Van Winkle: Recent mediation articles discuss ‘first offers’

Mediation is often characterized as “facilitated negotiation.” Two recent articles published in the Negotiation Journal of the Program on Negotiation of the Harvard Law School suggest that in certain circumstances, it may be advantageous to go against the conventional wisdom of the anchoring effect of making the first offer.

Anchoring effect

Cognitive psychologists Amos Tversky and Daniel Kahneman were pioneers in applying the theory of heuristics to behavior in negotiation and game theory. One such heuristic they researched was the anchoring effect, a psychological phenomenon in which judgments of individuals involved in negotiation are influenced by a reference point or an “anchor.” Kahneman, “Thinking, Fast and Slow,” Farrar Straus & Giroux (2013). As a result of the cognitive bias characterized as anchoring, negotiators who set the first price or offer or went first in a negotiation fared better overall in the subsequent negotiation. Galinsky, Mussweiler, “First Offers as Anchors,” Journal Personality and Social Psychology, 81 (4)(2001).

Kahneman had this advice to students in his negotiation classes: “My advice to students when I taught negotiations was that if the other side has made an outrageous proposal, you should not come back with an equally outrageous counter-offer creating a gap that will be difficult to bridge in further negotiations. Instead, you should make it clear … that you will not continue the negotiation with the number on the table.”

Participants in mediations, however, don’t have the luxury of just terminating the session. Fortunately, the study of Galinsky and Mussweiler cited above provides a potential alternative approach; turning the discussion from a mere response to a principled discussion of standards to argue that the anchor number is unreasonable, setting up the potential for a response untethered to the demand.

Against this background of prevailing research, the two articles suggest an alternative strategy in certain cases.

What is your best price?

The first article, published in May 2023, discusses empirical studies showing that in certain discrete situations, the best-price question should be considered as an option to the traditional “first offer” theory. Lipp, et al., “What is your Best Price? — An Experimental Study of an Alternative Negotiation Opening,” Negotiation Journal 39 (2) 175-206 (Spring, 2023). The authors conducted a controlled laboratory experiment in which 227 dyads of sellers and buyers of cellphones negotiated via a texting app. Survey participants were given background facts and various negotiation instructions. One such instruction to buyers of the smartphone was to ask the seller at the start of the process, “What is the lowest price you would accept?” The authors assumed, and the results demonstrated, that participants in negotiation presented with a request for a bottom-line number would not be “truthful,” that they would hedge or qualify or refuse to answer the question. The authors concluded, however, that even though the buyers forfeited the anchoring effect of a first offer by asking best-price questions, the first proposal made by sellers after the question was posed was lower than in the absence of the question. The authors termed this mechanism an “anchored lie.” Analyzing the results of the various negotiations, the authors concluded that the buyer’s question concerning best price does change negotiation outcomes and stated: “The best price question leads to a seller’s first offer that is lower than the first offer that the seller would normally make. Additionally, it is also above the first offer that the buyer would normally make.”

The “best price” question has potential application to mediation negotiations primarily as a result of the “super power” of the mediation and settlement conference process: the private caucus. A substantial percentage of experienced mediators — and one particularly effective federal magistrate judge — routinely would inquire in initial private caucus as to the party’s “bottom line.” The answers, while perhaps not totally accurate, would often work to inform or structure the subsequent negotiations.

To open or not to open

The second recent article published in The Negotiation Journal also reviews and acknowledges the established empirical evidence demonstrating the negotiation advantage of being the first mover, but posits that a growing body of recent research contradicted the general advice: “[N]egotiation articles, books, courses and seminars usually recommend that negotiators move first to ‘anchor’ their counterparts. However, recent research describes a practitioner-researcher paradox wherein negotiation practitioners and experts advise the opposite strategy; to move second in negotiations.” Maaravi, et al., “To Bid or Not To Bid? That is the Question! First-Versus Second-Mover Advantage in Negotiations,” Negotiation Journal 30 (1), 7-34 (Summer 2023).

The authors concluded from a review of recent research that negotiators should consider three basic dynamics in deciding whether to move first: information, power and strategy. More specifically, they should consider whether a first offer would provide the other side with crucial information about goals and preferences and whether there is an information asymmetry regarding market dynamics. The research further suggests that negotiators should seek to learn what the parties’ respective BATNAs — best alternative to a negotiated agreement — might be. Additional factors in deciding how to proceed include the nature of the relationship of the parties and the negotiator’s broad strategy. The authors state that “low power” negotiators (those with limited BATNAs) require knowledge of the other side’s alternatives before deciding whether or not to make the first offer. They state further that this presents a concern in that it may be difficult or unlikely to be able to discern the counterpart’s alternatives.

It is submitted that the mediation process provides significant advantages to negotiators over those available in nonfacilitated negotiations. Participants in mediations may be better able to gather needed information, discern potential power imbalances and find the path that meets their strategy.•

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John R. Van Winkle, of Van Winkle Baten Dispute Resolution, was a participant in the founding and was the second chair of the American Bar Association’s Section of Dispute Resolution. Opinions expressed are those of the author.