Too Many Options?
When negotiating your salary, you might assume that having plenty of offers on the table would improve your position – but it can actually make things harder.
According to Harvard Business Review’s (HBR) research earlier this year, having many alternatives can influence what people think is a reasonable offer – sometimes leaving them in a weaker position: this is due to anchoring.
We all tend to think that when negotiating, whether for a job salary or the price of a house, you’re better positioned to get what you want when you have more offers to leverage because your counterpart may feel pressured to make a better offer to keep you at the negotiation table.
However, HBR found that walking into a negotiation with multiple offers, rather than a single one, can bias your decisions and lead you to make a lower first offer, hurting your ability to negotiate for what you really want.
It turns out that when people are exposed to an initial piece of information, their subsequent judgments are biased toward that information. The experiments confirmed that the presence of additional offers shaped people’s idea of what an “appropriate” first offer would look like. For example when you have one offer of €90 and you perceive it as “moderate” you might start selling at a relatively high value, e.g. €160. In contrast, if you start off with two alternatives, €80 and €90, you would see €90 as the high value, leading you kick off negotiations with a less ambitious price like €100.
The biasing effect of multiple alternatives appears to be very robust and hard to ignore. So what should you do when entering negotiations? HBR suggests to “gather market data and research your opponent to get an understanding of what an ambitious offer looks like” in the hope to avoid “being anchored by the value of alternatives when making a first offer”.
Be good at money and although this latest research suggests that having more alternatives can lead to worse outcomes, other studies confirm that having a strong alternative has considerable benefits: it gives a subjective feeling of power which allows us to negotiate with confidence and peace of mind that we will end up with a great deal, no matter what.