Proposal sequence and the endowment effect in negotiations

Abstract

Purpose

The purpose of this paper is to investigate whether changing the sequence of proposals during negotiations and changing the order of the responding options might minimize the endowment effect, therefore producing a better chance at reaching an agreement.

Design/methodology/approach

The study includes four versions of questionnaires comprised of two identical proposals (one gain and one loss) in reversal sequences, and two identical reimbursement options in reverse order. The four versions aim to allow for a combined investigation of the impact of proposals sequence and the reimbursement options sequence on the endowment effect. Each of the study's 814 participants received one of the four questionnaires. Based on both framing and contrast effects, it is hypothesized that the sequence of proposals – when the first one is conceived as a loss and the second as a gain – has a moderating impact on the endowment effect.

Findings

The findings show a significant endowment effect as a high demand inducer in negotiations, and a significant impact of the proposals sequence as a factor that reduces the endowment effect. However, no significant impact of the responding options' order on the endowment effect was found.

Practical implications

The study contributes to the understanding of the impact of proposal sequence in negotiations. Negotiators who understand how to utilize the proposals sequence may lead the negotiation to a concessionary atmosphere.

Originality/value

The paper focuses on the application of the framing and contrast effects to the negotiation process, as well as highlighting the negotiation process, whereby negotiators' insight about the proposal sequence may lead to a better outcome.

Citation

Galin, A. (2009), "Proposal sequence and the endowment effect in negotiations", International Journal of Conflict Management, Vol. 20 No. 3, pp. 212-227. https://doi.org/10.1108/10444060910974858