The Negotiation Guru

I can already hear some screams. Don’t panic!

Didn’t I say we should not be the first to open? Yes.

Didn’t I say there’s risk involved in being the first to open? Yes.

So what’s happening? Should we open first? Yes? No?

It all depends.

Note this:

Whether you should open or not, depends on the amount of information you have at hand

As a general rule of thumb, if you have no idea on the value of the things you are negotiating, never open. But if you have done your research or you are an expert in that industry, go ahead and open. There are many good reasons for opening.

Recall the experience I shared with you on my shopping trip in Thailand. Suppose I wanted to buy a hat. I will almost never buy at the first stall. Instead, I will shop around, bargain with a few stall-owners. After a few rounds of sweaty and bloody negotiations, I will have a good feel of their bottom-line. Armed with this information, I can now walk into any stall selling the same hat, and open with much confidence.

Opening first has the “anchoring effect”. Anchoring is a term coined by social psychologists.

According to Wikipedia, “anchoring and adjustment” is a psychological heuristic which influences the way people intuitively assess probabilities.

In layman’s term (negotiation setting), you will tend to negotiate around the range that was first opened. Opening first gives you the opportunity to anchor, allowing you to fix the range. Suppose I want to buy the hat at $30, I will open with a number that’s close to $30. Should you let the stall-owner first, he might open with an astronomical figure such as $50. With that, the whole negotiation will be fixed around the range of $50 and it’s harder to bring it down to $30.

Before you decide if you should open, think through if you have good knowledge of the value. Never rush to open. Preparation plays a huge part in opening.

In the next post, I will cover on HOW should you open.

This entry was posted on Wednesday, October 17th, 2007 at 2:27 pm and is filed under Opening. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.