New research from Ross Professor Shirli Kopelman shows the stress of making the first offer in a negotiation dampens enjoyment of economic benefits.
ANN ARBOR, Mich. — Emotional alignment is key to using evidence-based strategies. Making the first offer in a negotiation is a prime example of that, according to new research by University of Michigan Ross School of Business Professor Shirli Kopelman. She's found that the proven strategy of moving first in a negotiation is tempered by anxiety.
Making the first offer is the right move economically. It anchors the discussion around that first number, and the final price is significantly correlated with the first offer. But first movers paradoxically feel less satisfied with the advantageous outcome than the other side, according to two studies Kopelman performed with co-authors Ashleigh Shelby Rosette of the Fuqua School of Business at Duke University and JeAnna Lanza Abbott of the C.T. Bauer College of Business at the University of Houston.
They found that anxiety about being taken advantage of by the other side leads to dissatisfaction with the end result — it makes no difference whether the person was instructed to make the first offer or chose the make the first offer.
"The danger for people in the field is that if you are in a negotiation and make the first offer, that anxiety and dissatisfaction would cause you to not be the first mover again," said Kopelman, assistant professor of management and organizations. "The evidence is clear: making the first offer is financially beneficial. But this is where emotions get in the way of evidence, potentially leading people to forego a winning strategy."
What causes the anxiety? The first mover feels uncertainty about what would be a good offer. Putting the first number out there in a price negotiation feels like taking a leap, even if it's not.
"In business, you should have enough information to make a solid first offer; otherwise, you shouldn't be in a negotiation," said Kopelman. "People in a negotiation need to arm themselves with knowledge, not only about their own information, but also about the other person's willingness to pay. Then they need to feel confident about making that first offer."
The ironic upshot is that the party not making the first offer is more satisfied than the first mover, despite the weaker economic result. That's because that party avoids the anxiety about making the first move, and possibly feels like they have gained information about the first mover. However, data suggests that the other party is still likely to adjust their price toward the first mover's anchor and ends up making more concessions.
So how can a negotiator "stick to her guns" and make that first offer despite the anxiety?
One way is to practice. Simulations and role play lessen not only the natural stress of being in a negotiation, but can instill confidence in that first offer," Kopelman said.
Another way is to re-frame the first offer as a wider proposition.
"There's a price associated with everything, and when you make the first offer on price you have to justify it, own it, and ground it. But you can frame it collaboratively," she said. "You interweave it into the value-creation story. When you make that first offer, you also walk the other side through a value proposition in addition to the price. Now you're not just negotiating a number. You can also move on the price if you include other things in the offer. It's less stressful than just haggling over a number."
One of the biggest hurdles to overcome is simply recognizing the anxiety.
"Anxiety can be managed," Kopelman said.
Kopelman has developed a positive model of negotiations, in which mindful and strategic display and response to emotions is critical to success. That model is part of the Ross Executive Educationprogram Negotiating for Positive Results, next offered Nov. 19-22.
"You should go into a negotiation knowing that you may be nervous about making the first offer, but that it's really the best move," she said.
This recent scientific finding suggests that if you successfully manage the anxiety you experience when you make the first offer, you will both make more money and feel satisfied. The upshot? Your negotiation partners might also be happy because they didn't need to make the first offer.
— Terry Kosdrosky of U. of Mich/Ross School of Business