The first offer, anchoring and its role in mediation

Whether to make the first bid and how to pitch it is a perennial issue in negotiations.

There is data to suggest that a first outrageous bid can be effective in making the second, slightly less outrageous bid appear reasonable with the aim of making the counter-party move a long way. A good example of this is a study in the US where business school academics approached people on the high street to ask them if they would be willing to take a young offender to the zoo for a day trip. Unsurprisingly most said no. Then they asked a different bunch of passersby if they would mentor a young offender 3 hours a week and take them to the zoo - again this led to a lot of no’s. But this time the academics then immediately followed up by asking if they would instead just take the offender to the zoo and this time there were lots of yes’s. Note that the same request was made: would you take the offender to the zoo?; but the success rate was much better second time round because it had been preceded by a more demanding request. The more demanding request had pulled - or anchored - the passerby towards the questioner’s position.

So does that mean in a mediation you should make the first bid and ensure it is a massively insulting one with a view to the second, marginally insulting offer, seem reasonable? Probably not. First of all, you probably have a counter-party who has a good feel for the value of the case and an inappropriate offer is just likely to harm credibility rather than make a difference. Second, the point of a mediation is to find out where bottom lines really are. Wasting time on unacceptable offers distracts from that. Third, if you have a feel for where the settlement zone is then you need to structure your bids to get you there in a controlled way. A few aggressive bids which make no progress, followed by a large jump to the settlement zone in the mid-afternoon is a confusing strategy and might actually suggest weakness and confusion to the counter-party.

There is also statistical analysis which suggests an ultra-aggressive approach often gets in the way of settlement which harms both sides. If the mediation fails and then the case settles a year later on the door of Court then the legal costs both sides have racked up will often mean that the defendant pays more and the claimant makes a lower net recovery than had a deal been done. RPC have crunched the numbers here.

What is the best approach? It depends on a range of things. A good mediator will help coach whether a proposed offer is likely to be productive. You don’t want to give the store away, but a structured analysis of your BATNA and their BATNA is a good place to start. Then listen and learn what you can during the day to assess where each party sees the risks. If an insulting offer comes it is easier to not be shaken by it if you have your own plan.