The First Rule Of Negotiation: First One To Talk Loses

by Justin McHood

in Business Related Topics

One of my college professors taught me this simple Rule by holding a class activity.

One day, he came to class and told everyone in the class to pick a partner. The activity for the day was that we were going to “negotiate” a buy price for a used car and whoever negotiated the best deal didn’t have to take the final exam.

When we had negotiated “the deal”, we were to write down the final sales price on a piece of paper and hand it in.

Once we had a partner chosen, he then handed one of us a green sheet of paper and the other a white sheet of paper.

Under no circumstances were we to tell our partner what our piece of paper said, we were just simply to use the information to our benefit in the negotiation as we saw fit.

I received a white piece of paper with this information:

You are a land developer in Arizona who happens to buy and sell classic cars as a side hobby. You have recently acquired an old widows 300 acre farm and plan to develop it. She plans on moving to Texas to be with her daughter and has already shipped all of her belongings there. You agreed to take her to the airport because she has no other family in the state.

As you pull up to take her to the airport, you happen to notice a silver 1962 Ferrari GT with four flat tires sitting in a dusty corner of the barn in the back yard. The car has been recently uncovered and is still half covered with a tarp that is covered in dust. You know for a fact that this car can fetch around $2.1 million at auction because you sold one last year just like it and have regretted it ever since.

My negotiating “partner” received a green piece of paper with this information:

You have lived all your life in the same small Arizona town. Your husband died about 20 years ago and you have been lonely ever since. About 6 months ago some big-whig city slicker who drove a shiny new truck showed up at your door one day and ended up paying you $5 million for your old farm. You couldn’t believe what in the world anyone would want to pay that much money for some place that was so hot and dry and hard to grow crops in.

You have shipped all of your stuff to your daughters house in Texas except for the old car that your son had before he went to the Vietnam war. He loved that car, but you always hated it because it only had two seats and he was always buffing it rather than spending time talking with you. It hasn’t been started for 30 years and it has four flat tires now and has been piled under a bunch of old stuff in the barn.

You recently saw a billboard where you could donate the car to the Kidney Foundation and they would give you $250 and they are scheduled to come pick it up in the afternoon – you just have to sign the title and leave it on the counter. Your ride to the airport is here and you need to leave before your miss your plane.

There were about 30 different partnerships who negotiated out the above scenario. What do you think the result was? What was the average sales price for the car? Who negotiated the “best” deal?

The results of this case study were this:

  • 30 different prices were negotiated for the car.
  • 15 prices were between $0 and $500.
  • 15 prices were between $1.5 million and $2.0 million.
  • There were exactly zero prices in the $500 – $1.5 million range.

One of the many things I learned from this exercise was that the first one to talk loses.

Meaning, if you throw your “anchor” first, then that becomes the negotiating point and you negotiate from there.  Be the first one to name a number and you have effectively set the anchor for the entire negotiation.

Is there a Second Rule of Negotiation?

Yes.

But that is another blog post.

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