By Dr. Ken Broda-Bahm:
At a national conference I spoke at earlier this week, one of the other presenters was Anne Marie O’Brien of Smith Pauley LLP, a very experienced litigator and mediator working out of Omaha, Nebraska. During her talk, she asked a room full of defense attorneys how many of them routinely made the first settlement offer. Out of about 150 attendees, not one hand went up. When she went on to share research (e.g., Kristensen & Garling, 1997) showing that negotiated results tend to be lower when those in the defendant’s role made the first move, that news was met with some skepticism and open disagreement from the seasoned trial counsel and company lawyers in the room. But here’s the thing: She is right. Social science studies in the negotiation field have shown a strong and consistent result supporting what is called the “first mover advantage.”
But here’s the other thing: Those who are nervous about making a first offer aren’t completely wrong. The situation is complex and there is unlikely to be a one-size-fits-all answer. However, that also means that defense attorneys shouldn’t reflexively dismiss the idea of a first offer, or automatically adopt the posture of waiting for the Plaintiff to make a demand, particularly when the research pretty clearly shows that this stance primes us toward accepting a higher ultimate settlement figure. In this post, I will take a quick look at some of the reasons defense lawyers don’t tend to make the first move during settlement, as well as some reasons why they should think about it more often.
Why Wouldn’t You Make the First Offer?
I think there are a few reasons that underlie this strong norm among defense lawyers.
You don’t want to concede. In the early phases, the focus is on denying liability. Making an offer feels like a concession, particularly to a client who may not have much experience with the settlement dance. In reality, it is near certain that the case will get to that point, and an early exploration of the other side’s goals isn’t really going to be giving anything away.
You don’t want to look worried. For defendants, the first litigation pose is usually disinterest. The message is, “We are not concerned about this at all,” and making an offer to the other side can feel at odds with that. But once that pose wears off — and for most cases, not all, it will — there will be a need to convey, not worry, but a rational way of getting through it.
You don’t want to inflate. Defense teams may be thinking, “What if our offer is more than the plaintiffs thought the case was worth?” If that happens, then the defense move would have just increased the cost to settle. But, let’s be honest: The chances that an analytical assessment from the defense is going to exceed a plaintiff’s hopes and dreams seems rather slim in practice.
You don’t want to be stuck. This last reason has some logic behind it: The amount that a plaintiff can ask for stretches, as Buzz Lightyear would say, “To infinity and beyond!” But the amount a defendant can offer, at least without a counterclaim, stops at zero. That means that in practice, a plaintiff has far more negotiating room than a defendant. But that can actually be a reason why it helps to anchor first on a defense number.
Why You Ought to Think About It Anyway
The main reason that defendants should think about making the first offer is that the research is pretty clear. Studies in a variety of negotiating settings (e.g., Galinsky & Mussweiller, 2001) show that the first offer acts as anchor and is strong determinant of the ultimate price, so a lower first anchor results in a lower ultimate settlement. While the analysis can get into the complicated weeds of game theory, the trend is pretty consistent. One of the few times that a first offer doesn’t appear to work, for example, is when the information is asymmetrical (for example, in one study it meant one party had full information and the other party had no information. In that case (Maaravi & Levy, 2017) there was advantage in being the second offer, but in modern litigation, that scenario is pretty unlikely. In most cases, a defendant’s settlement strategy should include at least consideration of the benefits of making a first offer, and one that is a real offer, not just a way to antagonize the other side. If you’ve done a careful assessment, and you have a figure that is acceptable, realistic, grounded, and fair, go ahead and see what the other side thinks about it. Even if it isn’t immediately adopted, it can still help frame the thinking on case value at the critical early stages.
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Other Posts on Settlement:
- Resist the Judge’s Nudges: Sometimes Trial Is Better Than Settlement
- Break Through the Barriers: The Settlement Series, Part One
- Learn from AI in Settlement Negotiations
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Galinsky, A. D., & Mussweiler, T. (2001). First offers as anchors: The role of perspective-taking and negotiator focus. Journal of personality and social psychology, 81(4), 657.
Kristensen, H., & Gärling, T. (1997). The effects of anchor points and reference points on negotiation process and outcome. Organizational behavior and human decision processes, 71(1), 85-94.
Maaravi, Y., & Levy, A. (2017). When your anchor sinks your boat: Information asymmetry in distributive negotiations and the disadvantage of making the first offer. Judgment and Decision Making, 12(5), 420-429.