Most negotiators prefer to have 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 late Amos Tversky and Daniel Kahneman of Princeton.
Negotiators usually anchor on the value of alternatives when making a first offer, and 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 examples of negotiating better deals when they have no “back up” offers and “nothing to lose,” so they can set ambitious anchor points.
In a separate study, 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 of participants preferred an unattractive alternative offer, confirming the popular assumption that any alternative is better than no alternative.
Another of Schaerer’s lab studies asked volunteers to imagine selling a used music CD by The Rolling Stones.
Participants were randomly assigned to three groups which received different information about their negotiation situations:
- 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 any alternative can help people feel powerful but can undermine negotiation performance.
Schaerer’s team explored this paradox by pairing a “seller,” who offered a coffee 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 of the researchers.
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 with no options when they focused on alternatives.
“Sellers” avoided this pitfall by concentrating on the target price.
These findings support the benefit of focusing on the goal when alternatives are weak, and the power of first-offer anchors.
Negotiators with non-existent or unappealing alternatives can beware of making cautious first offers when they feel powerless.
Instead, negotiators can set audacious goals and make an ambitious opening offer because they have the benefit of “nothing to lose.”
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