The remarkable robustness of the first-offer effect: across culture, power, and issues

Effects of explanations and precise anchors on salary offers

Two studies were conducted which examined explanations and precise anchors on counteroffers and perceptions in a salary negotiation. Study 1 found that precise offers reduced counteroffers compared to round offers, but explanations focused on internal equity concerns or external equity concerns had no effect on counteroffers. Study 2 also found that precise offers reduced counteroffers compared to round offers. Explanations, which were manipulated to focus on constraint or disparagement rationales, failed to affect counteroffers, but a constraint explanation led to higher attributions of competence compared to a disparagement explanation or no explanation. These results suggest that precise offers are an effective tactic for reducing counteroffers and that explanations are relatively unimportant. Further research is needed to determine under what conditions an explanation may improve or harm negotiation outcomes.

Anchoring on Historical Round Number Reference Points: Evidence from Durable Goods Resale Prices

This paper examines how people price the resale of durable goods in systematically biased ways. We show across four studies that the anchoring effect of durable goods’ prior sales prices on subsequent valuations is discontinuous at psychologically salient round number reference points (e.g., $10,000 increments) because these numbers create qualitative differences in how people perceive values below them versus values at/above them. Resellers set disproportionately larger subsequent prices when previous prices move from just below round number thresholds (e.g., $349,000) to those at or just above these thresholds (e.g., $351,000). The findings show that buyers who pay a price just below a round number, therefore, may sacrifice money because they receive disproportionately less when reselling the good. Market forces only partially attenuate this pricing bias, but valuator experience seems to play a moderating role. Archival data show that home buyers who previously paid just under a $10,000 reference point subsequently listed their homes for about 1.8% (over $3,700) less on average than did buyers selling comparable homes who previously paid at or above a round number threshold. This drop is observable controlling for home characteristics and the general relationship between previous and current prices. Three experimental studies looking at housing and used car markets replicate these findings, highlight the mechanism, and increase confidence in causality. Market mechanisms and the negotiation process attenuate discontinuities by about 30%, but lower initial listing prices persist to final sales prices. We find additional weak evidence suggesting that valuator experience may attenuate intergenerational pricing bias.

How value-based policy interventions influence price negotiations for new medicines: An experimental approach and initial evidence

BACKGROUND

Various forms of value-based pricing policies for new medicines have recently been introduced in OECD countries. While these initiatives are expected to have a positive impact on societal outcomes such as availability, affordability and value for money, scientific evidence on this impact is scarce due to confidential agreements.

OBJECTIVE

We aimed to assess the impact of value-based policy interventions in price negotiations on patient benefit in an experimental setting.

METHODS

An online experiment was conducted (n = 269). Participants were randomly assigned into the active role of either a buyer or seller in two intervention groups (cost-benefit, risk-sharing) and one control group. Decisions had real monetary consequences on other participants and through donations to a patient association.

RESULTS

Patient access, benefit and value for money were higher in the cost-benefit group than in the risk-sharing group. An available alternative to the agreement led to higher price offers. This effect was weaker in the cost-benefit group.

CONCLUSIONS

Outcomes of price negotiations on patient benefit depend on the alternatives available for failed or delayed negotiations. A shared but voluntary valuation framework might increase patient access, benefit, and value for money. The cost containment effect of risk-sharing agreements may be offset by the negative impact on overall patient benefit. Further development of the approach could provide support for policy design of pharmaceutical pricing regulations.

Buyers, Maybe Moving Second Is Not That Bad After All: Low-Power, Anxiety, and Making Inferior First Offers

The behavioral decision-making and negotiations literature usually advocates a first-mover advantage, explained the anchoring and adjustment heuristic. Thus, buyers, who according to the social norm, tend to move second, strive to make the first offer to take advantage of this effect. On the other hand, negotiation practitioners and experts often advise the opposite, i.e., moving second. These opposite recommendations regarding first offers are termed the Practitioner-Researcher paradox. In the current article, we investigate the circumstances under which buyers would make less favorable first offers than they would receive were they to move second, focusing on low power and anxiety during negotiations. Across two studies, we manipulated negotiators' best alternative to the negotiated agreement (BATNA) and measured their anxiety. Our results show that, when facing neutral-power sellers, weak buyers who feel anxious would make inferior first offers (Studies 1 and 2). When facing low-power sellers, weak buyers would make inferior first offers across all anxiety levels (Study 2). Our findings shed light on two critical factors leading to the Practitioner-Researcher paradox: power and anxiety, and offer concrete guidelines to buyers who find themselves at low power and highly anxious during negotiations.

In Generous Offers I Trust: The Effect of First-Offer Value on Economically Vulnerable Behaviors

Negotiation scholarship espouses the importance of opening a bargaining situation with an aggressive offer, given the power of first offers to shape concessionary behavior and outcomes. In our research, we identified a surprising consequence to this common prescription. Through four studies in the field and laboratory (total N = 3,742), we explored how first-offer values affect the recipient’s perceptions of the offer-maker’s trustworthiness and, subsequently, the recipient’s behaviors. Specifically, we found that recipients of generous offers are more likely to make themselves economically vulnerable to their counterparts, exhibiting behaviors with potentially deleterious consequences, such as disclosing negative information. We observed this effect in an online marketplace (Study 1) and in an incentivized laboratory experiment (Study 3). We found that it is driven by the greater trust that generous first offers engender (Studies 2 and 3). These results persisted in the face of debiasing attempts and were surprising to lay negotiators (Studies 3 and 4).

Cultural Variation and Similarities in Cognitive Thinking Styles Versus Judgment Biases: A Review of Environmental Factors and Evolutionary Forces

Cultural psychological research has compellingly demonstrated that reliable East-West differences exist in basic cognitive styles: in contrast to the analytic, focal, linear thinking prevalent in the West, East Asians prefer to engage in more holistic, contextual, and intuitive thinking. However, despite the consensus on these cultural differences in thinking style, the literature on cross-cultural variation in actual cognitive biases is far more equivocal. The Fundamental Attribution Error (and by extension the Ultimate Attribution Error) has received the most attention among cognitive biases in the cultural arena; multiple studies have shown both evidence for cultural differences and evidence for universality. Similarly equivocal findings have emerged for other cognitive biases like the hindsight bias, positive illusions, and social exchange. Error Management Theory offers to reconcile this paradox of why consistent variation in thinking style do not necessarily lead to similarly consistent differences in cognitive biases; different mechanisms drive preferences (i.e., for how to think) versus actual behaviors (i.e., involving judgments/decisions). While different features of the physical environment likely gave rise to differences in preferences, pressures from the social environment likely pushed cognitive processing in common judgment tasks (like inferring another person’s mind or one’s own) in similar directions.

Power and negotiation: review of current evidence and future directions

This review synthesizes the impact of power on individual and joint negotiation performance. Although power generally has positive effects on negotiators' individual performance (value claiming), recent work suggests that more power is not always beneficial. Taking a dyadic perspective, we also find mixed evidence for how power affects joint performance (value creation); some studies show that equal-power dyads create more value than unequal-power dyads, but others find the opposite. We identify the source of power, power distribution, and competitiveness as critical moderators of this relationship. Finally, we suggest that future research should move beyond studying alternatives in dyadic deal-making, identify strategies to overcome a lack of power,increase empirical realism, and take a more dynamic view of power in negotiations.

Inducing gender/professional identity compatibility promotes women's compensation requests

In this paper, I examine whether inducing gender/professional identity compatibility prior to a self-advocacy negotiation, may enhance women's assertiveness in a compensation negotiation and mitigate potential social backlash concerns for assertiveness. In two experimental lab studies where women negotiated with a male counterpart as sellers and job candidates, I found evidence supporting the causal link between state gender/profession identity integration and higher levels of assertiveness in women's self-advocacy compensation negotiations.

Power Poseur

Strong claims have been made that power poses can significantly improve one’s life. Starting from an evolutionary perspective, we reason that expansive poses will have no impact in more realistic situations, as in the presence of an interaction partner or when participants are aware of what the pose should accomplish. Across four dyadic studies including both commonly used outcomes and a negotiation task (which could actually have direct benefits for one’s life), we find nearly uniform null effects of holding expansive poses, despite checks confirming the success of the manipulation. For example, in two of the studies, participants watched a popular TED talk on power poses, held an expansive pose, and then completed a negotiation in the presence of a partner, as might happen in real life. We argue that researchers should stop recommending power poses as an empirically supported strategy for improving one’s life.

The science of culture and negotiation

Recent negotiation research has produced a groundswell of insights about the effects of culture on negotiation. Yet, few frameworks exist to organize the findings. This review integrates recent research using a two-dimensional framework: The first dimension organizes the research into that which has taken: (1) a comparative intracultural approach, versus (2) an intercultural approach. The second dimension organizes the research by its emphasis on: (1) inputs into negotiation, (2) processes of negotiating, and (3) outcomes of negotiation. This framework helps to organize extant research and produces novel insights about the connections between disparate research streams, revealing both commonalities and culture-specificities in negotiation strategy and outcomes and suggesting that intercultural negotiations are difficult but not insurmountable. We conclude by discussing several areas in which more research on culture and negotiation is urgently needed in today's globalizing world.

Anchors weigh more than power: why absolute powerlessness liberates negotiators to achieve better outcomes

The current research shows that having no power can be better than having a little power. Negotiators prefer having some power (weak negotiation alternatives) to having no power (no alternatives). We challenge this belief that having any alternative is beneficial by demonstrating that weak alternatives create low anchors that reduce the value of first offers. In contrast, having no alternatives is liberating because there is no anchor to weigh down first offers. In our experiments, negotiators with no alternatives felt less powerful but made higher first offers and secured superior outcomes compared with negotiators who had weak alternatives. We established the role of anchoring through mediation by first offers and through moderation by showing that weak alternatives no longer led to worse outcomes when negotiators focused on a countervailing anchor or when negotiators faced an opponent with a strong alternative. These results demonstrate that anchors can have larger effects than feelings of power. Absolute powerlessness can be psychologically liberating.

Conflict Templates in Negotiations, Disputes, Joint Decisions, and Tournaments

Conflict situations present interaction partners with opportunities to behave cooperatively or competitively. Conflict templates (CTs) capture interaction partners’ perceptions of the relationships between their actions and outcomes. Study 1 investigated situational influences on CTs as well as the cross-situational consistency of CTs using a longitudinal diary design. Deal-making negotiation produced more competitive perceptions than dispute resolution, joint decision making, or naturally occurring social interactions. Study 2 investigated downstream consequences of CTs by having participants submit strategies for a tournament involving four types of situations. Each strategy was matched with all other submitted strategies in a series of repeated games for a total of over 12 million rounds. Cooperative perceptions significantly predicted economic performance in the tournament. We highlight the implications of the current findings for conflict management and resolution.

The first-mover disadvantage: the folly of revealing compatible preferences

The current research establishes a first-mover disadvantage in negotiation. We propose that making the first offer in a negotiation will backfire when the sender reveals private information that an astute recipient can leverage to his or her advantage. In two experiments, we manipulated whether the first offer was purely distributive or revealed that the sender's preferences were compatible with the recipient's preferences (i.e., the negotiators wanted the same outcome on an issue). When first offers contained only distributive issues, the classic first-mover advantage occurred, and first offers predicted final prices. However, a first-mover disadvantage emerged when senders opened with offers that revealed compatible preferences. These effects were moderated by negotiators' social value orientation: Proself negotiators were more likely to take advantage of compatible information than were prosocial negotiators. Overall, the key factor that determined whether the first-mover advantage or disadvantage emerged was whether the offer revealed compatible preferences. These results demonstrate that first offers not only provide numerical value but also convey qualitative information.