidence, making clear that we’re uncertain of the legitimacy of our offer. An effective first offer is best supported by one or two compelling reasons.
There will always be times where we simply don’t have the chance to prepare to make the first offer, or our counterparts beat us to the punch with an opening anchor. “If an initial offer is too extreme,” write negotiation authorities Max Bazerman and Maggie Neale, “you need to re-anchor the process.” One strategy is to make your counteroffer equally extreme, knowing that the final agreement will usually be near the midpoint of the first two offers. But this approach comes with a downside: because anchoring can be powerful, you might not adjust enough, making your counteroffer insufficiently extreme. Also, by countering, you’re sending a message that the first offer was an acceptable launching point for the negotiation. To avoid these traps, you can ask your counterparts to explain their reasoning, or simply tell them their initial offer is so far off the mark that you don’t feel it’s a fair or productive place to begin. But my favorite response is to follow one of Rackham’s tips: test your understanding and summarize. The idea here is to sum up what has just happened, and show that you’re wise to it. In Rackham’s study, of all behavior in a negotiation, testing understanding and summarizing made up less than 9% of the communications of average negotiators, versus more than 17% for skilled negotiators.
I had a chance to test this strategy when negotiating with a car dealer. He made an initial offer that was hardly better than the sticker price, and I saw an opportunity. “It sounds like you’re using a technique called anchoring,” I said, “where you open with an extreme offer to start the negotiation at the most favorable point for you. That’s not what you’re doing, is it?”
When I labeled the behavior, he saw that I couldn’t be easily duped. And when I asked the question, I gave him an escape hatch. He took it: “I knew I couldn’t fool you.”
