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\title{When your anchor sinks your boat: Information asymmetry in distributive negotiations and the disadvantage of making the first offer}

\author{
Yossi Maaravi\thanks{The Adelson School of Entrepreneurship, Interdisciplinary
Center (IDC), Herzliya. P.O. Box 167 Herzliya, 4610101, Israel. e-mail:
myossi@idc.ac.il.}
\and
Aharon Levy\thanks{The Baruch Ivcher School of Psychology, Interdisciplinary
Center (IDC), Herzliya \& The Heymans Institute for Psychological
Research, University of Groningen.}
}

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\newcommand{\jhead}{Judgment and Decision Making, Vol.~12, No.~5}
\newcommand{\jdate}{September 2017}
\pagestyle{myheadings} \markright{\protect\small \href{\jref}{\jhead}, \jdate \hfill Information asymmetry in distributive negotiations \qquad}
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\href{\jref}{\jhead}, \jdate, pp.\ 420-429
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\begin{onecolabstract}
%\end{latexonly}
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.

\smallskip
\noindent
Keywords: first offer, anchoring, negotiation, second offer,
second-mover advantage, information asymmetry
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\end{onecolabstract}\bigskip
]
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{\renewcommand{\thefootnote}{}

\footnotetext{

The authors would like to thank Ms. Yam Piudik for her assistance with
this project.

Copyright: \copyright\ 2017.
The authors license this article under the terms of the
\href{http://creativecommons.org/licenses/by/3.0/}{Creative Commons
  Attribution 3.0 License.}
}}

\saythanks


\section{Introduction}
In a typical \textit{Pawn Stars} episode, a TV series that follows the
interactions between the buyers and the sellers at the \textit{World
  Famous Gold \& Silver Pawn Shop}, the shop owner always starts the
negotiation by asking the seller: \textit{``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 History 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
\textit{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 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 example 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 negotiations, 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 recommendation of
moving first in a negotiation. One line of research that implies a
first-mover disadvantage due to a combination 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 recipient 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 \textit{``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 advantage may emerge.
Specifically, we focus on situations where there is a significant
asymmetry of information between the negotiating parties in
distributive settings.

\subsection{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; Malhotra \& Bazerman, 2007;
Thompson, 2005). One of the heuristics that were extensively
investigated in the negotiation literature is the anchoring and
adjustment heuristic (e.g., Maaravi, Pazy \& Ganzach, 2014). According
to this heuristic, 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 judgments not only in negotiation (Ritov,
1996), but in many other fields from general knowledge questions
(Chapman \& Johnson, 1999) to legal verdicts (Mussweiler, 2001).

\subsection[First offers as anchors ]{First offers as anchors }
The negotiation literature suggests that the first offer in a
negotiation serves as an anchor that influences both the counteroffer
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 buyers made the first offers (Galinsky
\& Mussweiler, 2001). Based on such evidence, first offers have become
an important 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, academic 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 extreme
while still in the reasonable range (Maaravi, Pazy \& Ganzach,
2014).\footnote{ It 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).}

\subsection{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 \textit{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 \textit{the first-mover advantage} 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 \& Montgomery, 1988). Two examples are the internet giants
eBay and Amazon. But strategy scholars also discuss
first-mover\textit{ disadvantage}, cases in which being first to
introduce a service 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 innovations 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
standard 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 \textit{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 research, 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.

\subsection{The drawbacks of moving first in negotiations}
The current article continues a line of research pointing to the
limitations and disadvantages of moving first in negotiations, or
specifically using the anchoring tactic (``move first, make extreme
first offers''). One study (Moran \& Ritov, 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 negotiations. Specifically, the authors focused on
making Integrative 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 second 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 (Maaravi, 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.

\subsection{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 \textit{initiation
preferences}; and second, it adds to this new line of research that
questions the general recommendation to always make the first offer in
negotiations. We argue that there are cases in which people prefer to
move second, and rightfully 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).

\begin{figure*}[t]\centering
\includegraphics[width=5in]{fig1.eps} 
\caption{Illustration of a negotiator initiation decision, outcomes and
perceptions.}  
\end{figure*}

We hypothesize that in such situations:
\begin{itemize}
\item[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.

\item[H2:] Negotiation-savvy people (people who learned about the anchoring
tactic) will prefer to move-first and make the first offers themselves.

\item[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.

\item[H4:] Negotiators in asymmetry-of-information situations will reach better
outcomes when they move second and don't make the
first offer.  
\end{itemize}

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 themselves. 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
expectations 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 \textit{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
\textit{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 exceeds one's expectations and is
thus accepted immediately, the agreement will be framed as a
\textit{gain} from the focal negotiator 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
\textit{loss} (Galinsky, Seiden, Kim \& Medvec, 2002). Since losses influence
decisions 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 professional
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 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 information,
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 second. 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 second 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.

\section{Study 1}
\subsection{Method}

\textit{Participants and design.} We recruited 42 first year social
science students, and 118 second year students studying in a college 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 (“\textit{In general, 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.

\subsection{Results and discussion}
In line with H1, the majority of the first-year students (64\%)
preferred to \textit{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, 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 \textit{greater} the uncertainty, the \textit{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.  

\section{Study 2}
Study 1 has shown that, although according to the anchoring 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 economic behavior, the intuitive tendency to
avoid giving the first offer may simply be irrational, and it comes at
the expense 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 asymmetry 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.

\subsection{Method}

\begin{figure}[t]
 \includegraphics[width=\columnwidth]{fig2.eps} 
\caption{A rare Edier Drake sculpture taken from the official
Sotheby's web site.}
\end{figure}

\textit{Participants and design.} We recruited 130 U.S. participants
(45 male; M$_{age}$=36.3 years, SD=11.3) via Mturk. Participants were
randomly assigned to one of two conditions as described below. The
participants provided demographic information, read a short
description of a hypothetical scenario, 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
(\textit{d}=0.5). This analysis suggested a required sample size of 64
participants per condition.

\textit{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 individual who had recently inherited a
small sculpture of a duck from a distant relative. The participants
were shown a picture 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
information 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.

\subsection[Results and discussion]{Results and discussion}
As predicted in H3, in this scenario of information asymmetry, both
negotiation parties would have been better off moving second. Due to
the vast differences in the possible price range between conditions, we
did not assume equal variances across conditions (Levene’s test, F=
123.15, p{\textless}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{\textless}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.

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.

\section{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.

\subsection[Method]{Method}
\textit{Participants and design.} We recruited 62 Israeli participants
(32 male; M$_{age}$=41.5 years, SD=15.8) via an internet survey company.
Participants were randomly assigned to one of two conditions. The
participants provided demographic information, read a short description
of a hypothetical scenario, 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 (\textit{d}=0.8). This analysis
suggested a required sample size of 21 participants per condition.
However, 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.

\textit{Procedure}. The scenario described in Study 3 was that of a
foreigner on a business trip to Namibia. The businessperson 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 internet, the rate
for every hour the taxi waits in Namibia is approximately \$US1.50
(Numbeo, 2016); however, this information 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
extent they would prefer to make the second offer (as opposed to the
first) in this given situation (\textit{1- not at all, 6-to a very
  high extent}), and then all were asked to make the first offer
themselves.

\subsection{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 probably used them as a reference point was \$4.86 (SD=2.78;
t(60)=6.61, p{\textless}0.001, d=1.68). This means that, if the
businessperson 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 preferred not to make the
first offer (M=5.22, SD=2.3); however, 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{\textless}0.01, d=0.75).

Study 3 offered a replication of Study 2 in a more realistic 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 hypothetical negotiation setting.
Since our hypothesis deals with behavior in negotiations, it should be
tested in a full negotiation process with two counterparts and a final
settlement price. Study 4 offered all of the above.

\section{Study 4}
Study 4 was designed as a replication of Study 3 with the context 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.

\subsection{Method}
\textit{Participants and design. }We recruited 86 international
students studying at an Israeli college (38 male; M$_{age}$=21.5 years,
SD=2.8). The participants read a short description of a hypothetical
scenario, participated in a negotiation simulation, 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
(\textit{d}=0.8). This criterion implied a sample size of 21 dyads per
condition. The participants in this study were collected in two
separate waves.

\textit{Procedure}. Participants were randomly assigned to a serial
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.

\begin{table}[t]\centering
\caption{Correlations between first offers, counteroffers and
settlement prices ($p<.01$ for all).}
\begin{tabular}{lcc}\toprule
Measures & First offers & Counteroffers \\\midrule
Counteroffers & .854 & -{}- \\
Settlement prices & .934 & .947 \\\bottomrule
\end{tabular}
\end{table}

\subsection{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 parties 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 average 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 businessman was better off moving second and paying
only \$11.36 instead of \$49.50, and the taxi driver was also better
off moving 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.

\section{General Discussion}

\begin{table*}[t]\centering
\caption{Moving first vs.\ second preference, based on the negotiator’s information.}
\begin{tabular}{L{1.25in}L{1in}C{1.75in}C{1.85in}}\\\toprule
 & & \mc{2}{c}{Negotiator’s (e.g., seller) information regarding the market value} \\\cmidrule{3-4}
 & & Negotiator has value reference & Negotiator lacks value reference \\\cmidrule{2-4}
\multirow{3}{1in}{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)\\\cmidrule{2-4}
 & Counterpart lacks value reference &
 Preferable to move 2nd (Combination \#2) &
 Preferable to move 1st (Combination \#5)\\\cmidrule{2-4}
 & Unknown & 
 Preferable to move 2nd (Combination \#3) & 
 Preferable to move 2nd (Combination \#6) \\\bottomrule
\end{tabular}
\end{table*}

Existing literature in the realm of economics and game theory (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 developed 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 dependent
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 \textit{disadvantage} across different
scenarios of information asymmetry. These findings were replicated
across extreme as well as more common situations, across cultures, and
they remained 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 negotiation 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 conceptual
framework suggests a multitude of combinations based on two main
variables: (1) information about the market value; and (2) information
regarding the negotiation counterpart’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 variables. 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 suggests 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 understanding of
preferences in negotiation scenarios, and future studies should attempt
to shed light on additional combinations not yet examined. Table 2
offers a matrix of the possible combinations in this regard, as
well as our prediction 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 incorporate 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 alternatives, 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' experience, 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 number 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 orientation (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 negotiators actually prefer. This
distinction described above has been found to be important in the
process of negotiation preference 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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\end{hangparas}

\end{document}
