Full Program »
How Low Should Buyers Go? Understanding The First-Offer Conundrum In 26 Million Ebay Negotiations
How high is the ideal first offer? While more ambitious offers benefit negotiators by anchoring the sale price in their favor, an overly ambitious offer increases the impasse risk. Past research has demonstrated either a first offer’s anchoring benefits or its impasse risk detriments, while largely ignoring the other effect. In short, there is no empirical answer to the conundrum of how high an ideal first offer should be. Our results from over 26 million eBay negotiations document (1) a linear anchoring effect on sale price, (2) a nonlinear, quartic effect on impasse risk, and (3) specific first-offer values with particularly low impasse risks but high anchoring benefits. Product demand moderates the (non-)linear effects and the optimal first offer. We apply machine learning analyses to predict agreements and impasses and present a website that offers first-offer advice configurable to a given negotiator’s particular product, list price, and individual risk preferences.