I found this experimental confirmation of what any good bargainer already knows interesting, reported here by the University of Technology, Sydney:
Previously there has been two conflicting views on first offers in negotiations, said Professor Page.
One view is that a low opening offer works as an “anchor†that moves the final offer in the direction of the first offer.
The second is that a more reasonable initial offer achieves a better outcome because it doesn’t sour the atmosphere and endanger the agreement.
Professor Page said their study showed support for both these ideas.
“We found that there is a small window where an offer is lower than an equal split, but not so low that it triggers negative emotions. It was viewed as ‘fair game’ to start the negotiation at this point.â€
So in summary to strike a good bargain your opening offer needs to be not too hard, or you risk a spiteful counter-offer, but not too soft either, or you might be taken for a ride.
If your opening offer is too high, you’re throwing your money away but if it’s too low you risk hitting the “insult price”—the offer that is so low that negotiation ends.
Already knows, indeed. We needed an academic to tell us that? Now you know why I take pot shots at so many of these studies.
I once worked for a scorched earth negotiator. That’s why he could only do turnaround deals. The phrase “on reasonable commercial terms†did not register with him.
As an aside. Not generally understood. In my business the basic economic terms are done at letter of intent stage, subject only to diligence. The contracts are really about risk allocation.
Agree with Drew that we did not need a study for this. I think long term for the most part so prefer deals when both parties think they have won something. Leaves future deals open. I have had people we didnt quite hire or ended up leaving us call me with great referrals or help.
Steve