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distributive1.pdf
Judgment and Decision Making, Vol. 12, No. 5, September 2017, pp. 420–429
When your anchor sinks your boat: Information asymmetry in
distributive negotiations and the disadvantage of making the first offer
Yossi Maaravi∗ Aharon Levy†
Abstract
The literature on behavioral decision-making and negotiations to date usually advocates first-mover advantage in distributive
negotiations, and bases this preference on the anchoring heuristic. In the following paper, we suggest that the preference for
moving first vs. moving second in negotiations may not be as clear-cut as presumed, especially in situations characterized
by information asymmetry between negotiating counterparts. In Study 1, we examined people’s initiation preferences and
found that unless taught otherwise, people intuitively often prefer to move second. In Studies 2–4, we experimentally tested
the suggested advantage of moving second, and demonstrated that in information-asymmetry scenarios – when one party has
perfect background information and the other has none — it is actually preferable for both counterparts not to give the first
offer while negotiating. We discuss the implications of our findings on the field of negotiation and decision-making, and lay
the groundwork for future studies examining this issue.
Keywords: first offer, anchoring, negotiation, second offer, second-mover advantage, information asymmetry
1 Introduction
In a typical Pawn Stars episode, a TV series that follows the
interactions between the buyers and the sellers at the World
Famous Gold & Silver Pawn Shop, the shop owner always
starts the negotiation by asking the seller: “And how much
do you want for it?” (e.g., History, 2013). While most of the
audience of this American reality show broadcast on the His-
tory Channel may be intrigued by the seller’s answer and the
negotiation that follows, negotiation and decision-making
scholars may focus more on the shop owner’s question. In
the negotiation literature, it is often recommended to make
the first offer yourself, and here the owners of World Famous
Gold & Silver Pawn Shop, who are at the center of this reality
show, do the exact opposite: they let their counterpart make
the first offer. Who is right here: negotiation scholars who
base their advice on academic research, or real-life experts
such as the owners of the pawnshop with years of real-life
professional experience?
Should negotiators make the first offer or not? This simple
but important question is at the heart of this article. In
a series of three experiments and a survey, we question the
The authors would like to thank Ms. Yam Piudik for her assistance with
this project.
Copyright: © 2017. The authors license this article under the terms of
the Creative Commons Attribution 3.0 License. ∗The Adelson School of Entrepreneurship, Interdisciplinary Center
(IDC), Herzliya. P.O. Box 167 Herzliya, 4610101, Israel. e-mail:
[email protected]. †The Baruch Ivcher School of Psychology, Interdisciplinary Center
(IDC), Herzliya & The Heymans Institute for Psychological Research, Uni-
versity of Groningen.
general findings in the negotiation literature that recommend
making the first offer, and show that in cases of asymmetry
of information, moving second might be better.
Although the anchoring effect was shown to be extremely
robust, past research points to certain exceptions. One ex-
ample is when an overly extreme anchor is used. Research
shows that such anchors do not lead to the typical anchoring
effect (Chapman & Johnson, 1994). Specifically, in negoti-
ations, overly extreme first offers may also backfire and lead
to the opposite effect or even to an impasse (Schweinsberg,
Ku, Wang & Pillutla, 2012). While the above focuses on the
amount of the anchor, here we question the very recommen-
dation of moving first in a negotiation. One line of research
that implies a first-mover disadvantage due to a combina-
tion of uncertainty, lack of sufficient information and threat
by other alternative players describes a “winner’s curse” –
a situation in which the first mover in biddings may win
but overpay (Becker, Clement & Nöth, 2016; Giliberto &
Varaiya, 1989; Thaler, 1988).
Recently, and more relevant to the current article,
Loschelder et al. (2014) have also presented a “practitioner-
researcher paradox”, according to which, while practicing
experts have suggested that it was wise to refrain from
opening a negotiation (e.g., Dell & Boswell, 2009, p. 159),
academic scholars have usually recommended the opposite
(Neale & Bazerman, 1992; Malhotra & Bazerman, 2007;
Thompson, 2005). To answer this paradox, Loschelder et al.
(2014) suggested that, in specific cases, making the first offer
may backfire, and a first-mover disadvantage may emerge.
They focused on situations where the sender revealed private
information about compatible preferences, which the recip-
420
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 421
ient could take advantage of for his or her own benefit. In a
more recent work by the same authors (Loschelder Trötschel,
Swaab, Friese & Galinsky, 2016), they provide additional
results that further support their hypotheses alongside a
cognitive-behavioral model (i.e., “Information-Anchoring
Model of First Offers”) that predicts “when and why making
the first offer helps versus hurts” (p. 995).
In the current article, we add to the above two articles
by showing that not only in compatible issues or integrative
settings, but also in distributive settings, a second-mover ad-
vantage may emerge. Specifically, we focus on situations
where there is a significant asymmetry of information be-
tween the negotiating parties in distributive settings.
1.1 The anchoring and adjustment heuristic
Negotiation scholars agree that any negotiation involves
decision-making processes and thus many of the heuristics
and biases in decision-making (Tversky & Kahneman, 1975)
also apply to negotiation (Neale & Bazerman, 1992; Mal-
hotra & Bazerman, 2007; Thompson, 2005). One of the
heuristics that were extensively investigated in the negotia-
tion literature is the anchoring and adjustment heuristic (e.g.,
Maaravi, Pazy & Ganzach, 2014). According to this heuris-
tic, decision makers tend to cling to a given number (anchor)
when they judge an unknown quantity. This process may
lead to systematic errors since the anchor is often irrelevant
and the adjustment is usually insufficient (for a review, see
Furnham & Boo, 2011). Past research has demonstrated
that the anchoring heuristic is highly robust and affects judg-
ments not only in negotiation (Ritov, 1996), but in many
other fields from general knowledge questions (Chapman &
Johnson, 1999) to legal verdicts (Mussweiler, 2001).
1.2 First offers as anchors
The negotiation literature suggests that the first offer in a ne-
gotiation serves as an anchor that influences both the coun-
teroffer and the settlement price. For example, in one study
it was demonstrated that, when sellers made the first offer,
settlement prices were significantly higher than when buy-
ers made the first offers (Galinsky & Mussweiler, 2001).
Based on such evidence, first offers have become an impor-
tant subject for academic research (e.g., Ames & Mason,
2015; Maaravi, Ganzach & Pazy, 2011; Ritov & Moran,
2008; Schaerer, Loschelder & Swaab, 2016).
In addition, given the robustness of the anchoring effect
and the evidence that first offers may serve as anchors, aca-
demic courses and textbooks recommend using an anchoring
tactic in order to maximize profits in negotiations processes
(e.g., Bazerman & Neale, 1993; Malhotra & Bazerman,
2007; Thompson, 2005). Typically, this anchoring tactic
is: a., make the first offer yourself; and, b., make it ex-
treme while still in the reasonable range (Maaravi, Pazy &
Ganzach, 2014).1
1.3 The first-mover disadvantage
But should negotiators always make the first offer, or are
there cases where it may be better to let one’s counterpart
go first? Can there be a first-mover disadvantage in specific
situations – for example in a pawn shop? As the research
that was mentioned above (Loschelder et al., 2014) suggests,
this might indeed be the case. The term the first-mover ad-
vantage is often used in the strategy and marketing literature
to describe companies or products that enter the market first
and thus gain significant leadership (Lieberman & Mont-
gomery, 1988). Two examples are the internet giants eBay
and Amazon. But strategy scholars also discuss first-mover
disadvantage, cases in which being first to introduce a ser-
vice or a product does not translate into market leadership,
and being a follower or second in the market is actually better
(Dobrev & Gotsopoulos, 2010). This may be the case when
the regulation or the customers are not ready for extreme in-
novations and the first-mover struggles to align and educate
them. An example is Facebook that was founded a few years
after the first social networks: Myspace or Friendster.
An environment closer to negotiations that can illustrate
the complexity of first-mover vs. second-mover advantage
may be commercial transactions. In many cases, sellers
put price tags on items – clothes in shopping malls, listing
prices of real estate properties, special offers of used cars
in car dealerships etc. — which can be seen as making the
first offer or moving first in their interaction with potential
buyers. But not all sellers do that. In auctions, sellers let
buyers make the first move. If moving first was always the
best strategy, we would expect sellers to always prefer stan-
dard selling processes over auctions. Academic research in
economics and game theory (Bester, 1993; Gal-Or, 1985) as
well as the millions of sellers offering their merchandise by
auctions both online (e.g., eBay) and offline (e.g., Sotheby’s)
suggest that in some cases there might indeed be a second-
mover advantage. Galinsky et al. (2009) directly examined
the different psychological and economic processes that first
offers activate in negotiations versus auctions. In their re-
search, while negotiators were better off starting high, in
auctions low starting prices catalyzed social processes (e.g.,
prices lower barriers to entry and increase the number of
bidders) that led to higher final prices.
1It is important to note here that this tactic is recommended mainly for
distributive negotiations, which are often defined as a competitive (win-
lose) process of “slicing a fixed-pie” between the negotiating parties. The
pawn shop negotiation that was discussed above is an excellent example
of a distributive negotiation. Such situations are different from integrative
negotiations that are seen as a creative problem-solving process in which
both parties work together to find a mutually beneficial (win-win) “pie-
expanding” solution (Bazerman & Neale, 1992).
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 422
1.4 The drawbacks of moving first in negotia-
tions
The current article continues a line of research pointing to
the limitations and disadvantages of moving first in nego-
tiations, or specifically using the anchoring tactic (“move
first, make extreme first offers”). One study (Moran & Ri-
tov, 2002) pointed out that, while making the first offer may
be advantageous in distributive settings (e.g., Galinsky &
Mussweiler, 2001), it can be problematic in integrative ne-
gotiations. Specifically, the authors focused on making In-
tegrative Gambit Offers (IGO), offers in which negotiators
gave their counterparts more than was demanded on one of
the issues, while still maintaining or improving their overall
value. The authors argued and explained why negotiators
failed to use such offers despite their advantage. A sec-
ond study showed how making the first offer might lead to
lower levels of satisfaction accompanied by increased levels
of anxiety (Rosette, Kopelman & Abbott, 2014). Another
article demonstrated that learning and using the anchoring
tactic may lead to higher short-term profits stemming from
reaching a better deal for the first-mover, but also to lower
long-term results both psychological and economic (Maar-
avi, Pazy, & Ganzach, 2014). In a single negotiation, first-
movers’ counterparts were less satisfied and consequently
were less willing to negotiate with the same counterpart in the
future. In a market setting first-movers’ closed fewer deals
and thus made lower total profits. Finally, and more relevant
to the current article, Loschelder et al. (2014) demonstrated
that, in integrative negotiations where the sender revealed
private information about compatible preferences, which the
recipient could take advantage of for his or her own benefit,
making the first offer might backfire.
1.5 First-mover vs. second-mover advantage
in negotiations
The current article contributes to this line of research
(Loschelder et al., 2014) in two main ways: first, it introduces
a variable that has seldom been investigated: negotiators ini-
tiation preferences; and second, it adds to this new line of
research that questions the general recommendation to al-
ways make the first offer in negotiations. We argue that there
are cases in which people prefer to move second, and right-
fully so. Here, we focus on one category of such situations
that can be defined as follows: (1) a distributive negotiation
(e.g., the pawn shop negotiation); (2) there is a significant
asymmetry of information between the negotiating parties
(e.g., the pawn shop owner is an expert and usually knows
the market value of the negotiated item, whereas the seller
is typically a layman).
We hypothesize that in such situations:
H1: Negotiation-lay people (people who did not learn about
the anchoring tactic) will prefer to move-second and not
make the first offers themselves.
H2: Negotiation-savvy people (people who learned about
the anchoring tactic) will prefer to move-first and make
the first offers themselves.
H3: Negotiators in asymmetry-of-information situations
will receive a more valuable offer (not making the first
offers) than they would themselves have requested in
the first place.
H4: Negotiators in asymmetry-of-information situations
will reach better outcomes when they move second and
don’t make the first offer.
H1 is based on prospect theory (Kahneman & Tversky,
1979). One of the principles of this theory is that losses
loom larger than gains. This principle can be used to explain
why lay negotiators, that is, negotiators who are not aware of
the anchoring tactic and its potential positive effect, usually
prefer to move second and not make the first offer them-
selves. As Figure 1 illustrates, after one of the parties makes
the first offer, there are two main possibilities: (a) the first
offer is immediately accepted as it is better than the expecta-
tions of the counterpart and the parties reach an agreement
without any negotiation; (b) the first offer is not accepted,
and the parties start negotiating. Since an unacceptable first
offer that leads to a negotiation can occur whether the focal
negotiator makes the first offer or moves second (paths 1
and 4 in Figure 1), the other alternative – that of a first offer
that is immediately accepted – might influence the decision
to a greater extent. But, the perception and framing of a
first offer that is immediately accepted are totally different
depending on the identity of the initiator. As illustrated in
Figure 1, when one’s counterpart makes a first offer that ex-
ceeds one’s expectations and is thus accepted immediately,
the agreement will be framed as a gain from the focal nego-
tiator perspective (path 3 in Figure 1). On the other hand,
when the first offer made by the focal negotiator is accepted
immediately by his or her counterpart (path 2), the initiator
is more likely to perceive the agreement as a loss (Galinsky,
Seiden, Kim & Medvec, 2002). Since losses influence de-
cisions more than gains, it is hypothesized that lay people,
those who are not aware of the positive effect of first offers,
will prefer to move second.
The above analysis focuses on descriptive psychology, that
is, it describes how decision makers may actually behave.
But what we suggest here — and is expressed in H3 and
H4 — is that in specific cases negotiators are indeed better
off moving second. Think about the pawn-shop owner in
the above example. When the seller approaches him with
the item for sale (bull-horn clippers, in this example), he
can easily estimate the price he is willing to pay. His pro-
fessional knowledge should reduce the uncertainty from his
perspective, and therefore he is not expected to be anchored
by the first offer of the seller. Moreover, research has shown
that focusing on information that counters the anchor, for
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 423
Figure 1: Illustration of a negotiator initiation decision, outcomes and perceptions.
example one’s goals in the negotiation, may eliminate the
anchoring effect altogether (Galinsky & Mussweiler, 2001).
Actually, moving second may entail an opportunity for the
shop owner. Since this is a case of asymmetry of informa-
tion, and the shop owner is the expert, in some cases the
seller might ask for less than the shop owner would have
offered if he were to make the first offer.
On the other hand, making the first offer can be risky for
the pawn-shop owner as he might offer much more than the
seller would have asked for. Since the shop owner knows
the actual price range of the item, he is likely to use this
information as a reference point to decide the amount of
the first offer (Kahneman, 1992). Interestingly, instead of
benefiting from the anchoring effect of the first offer, he may
be anchored by his own knowledge of the typical range of
prices. One similar example is research that has shown that
it may be better not to have any alternative in a negotiation
rather than to have a poor one, since the poor alternative may
anchor the negotiator and make him settle for less (Schaerer,
Swaab & Galinsky, 2014).
The above analysis focused on the negotiator who is more
informed, but interestingly enough, in cases of information
asymmetry, the lay negotiator is also better off moving sec-
ond. If he moves first, he cannot benefit from the positive
effect of the first offer, because the savvy negotiator is not
likely to be influenced by it. On the other hand, moving sec-
ond may reveal some important information. We suggest that
the first offer of an informed counterpart will be based (or
anchored) on the reasonable price range as a reference point
(Kahneman, 1992), thus giving the uninformed negotiator
who decided to move second some important information.
2 Study 1
2.1 Method
Participants and design. We recruited 42 first year social sci-
ence students, and 118 second year students studying in a col-
lege in Israel (70 male; Mage=24.04 years, SD=1.85). The
participants provided demographic information and filled
out a short questionnaire regarding their general preference
about giving the first vs. second offer in negotiation (“In gen-
eral, i.e., in the framework of your job or your private life,
do you prefer making the first offer during a negotiation, or
do you prefer to let your counterpart make the first offer”).
Finally, participants where asked why they had the stated
negotiation preference.
2.2 Results and discussion
In line with H1, the majority of the first-year students (64%)
preferred to not give the first offer. However, as predicted
in H2, the majority of second year students (59%) who were
taught about economic behavior and heuristics showed a
significant preference for giving the first offer (Z-score=–
2.63, p=0.01). Moreover, when asked to explain why they
preferred to give the first offer, 60% of second year students
explicitly indicated the anchoring heuristic as opposed to
only 13% first year students who mentioned anchoring (Z=–
3.28, p=0.001). These findings corroborate hypothesis 1
and 2 stated above regarding the preferences of negotiation-
savvy (knowing about the anchoring effect) vs. negotiation-
lay people. Based on these initial findings it is possible to
assume that people’s natural tendency is to move second,
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 424
and that the existing negotiation theory, and accordingly
negotiation education, instill a preference for moving first.
Note that another important factor that may play a role in
negotiators initiation preferences is level of uncertainty, i.e.,
their knowledge about market value. The level of uncertainty
might mediate negotiators’ preference for making the first
offer, so that the greater the uncertainty, the fewer negotiators
(both laypeople and savvy negotiators) will tend to make the
first offer. This factor was not explored in the current research
but it is discussed in the general discussion section below.
3 Study 2
Study 1 has shown that, although according to the anchor-
ing and adjustment tactic it is preferable to make the first
offer, people prefer to move second unless they were taught
otherwise. The results of Study 1 can be explained in two
ways. First, as in other cases studied in the field of eco-
nomic behavior, the intuitive tendency to avoid giving the
first offer may simply be irrational, and it comes at the ex-
pense of optimal profit (e.g., Kahneman & Tversky, 1975;
Kahneman, Knetsch, & Thaler, 1991). Second, the intuitive
tendency to avoid giving the first offer may be a result of
actual life experience in which there are cases where you
are actually better off not giving the first offer. One such
case in which the second offer may be preferable is when the
two negotiating parties have different sources of information,
or more specifically different reference points (Kahneman,
1992; Schaerer, Swaab & Galinsky, 2014). We designed the
following studies to examine whether, in cases of asymme-
try of information it might be preferable to avoid making the
first offer. In Study 2 we use an extreme example based on
the pawn shop owners’ scenario.
3.1 Method
Participants and design. We recruited 130 U.S. participants
(45 male; Mage=36.3 years, SD=11.3) via Mturk. Partici-
pants were randomly assigned to one of two conditions as
described below. The participants provided demographic
information, read a short description of a hypothetical sce-
nario, and filled out a short questionnaire. Since this was
the first experimental study we ran in this context, we did
not have a clear reference regarding the necessary sample
size. We based the sample size on a power analysis (through
G*Power, Faul et al., 2007) which assumed that we wanted
a statistical power of 0.80 to detect a medium-sized effect
(d=0.5). This analysis suggested a required sample size of
64 participants per condition.
Procedure. The participants were told that the study at
hand was meant to examine how people go about buying
or selling antiques. The scenario was that of an individ-
ual who had recently inherited a small sculpture of a duck
Figure 2: A rare Edier Drake sculpture taken from the official
Sotheby’s web site.
from a distant relative. The participants were shown a pic-
ture of the sculpture and assigned either to the role of the
sculpture owner who is interested in selling it, or the antique
shop owner who is interested in buying it. The picture of
the sculpture (see Figure 2) was the actual picture of a rare
Edier Drake sculpture taken from the official Sotheby’s web
site, where its value was estimated at $350,000 to $500,000
(Sotheby’s, 2016). However, this information was disclosed
only to participants playing the role of the antique shop
owner, who was expected to have relevant sources of infor-
mation regarding antiques and their value. The participants
playing the seller role, on the other hand, were told that they
did not know the sculpture value. Finally, in both conditions
the participants were asked to make the first offer for either
selling or buying the sculpture.
3.2 Results and discussion
As predicted in H3, in this scenario of information asym-
metry, both negotiation parties would have been better off
moving second. Due to the vast differences in the pos-
sible price range between conditions, we did not assume
equal variances across conditions (Levene’s test, F= 123.15,
p<0.001). Based on an independent sample t-test, we
found that while the average offer given by the seller was
$324.27 (SD=683.52), the average offer given by the antique
shop owner, who was probably self-anchored by the market
prices she was aware of, was $236,631.89 (SD=253,561.26;
t(65)=7.57, p<0.001, d=1.32). This of course means that if
the seller had given the first offer, she would have received
only a tiny fraction of what she potentially could have gotten
for the sculpture. In addition, if the shop owner had given the
first offer, she would have paid on average more than seven
hundred times what the seller was expecting to get.
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 425
While these results are impressive, Study 2 has several
limitations. First and foremost, such extreme asymmetry of
information is not very likely to occur in real life. Second,
the setting of buying and selling antiques is not familiar to
most individuals and the external validity of such a scenario
can be questioned. Finally, the existence a single dependent
variable in this study calls for additional data to be collected.
Study 3 was designed in order to address these limitations.
4 Study 3
Study 3 tested the preference of giving the second offer in
a more realistic and conservative setting. To that end, we
selected the scenario of a person taking a taxi in a foreign
country. This scenario is inherently defined by information
asymmetry, but is relatively common and not at all extreme.
It is safe to assume that most people reading this paper have
at one time or another found themselves in a foreign country
hailing a taxi without the faintest clue as to how much the fare
was supposed to be. Accordingly, Study 3 once again tested
a negotiation scenario defined by information asymmetry: a
local taxi driver who has all the information and a foreign
traveler who lacks it.
4.1 Method
Participants and design. We recruited 62 Israeli participants
(32 male; Mage=41.5 years, SD=15.8) via an internet sur-
vey company. Participants were randomly assigned to one
of two conditions. The participants provided demographic
information, read a short description of a hypothetical sce-
nario, and filled out a short questionnaire. Based on Study 2
we wanted to be able to achieve a statistical power of 0.80 to
detect a large-sized effect (d=0.8). This analysis suggested a
required sample size of 21 participants per condition. How-
ever, since Study 3 was in a more conservative setting than
Study 2, we recruited a slightly larger sample in case the
effect would diminish accordingly.
Procedure. The scenario described in Study 3 was that of
a foreigner on a business trip to Namibia. The businessper-
son has just arrived in Namibia and she is about to hire a
taxi at the airport. While the taxi fare is set by the meter,
the businessperson has a two-hour meeting on the way to
her hotel, in a place where it is difficult to get a taxi, and
she would like the taxi driver to wait for her and then take
her to her hotel. Half of the participants were assigned to
the businessperson role and the other half were assigned to
the taxi driver role. All participants were required to make
the first offer. According to information found on the in-
ternet, the rate for every hour the taxi waits in Namibia is
approximately $US1.50 (Numbeo, 2016); however, this in-
formation was disclosed only to the participants in the taxi
driver condition. Indeed, in a real world scenario the local
professional knows exactly what the rates are and the foreign
visitors seldom do. Participants were first asked to what ex-
tent they would prefer to make the second offer (as opposed
to the first) in this given situation (1- not at all, 6-to a very
high extent), and then all were asked to make the first offer
themselves.
4.2 Results and discussion
As predicted in H3 and replicating Study 2, both negotiation
parties would have been better off moving second and not
making the first offer. While the average offer given by the
participants playing the role of businessperson for the two
hour wait was $25.40 (SD=17.1), the average offer given by
the taxi driver who was aware of the local fares and prob-
ably used them as a reference point was $4.86 (SD=2.78;
t(60)=6.61, p<0.001, d=1.68). This means that, if the busi-
nessperson had given the first offer, she would have paid over
six times more than necessary. In addition, if the taxi driver
had given the first offer, she would have received a fraction
of what she could have gotten.
Interestingly, the intuition of the participants served them
well in the businessman condition, and they strongly pre-
ferred not to make the first offer (M=5.22, SD=2.3); how-
ever, this was not the case in the taxi driver condition, despite
the driver having the upper hand in the scenario (M=3.45,
SD=2.4; t(60)=2.96, p<0.01, d=0.75).
Study 3 offered a replication of Study 2 in a more realis-
tic and conservative setting. While these findings improve
the external validity of the hypothesis, Studies 2 and 3 both
examined only the first offers participants made in a hypo-
thetical negotiation setting. Since our hypothesis deals with
behavior in negotiations, it should be tested in a full nego-
tiation process with two counterparts and a final settlement
price. Study 4 offered all of the above.
5 Study 4
Study 4 was designed as a replication of Study 3 with the con-
text of the foreign businessman and the taxi fare in Namibia,
only this time we let participants in a class exercise play
out an actual negotiation process until they reached a final
settlement.
5.1 Method
Participants and design. We recruited 86 international stu-
dents studying at an Israeli college (38 male; Mage=21.5
years, SD=2.8). The participants read a short description of
a hypothetical scenario, participated in a negotiation simu-
lation, and filled out a short questionnaire. Based on Study
3 we wanted to be able to achieve a statistical power of 0.80
to detect a large-sized effect (d=0.8). This criterion implied
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 426
Table 1: Correlations between first offers, counteroffers and
settlement prices (p < .01 for all).
Measures First offers Counteroffers
Counteroffers .854 --
Settlement prices .934 .947
a sample size of 21 dyads per condition. The participants in
this study were collected in two separate waves.
Procedure. Participants were randomly assigned to a se-
rial number and a color. Then, the participants were asked
to pair up according to their number, and were assigned a
role (either businessman or driver) according to their color.
Each pair then read about the taxi scenario and started a
negotiation process based on the instructions they received.
All pairs received the same scenario about the taxi-ride in
Namibia, but half of the pairs were randomly assigned to a
condition in which the businessman made the first offer, and
in the other half the driver made the first offer. Participants
were told they had ten minutes to reach a final price and
they also had the option of ending the negotiation with an
impasse. Following the negotiation, the participants were
asked to rate their satisfaction with the negotiation results.
5.2 Results and discussion
All 43 of the dyads were able to reach an agreement. As
predicted in H4, and replicating Studies 2 and 3, both par-
ties would have been better off not making the first offer,
but rather moving second. As for the first offer, participants
in the businessman role offered $45.07 (SD=56.23) on av-
erage when they made the first offer compared to $14.02
(SD=14.28) offered by the taxi driver participants when they
made the first offer (t(41)=2.45, p=0.019, d=0.76). More
importantly, while the average final price reached by pairs
in which the businessman made the first offer was $49.50
(SD=55.18), the average final price reached by pairs in which
the taxi driver made the first offer was $11.36 (SD=10.86;
t(41)=3.11, p=0.003, d=0.96). In other words, the business-
man was better off moving second and paying only $11.36
instead of $49.50, and the taxi driver was also better off mov-
ing second and thus making, on average, almost five times
more.
Additionally, to demonstrate the crucial influence of the
amount of the first offer on the negotiation process – i.e.,
the counteroffer and the settlement price – we examined the
correlations between all three variables. As expected, there
was a positive correlation between first offers, counteroffers
and settlement prices. The correlations are summarized in
Table 1. Regarding the satisfaction of participants with the
negotiation outcome, there were no significant differences
between conditions or between assigned roles.
6 General Discussion
Existing literature in the realm of economics and game the-
ory (Bester, 1993; Gal-Or, 1985) suggests that there is no
clear cut preference for moving first vs. moving second in
economic transactions, and addresses this issue in a context
dependent manner. The literature on behavioral decision
making and negotiations, on the other hand, hasn’t devel-
oped a similar complexity to date, and usually advocates the
first-mover advantage based on the anchoring heuristic (e.g.,
Furnham & Boo, 2011). Additionally, as demonstrated in
Study 1, there seems to be an inconsistency between the first-
mover advantage advocated in the negotiation literature, and
people’s baseline intuition. In the current paper, we suggest a
more complex approach, which introduces a context depen-
dent model for the moving first vs. moving second preference
in negotiation. More specifically, we suggest that in cases of
information asymmetry between the negotiating parties, it is
actually preferable for both parties to move second.
In our first study, we found that, although the literature
suggests moving first, based on their personal experience
most people prefer to move second unless taught otherwise.
In the following experimental studies, we found a first-mover
disadvantage across different scenarios of information asym-
metry. These findings were replicated across extreme as well
as more common situations, across cultures, and they re-
mained persistent whether we tested first offers or complete
negotiations ending with a final settlement.
Throughout the paper, we sought to enhance the external
validity of the findings by demonstrating that first-movers
may have a clear disadvantage in several different scenarios
of information asymmetry. While “suffering” from lack of
information regarding the value of a given product, or the
lack of information regarding the knowledge of the negotia-
tion counterpart, buyers may make a first offer that is higher
than necessary, and sellers might make a first offer that is
lower than what they could have been offered. This concep-
tual framework suggests a multitude of combinations based
on two main variables: (1) information about the market
value; and (2) information regarding the negotiation counter-
part’s knowledge of the market value. Based on the findings
of the studies described in this paper, it should be possible
to map out when it is advantageous to move first and when
to move second based on the combination of these two vari-
ables. Existing research deals almost solely with situations
in which both negotiating parties have a clear reference of the
market price, as well as knowledge regarding the information
their counterpart holds (combination 1 in Table 2), and sug-
gests it is best to move first in such a situation. However, the
studies in this paper dealt with two different combinations
(combinations 3 & 4 in Table 2), and as described above, in
both these cases it seems that it is preferable to move second.
This line of thought opens up a new venue for the under-
standing of preferences in negotiation scenarios, and future
Judgment and Decision Making, Vol. 12, No. 5, September 2017 Information asymmetry in distributive negotiations 427
Table 2: Moving first vs. second preference, based on the negotiator’s information.
Negotiator’s (e.g., seller) information regarding the market value
Negotiator has value reference Negotiator lacks value reference
Negotiator’s
information
regarding his
counterpart’s
(e.g. buyer)
knowledge of the
market value
Counterpart has
value reference
Preferable to move 1st
(Combination #1)
Preferable to move 2nd
(Combination #4)
Counterpart lacks
value reference
Preferable to move 2nd
(Combination #2)
Preferable to move 1st
(Combination #5)
Unknown Preferable to move 2nd
(Combination #3)
Preferable to move 2nd
(Combination #6)
studies should attempt to shed light on additional combi-
nations not yet examined. Table 2 offers a matrix of the
possible combinations in this regard, as well as our predic-
tion of negotiation preferences in each scenario.
Moreover, there are three additional variables that have
been found to play a crucial role in negotiations and should
therefore also be incorporated into future research of the case
study at hand. First, future studies should try to incorpo-
rate the issue of negotiators’ alternatives. Past research has
shown that negotiators’ alternatives, and more specifically
their best alternative (or BATNA, i.e., Best Alternative to a
Negotiated Agreement), plays a crucial role in negotiators’
power, perception of power and results (Magee, Galinsky &
Gruenfeld, 2007). Thus, the presence or absence of alterna-
tives, as well as the assessment of the alternatives, and the
knowledge regarding the counterpart’s alternatives should
all be examined in future designs investigating negotiation
preferences and outcomes. Second, the value or significance
of the negotiated asset, which embodies elements of risk
and gain, and is also bound to affect negotiation preference,
should be accounted for as well. Third, The negotiators’ ex-
perience, which has been found to play an important role in
negotiations (Northcraft & Neale, 1987; Loschelder, Friese,
Schaerer, & Galinsky, 2016), should also be examined in
this regard, by contrasting proven, seasoned experts with
negotiation amateurs.
Furthermore, future research should also explore a num-
ber of important individual differences that have been found
to play a key role in determining negotiation initiation and
its effectiveness. Two such factors are the locus of control
(Shalvi, Moran & Ritov, 2010) and the social value orienta-
tion (Loschelder et al., 2016) of the respondent to the first
offer. Since these two variables were shown to decrease or
even eliminate the anchoring effect in negotiation, they might
have a similar attenuating effect in situations of information
asymmetry as discussed in the current article.
As we have tried to demonstrate throughout the paper,
when discussing negotiation preferences, one should ask
what is preferable for negotiators, as well as what nego-
tiators actually prefer. This distinction described above has
been found to be important in the process of negotiation pref-
erence analysis, and should therefore be preserved in future
studies as well.
In sum, based on the studies presented in this paper we
suggest that a more complex approach towards moving first
in negotiation is necessary. Such an approach can be based
on the knowledge that negotiating parties hold regarding
both the market value and their counterparts. Future studies
should continue to map the different combinations in this
regard in order to create a more accurate and comprehensive
framework for the understanding of negotiation preferences.
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