Pub Date : 2018-08-16DOI: 10.4324/9781351239547-18
Andrea Cordell
Then someone conducted an experiment, and it turned out that reality did not agree with theory. In study after study, in the lab and in the field, negotiation outcomes favored the party that made the first offer. The party that made the first offer shifted less from the initial offer than the party who responded to it. This became known—not very creatively—as the “first-offer advantage.” The explanation for it had to do with the concept of “anchoring.” One of the best demonstrations of the power of anchoring is an experiment done by Dan Ariely at Duke University. Ariely asked people to write the last two digits of their cell phone number at the top of a piece of paper. Then he asked them to write the twodigit number again with a dollar sign in front of it. He then presented a number of objects including a bottle of fancy wine, a bottle of cheap wine, a computer mouse, and a box of chocolates and asked participants to bid on them. For each object, he asked the subjects two questions: (1) Would you pay the price determined by the last two digits of your cell phone number? and (2) What is the maximum amount you would pay to purchase this object? The results were remarkable. People were sensitive to relative price; that is, everyone bid less for the cheap wine than for the expensive wine. However, those with high cell phone numbers consistently bid more on average for every object than those with low numbers. In fact, participants with cell phone numbers ending between 90 and 99 bid more on average than those with cell phone numbers ending in the 80s who, in turn, bid more than people with numbers ending in the 70s, and so on for every decile. Why should this be? Most of us do not carry a book of prices in our heads. When we’re asked to come up For many years, the accepted wisdom among negotiation mavens was that you didn’t want to make the first offer. It was believed to be advantageous to have the other party do it. The reason for this advice was something called the “winner’s curse.” Suppose you are walking down the street and encounter a man who has a potrzebie for sale with a sign that reads, “Make an Offer.” You have always wanted a potrzebie, so you ask, “How about $100?” The guy breaks into a large grin, sticks out his hand, and says, “Sold.” In this scenario, you saw something you wanted and made what you thought was a reasonable offer. In fact, if you are any kind of negotiator, you made what you thought was a low offer. You would have been willing to pay more if the seller had countered. Now the potrzebie belongs to you at the price you offered to pay, and you’re not happy. That is the winner’s curse. You got what you wanted at a price you were willing to pay, but the transaction left you dissatisfied. The way to escape the winner’s curse, the reasoning went, was to avoid making the first offer. Let the other party make the first offer and get the winner’s curse. The exception to that rule was that it was okay to make the first offer if yo
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