Making the first offer in mediation can tilt the playing field to your advantage

Introduction

In negotiations conventional wisdom was that it is better to wait for the other side to make the first move. By doing so, the argument went, you gain information about the thinking and position of the other side which you can exploit to your advantage, without giving away at that stage anything about your position.

However that view is changing. Research suggests that making the first offer or proposal creates an “anchoring” effect on the negotiations, as a result of which the outcome is more likely to be closer to that first offer as compared to the outcome where the offer was not made. Interestingly (and this has no evidential weight at all) a poll of my LinkedIn contacts concluded that 86% of respondents considered going first delivered better negotiation outcomes. Anecdotally therefore it looks like negotiators, in the main, like to go first.

In the context of mediation, this article looks at how to decide whether to go first, if you do the factors to consider in the framing and timing of an offer, and what to do if the other side beats you to it.

What precisely is “anchoring”?

Anchoring is a human cognitive bias (i.e. irrational response), to the effect that when faced with uncertainty and the requirement to make a decision, we can be disproportionately influenced by the first piece of information we receive. The reasons why we do this are not yet clearly established, but the anchoring effect has been proven by many studies. One very simple example cited involved participants who were asked to estimate the number of African countries who are members of the UN. They were also asked to spin a wheel with numbers on it between 1 and 100. Those who spun a higher number gave a higher estimate than those who spun a lower number, despite there being no correlation between the two.

A number of articles have been published, including by Harvard Law School, suggesting that anchoring can have a significant effect in negotiations. Litigators need to treat these assertions with a little caution. First the research has focused principally on the issue of pricing in buy/sell transactions (e.g. the effect of garages putting sticker prices on cars); the dynamics of negotiations in litigation/mediation are often very different and more complex. Second the research in the area of negotiations does not appear to be particularly comprehensive. However such research as there is does seem to indicate that “anchoring” can have the claimed effect on negotiation outcomes.

This means that in the context of mediation, the people with whom you are negotiating can be disproportionately influenced by the first offer made; it creates a gravitational pull on their expectations and thinking in the direction of that first offer. As a result it tends to set the parameters of the negotiation range more towards the first offer than any other reference point, favouring the interests of the person making it. So on the basis of these psychological effects alone it would seem to be worth considering making the first offer in a mediation.

In mediation there are other reasons for considering going first

One of the objections to making the first offer is that can be regarded as a sign of weakness and can therefore bolster the resolve of the other side. There is no doubt that can be the effect if the offer is not made in the right way and at the right time. But made in the right way, making the first offer can convey a sense of conviction, resolve and strength.

Mediation is substantially about negotiations, against the background of litigation. As a “Mediation Advocate” I suggest that you will want to be positioning yourself as a serious principled negotiator, a force to be reckoned with. Like any negotiator, one of your objectives will be to try to take control of the agenda in the mediation, to set the boundaries and also to set the battleground, that is, the issues you want to talk about and the mediation to focus upon.

Making the first offer in the right way may help you do this. It suggests you are prepared and shows you have confidence in your position. It sets the tone in several ways; it makes it clear you are there to negotiate, that you are looking for a solution, and you are serious. Coupled with the anchoring effect, it can move the conversation onto your territory (i.e. your clients needs/preferences etc) and can force the other side to focus more upon how they move you from your position rather than advancing theirs. So going first can help you to gain control of the settlement narrative.

In mediation what factors should be considered in deciding whether to go first?

For the reasons outlined above a reasonable starting assumption is that going first is the usually right thing to do in mediation. On that basis, in what circumstances should you not make the first offer:-

• Commitment of the other side. Not all parties come to mediation in good faith. Some turn up because they were told at a Case Management Conference to do so. Others show up to see what they can find out about their opponents case, without giving anything away about their own and without any serious intention of trying to settle. In these circumstances there is no advantage to making any offer; you would be giving away intelligence without receiving anything in return;
  
• A relationship is at stake. Where the parties in dispute still have some expectation of continuing to do business with each other, the broader relationship dynamics need to be considered. For example even when they are in dispute, a supplier should be focused on establishing the customers requirements, and whether they can meet them before making any concrete proposals. Making a first proposal before those requirements are understood can sour negotiations and jeopardise the future of the relationship;
  
• Imbalance in power/leverage. If the other side have an apparent power or leverage advantage, then making the first offer will have the wrong effect; it will suggest weakness and there will be no anchoring effect. In these circumstances the first challenge is to find a way of answering, undermining or negating their power based advantage. Only after that conditioning has taken place should thought be given to making a first offer.
  

What should the first offer look like?

The overriding objective of a Mediation Advocate is to influence, persuade and sell, with a view to securing the right settlement for a client. The way in which offers and proposals are made is an important part of achieving that goal. The key elements are:-

• Be ambitious but not outrageous. Provided it is credible, it makes sense to start with an ambitious first offer. It is likely to be rejected, but provides you with room for compromise. Making an extreme offer which may be difficult to justify may suggest you are not serious, and can have a chilling effect on the negotiations;
  
• Set out the rationale. Explaining the rationale for your offer gives your proposal weight. The other side might not agree with your reasoning, but they will know that your position is tangible and supportable. If they reject the offer, then because you have set out the basis for the offer, it will be difficult for them to avoid having to explain the reasons why it is being rejected. That reinforces the anchoring effect of making the first offer; an cogent explanation adds authority to the proposal and the more the ensuing discussion is about your position, or what it will take to get you to move from that position, the more likely it is the negotiation will result in an outcome which is closer to that first offer;
  
• Adopt a balanced approach. In explaining your offer take into account and deal with the primary contentions of the other side. You know what they are, so do they and so does the mediator. Ignoring them suggests you have no answer, and that you have no interest at all in the perspective of the people sitting across the table. A proposal supported by an explanation which looks at the dispute and the commercial dynamics in the round is far more powerful and more likely to land with impact.
  

How do you counter the anchoring effect if the other side make the first offer?

You may decide it is not the right tactic to make the first offer, or the other side may make the first offer before you have the opportunity to put yours forward. How might you deal with that?

• Be aware. Being aware of anchoring and its effects is the first step in not falling into this trap. Watch the responses of the others in your team, including your client, to make sure they are not being pulled into the orbit of the other sides first offer;
  
• Be rational. Anchoring is a cognitive bias, i.e. an irrational human response. The offer will not have an effect if in evaluating it you remain objective, focus on the facts, and the reasonable assumptions you have made about your prospects, the associated risks, and the negotiating options you have;
  
• Do not engage. There is of course no rule that you must respond in detail to an offer or proposal which has been made, even one which is supported by a detailed rationale. You can respond by making what would otherwise have been the first offer.
  

So in developing your negotiating strategy for a mediation, give some thought to making the first offer. It can be a bold move and one which, if done in the right way, can tilt the mediation playing field to your advantage.

Mike Henley
16th October 2023