By: Donald L Swanson
Every party in a mediation or other negotiation effort puzzles over time limits for responding to offers.
Questions that offering parties often grapple with include:
- How long should the time limit be for responding?
- Should the time-limited offer be presented as a step in the negotiating dance, or as a take-it or leave-it proposition?
Questions that offerees often ask in response include:
- Should we respond within the stated time limit—or ignore it and let the time pass?
- In a take-it or leave-it context, is the other side bluffing, puffing or serious?
There are rarely any clear and undisputable answers to such questions. It’s almost always a judgment call amid uncertainty on the best way to proceed.
So, whenever information comes available to help evaluate time limited offer issues, we tend to take notice.
Here is a study on the subject: “Take it or leave it: Experimental evidence on the effect of time-limited offers on consumer behavior,” by Robert Sugden, Mengiie Wang and Daniel John Zizzo, published in the Journal of Economic Behavior and Organization, Vol. 168, pp. 1-23 (Dec. 2019). This study deals with consumer activity, but its findings may apply to business negotiations and mediations as well.
Here’s how the study begins:
- A common tactic by salespeople is to make offers that (it is claimed) will be withdrawn unless promptly accepted.
- The theory is that such time-limited (or exploding ) offers create barriers to the search processes by which consumers compare options.
A Surprise Finding
One surprise from the study’s findings is this:
- time-limited offers are, (i) less likely to be chosen when the time constraint is shorter, and (ii) more likely to be chosen when the time constraint is longer.
That’s because, the study suggests:
- longer time intervals allow subjects to take account of additional factors that favor the choice of the time-limited offer;
- the offeree of a time-limited offer compares the certainty of the time-limited offer vs. the uncertainty of what happens if the offer is rejected—a concrete, visible offer is certain, while alternatives can only be imagined;
- if the time-limited offer is rejected, the offeree will need to expend additional effort over an extended time to identify the best alternative; and
- People respond to time constraints by accentuating risk aversion—the longer a party thinks about an offer, the greater is the influence of risk aversion, which increases the likelihood of acceptance.
Another finding in the study is this two-fold proposition:
- the main mechanism by which time-limited offers benefit the person making the offer is NOT to impair the rationality of the other party’s decision-making;
- instead, it is a mechanism of search deterrence—it restricts the offeree’s opportunity to compare alternatives.
The foregoing study and its findings provide data for helping parties deal with time-limited offers, as they engage in mediations and other types of negotiations.
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