Most negotiators prefer to have alternatives as a “fall back position.”
However, having no alternatives and less power than co-negotiators can improve outcomes, found INSEAD’s Michael Schaerer and Roderick Swaab with Adam Galinsky of Columbia.
Alternatives enable negotiators to gain concessions from co-negotiators because they have a BATNA – Best Alternative To a Negotiated Agreement, defined by Harvard’s Roger Fisher and William Ury.
When an alternative is weak, it can undermine negotiating outcomes more than having no alternative because it establishes an “anchor point” based on competing options.
Anchoring is a frequent cognitive bias characterized by overvaluing one piece of information, according to Hebrew University’s Amos Tversky and Daniel Kahneman of Princeton.
Typically, negotiators anchor on the value of their alternatives when making their first offer, so people with weak alternatives generally make lower first offers than those with no alternative.
“Lowball” first offers based on few or poor alternatives usually undermine a negotiator’s final outcome.
Professional athletes and their agents provide many anecdotal examples of negotiating better deals when they have no “back up” offers and “nothing to lose” because they can set ambitious anchor points.
In a separate study of job negotiation, Schaerer and team asked a hundred people whether they would prefer to negotiate a job offer with a weak alternative or without any alternative.
More than 90 percent indicated that they would prefer to enter the negotiation with an unattractive alternative offer, confirming the popular assumption that any alternative is seen as better than no alternative.
Another of Schaerer’s lab studies asked volunteers to imagine they were selling a used music CD by The Rolling Stones.
They randomly assigned participants to three groups and gave each group different information about their alternatives, ranging from:
- No offers (no alternative),
- One offer at USD $2 (weak alternative),
- A bid at USD $8 (strong alternative).
Volunteers in each group proposed a first offer, and rated the degree of power they felt.
Not surprisingly, people with the strong alternative felt the most powerful and those with no alternative felt the least powerful.
However, people with a weak alternative felt more powerful than those with no alternative, but they made lower first offers, signaling less confidence than participants with no alternative.
Having alternatives, whether poor or attractive, may make people feel powerful but can undermine negotiation performance.
Schaerer’s team further explored this paradox by pairing participants as a “seller” who was offering a Starbucks mug during a face-to-face meeting, and a potential “buyer.”
Before the meeting, the seller received a phone call from “another buyer,” who was actually a confederate.
For half of the “sellers,” the potential buyer either made a low offer or declined to bid.
In another situation, half of the “sellers” concentrated on available alternatives (none, weak, or strong) and the remaining negotiators focused on the target price.
Volunteers with unappealing alternatives negotiated worse deals than those without other options when they focused on alternatives, but “sellers” avoided this pitfall by concentrating on the target price.
This is another validation of focusing on the goal when alternatives are weak, and of the power of first-offer anchors.
Negotiators with non-existent or unappealing alternatives benefit from caution in setting modest first offers driven by feeling powerless.
Instead, the situation can be reconstrued as an opportunity to set audacious goals, reflected in an ambitious opening offer.
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