Leigh Steinberg, the real-life inspiration for the title character in the film Jerry Maguire, is one of the most successful agents in the history of American sports. He is also a master negotiator. It’s said that when he signed quarterback Steve Bartkowski as his first client in 1975, he realized that the NFL rules allowed him no power to bargain over salary. The Atlanta Falcons had drafted his client, so if he was going to play pro ball, it was the Falcons or nothing. So what did Steinberg do? He offered Bartkowski’s services to the Atlanta Falcons for a whopping $750,000—more than any football player had ever been paid. The outraged Falcons countered with an offer of $600,000, the most lucrative rookie contract in NFL history.
I’m borrowing this story from a team of psychological scientists, who believe they may have an explanation for Steinberg’s seemingly irrational behavior and for its ironic success. Michael Schaerer and Roderick Swaab of INSEAD, in France, and Adam Galinsky of Columbia believe that powerlessness can actually have a liberating effect on negotiators, freeing them from the cognitive biases that normally constrain the give and take of life’s negotiations.
Traditionally, professional negotiators associate power with what’s called a BATNA, or Best Alternative To a Negotiated Agreement. That’s the back-pocket default offer, which means the negotiator can always walk away from the negotiations and not be empty-handed. The better the BATNA, it’s believed, the more power one has—so most negotiators would prefer even a weak BATNA to none at all.
But these scientists don’t think it’s that simple, and they are particularly interested in what’s called the anchoring bias. Cognitive anchors are numerical values, which may or may not be relevant or fair but nevertheless shape judgments and decisions. So for example, if Steinberg had had another offer in his back pocket—a modest offer of, say, $150,000—that weak alternative offer would have anchored his mind and the entire negotiation at a low level from the start. Instead of empowering Steinberg to be bold in his dealings, a weak offer—and just a little power—would have constrained his first offer, to the detriment of Bartkowski.
At least that’s the theory, which the scientists tested in a series of experiments. They hypothesized that alternative offers make people feel powerful, but these offers also act as influential anchors—anchors that matter more than the feelings of power in the final outcome of negotiation. They recruited a group of volunteers and told them to imagine they were selling an old CD, in reasonably good condition. They were told that a potential buyer had asked for an offer on price. Then, only some of the volunteers were told that there were no other offers—if negotiations failed, they would end up with no money. Others were told that another buyer had offered $2—a measly price for a decent CD. Still others were told that another buyer had offered $8.
So some had no alternative, others a weak alternative, and others a strong alternative. They were all told to make an initial offer, which they did. Finally, they answered questions about how powerful they felt. The scientists wanted to see if having an unattractive alternative offer was detrimental to negotiating the best price. And it was. Those with strong alternative offers did the best, but those with just the $2 offer to fall back on—these sellers made the lowest initial offers, even lower than those with no alternatives. They did this despite the fact that they felt more powerful because of their alternative offer. Those with no alternative felt less powerful but acted bolder—much like Steinberg.
So the anchor value of alternative offers trumped feelings of power. The scientists wanted to investigate this paradoxical effect in another way—looking beyond initial offerings to the final agreements. They recruited a group of participants and assigned them to dyads, either as buyer or seller. The seller had a Starbucks mug to sell and would be meeting face-to-face with a potential buyer, but before this happened, the sellers got a phone call. The call was from another buyer (actually a confederate in the study), who said one of two things: To some he or she said, basically, I’m not interested. Have a nice day. To others he or she made a mediocre—but final—offer.
So again, some had a weak alternative offer to fall back on, while others had no alternative. They then met with the designated buyer and negotiated a price face-to-face. All of the pairs reached agreement.
The results, reported in a forthcoming issue of the journal Psychological Science, echoed the earlier findings. Again, those with no fallback offer felt more powerless, but they also made higher first offers than did those with an unattractive alternative offer. What’s more, they negotiated better agreements in the end, compared to buyers with a weak default offer. Importantly, the higher first offers were responsible for the more advantageous final agreements.
The scientists ran a few more versions of the basic study, and the counterintuitive findings held up. In short, the mind’s anchors are a hindrance to bold thinking, while feelings of powerlessness are oddly liberating—and in some circumstances the surprising key to ultimate negotiating success.
Follow Wray Herbert’s reporting on psychological science in The Huffington Post and on Twitter at @wrayherbert.