Most negotiators prefer to have a “fall back position.”
However INSEAD’s Michael Schaerer and Roderick Swaab with Adam Galinsky of Columbia found that having no alternatives and less power than co-negotiators can improve outcomes.

A weak alternative can establish an unfavourably modest “anchor point,” according to Hebrew University’s late Amos Tversky and Daniel Kahneman of Princeton.

These “lowball” first offers usually undermine a negotiator’s final outcome.

Professional athletes and their agents provided examples of negotiating better deals when they had no “back up” offers and “nothing to lose.”  They set more ambitious anchor points, and often negotiate a more favourable settlement.

Schaerer and team asked a hundred people whether they would prefer to negotiate a job offer with a weak alternate offer or without any alternative.
More than 90 percent of participants preferred an unattractive alternative offer, confirming that any alternative is usually seen as better than no alternative.

Schaerer asked volunteers to sell previously-owned music when they had:

• 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.
People with the “strong” alternative felt most powerful and those with no alternative felt least powerful.

Volunteers with a weak alternative felt more powerful than those with no alternative, but they made lower first offers.
This indicated that they had less confidence than participants with no alternative.

Conclusion: Having any alternative can help people feel powerful but can undermine negotiation performance.

Schaerer’s team asked a volunteer to “sell” a coffee mug to a potential “buyer,” who was a confederate of the researchers.

The volunteer “seller” received a phone call from “another buyer,” who was a confederate of the researchers, before the volunteer seller met the original potential buyer.
When half the “sellers” met the original purchase prospect, the “buyer” made a low offer.
The “buyer” declined to bid for the other half of “sellers.”

Sellers without an alternative offer said they felt less powerful, but made higher first offers and received significantly higher sales prices than negotiators with an unattractive alternative.

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.
Conclusion:  Focus on the goal when alternatives are weak.

Negotiators with non-existent or unappealing alternatives can set audacious goals and make an ambitious opening offer because they have “nothing to lose.”
This strategy usually renders better results for the disadvantaged negotiator.

• How do you overcome lowball anchoring when you have few negotiation alternatives?

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©Kathryn Welds