1: Renowned detective novelist Raymond Chandler had been hired to be the screenwriter for the 1944 classic film Double Indemnity by the famous Hollywood film director Billy Wilder.
Billy and the movie’s producer “could barely stop from laughing,” Chris notes, “because they had been planning to pay Chandler $750 per week and they knew that movie scripts took months to write.”
This story, however, has a nice ending.
Billy and the producer “valued their relationship with Chandler more than a few hundred dollars, so they took pity on him and called an agent to represent Chandler in the negotiations.”
2: What does this long-ago tale have to do with me and you?
In any negotiation involving money, beware making the first offer.
Before becoming an author, Chris served as the FBI’s lead hostage negotiator. His advice?
“That’s why I suggest you let the other side anchor monetary negotiations,” Chris recommends.
Especially when we don’t know good information on the market value of what it is we are buying or selling.
The reality is by letting the other side make the first offer, sometimes we get lucky.
“I’ve experienced many negotiations when the other party’s first offer was higher than the closing figure I had in mind,” Chris writes. If I’d gone first, they would have agreed, and I would have left either the winner’s curse or buyer’s remorse, those gut-wrenching feelings that you’ve overpaid or undersold.”
3: After the other side does make the first offer, Chris warns we must be on guard.
The research shows a psychological tendency to be anchored by extreme numbers. Called the “anchor and adjustment” effect, we are predisposed to make adjustments from the initial reference point.
So, we “have to prepare ourselves psychically to withstand the first offer,” Chris writes. “If the other guy’s a pro, a shark, he’s going to go for an extreme anchor in order to bend our reality. Then, when they come back with a merely absurd offer it will seem reasonable, just like an expensive $400 iPhone seems reasonable after they mark it down from a crazy $600.”
Note, when we look at the formula 8 × 7 × 6 × 5 × 4 × 3 × 2 × 1, we believe it equals a higher amount than the same string in reverse order because we focus on the first numbers and extrapolate.
“That’s not to say, ‘Never open,'” Chris writes. Especially if we know the market and are dealing with an equally informed professional. In situations like this, we might make the first offer “just to make the negotiation go faster.”
Reflection: Think back on a recent negotiation. Did I make the first offer or encourage the other side to do so? What happened? What did I learn?
Action: Journal my answers to the questions above. Apply the learnings.