Negotiation Skills — Part III

NEGOTIATION IS A PSYCHOLOGICAL MIND GAMES

Before the influence of what is known as behavioural decision research, negotiators were simply urged to approach problems from a rational perspective — in other words, they were told to make certain logical frameworks and to “go be rational.” Behavioural decision research emphasizes that while advising negotiators to be rational is necessary, it is far from sufficient. Negotiators also need to be made aware of the mental habits and biases that might prevent them from following rational advice. Of course, it’s not news that people are irrational and sometimes make mistakes. What is news is that, in the context of decision-making and negotiation, many of the mistakes people make are systematic and predictable. Even the brightest of executives fall victim to four critical, systematic errors regularly: the fixed-pie bias, the vividness bias, non-rational escalation of commitment, and susceptibility to framing.

We have already discussed how to overcome the fixed-pie and vividness bias in the previous article here. We need to not only claiming value on negotiation but also creating value through the negotiation. We can overcome the vividness bias with a thorough scoring system. As the behavioural decision research, negotiators must contend not only with the tactics of the other party but also with the predictable mental traps that can cloud their judgment. Common people mindset tend to avoid negativity, but on the same side, the mindset also easily absorbs negativity. Imagine if you are given 3 programs (limited for 600 peoples) to overcome the COVID-19 pandemic, which are:

Program A: If Program A is adopted, two hundred people will be saved.

Program B: If Program B is adopted, there is a one-third probability that six hundred people will be saved and a two-thirds probability that no people will be saved.

Program C: If Program C is adopted, four hundred people will die.

If you realize, program A and C is the same program. But, if people prefer Program A to Program B, then they should also (obviously) prefer Program C. As it turns out, this is not how people respond. When different groups are given these two sets of options, Program A is favoured over Program B, but Program B is favoured over Program C. Why are people so inconsistent in their preferences? It turns out that the critical factor is how the options are framed. The two sets of options are identical, but changing the description from “lives saved” to “lives lost” makes people think very differently. Even when the expected values are similar, we tend to be risk-averse when thinking about potential gains and risk-seeking when thinking about potential losses. In other words, we want the “sure thing” when we have something to gain but want “all or nothing” when we have something to lose.

Negotiation rationality in an irrational world

As mentioned above, humans often make a decision based on what they feel rather than on rational thoughts. The biases of the heart and mind affect even the best and the brightest people on earth. According to Neale and Northcraft, individuals gain experience when they conduct a similar type of negotiation many times; by contrast, they develop expertise when they form a “strategic conceptualization” of what constitutes effective negotiation. To overcome bias and negotiate effectively, you need a framework for thinking about, preparing for, and executing negotiations systematically and strategically. Three strategies can help you to confront and manage your own biases in negotiation:

1. Use system thinking, the human thinking process is divided into two major categories. The first category uses intuition, uses emotion, typically fast and automatic, and effortless. Most of the human decisions use this type of thinking. On the other hand, the second system uses deep reasoning thought, slower, effortful, and logical. This does not mean that a full second process is necessary for every decision that you make, but all critical and important decision will have better output if you use the second system of human thought. To use the second system thinking, you should make a list of which variables affect your negotiation, just like creating a scoring system. You should also divide the negotiation across multiple sessions. Like it or not, you will encounter unexpected information through the negotiation, thus, you should divide the negotiation session and have a break.
2. Learn through the use of analogies, How, can negotiators maximize their learning from experience? People learn far more from an example, case study, exercise, or real-world experience when they can extract an abstract principle from it. Negotiation geniuses make it a habit to review important negotiations after they are completed. When reviewing past negotiations, try to understand the structural and conceptual aspects of what occurred. Rather than focusing on the uniqueness of the specific negotiation situation, dissect your recent experience into elements that map onto the negotiation concepts.
3. Adopt the outsider lens, why are we so overconfident in our judgments and abilities, but more accurate in our assessments of the likely success of others? Daniel Kahneman and Dan Lovallo explain this inconsistency by arguing that people make decisions using two different perspectives, or “lenses”: an insider lens and an outsider lens. When preparing for an important negotiation, bring an outsider to the preparation session. This may mean reaching out to experts within your firm, hiring a consultant with unique expertise, or talking to a friend.

WHAT IF THE BIASES IS COMING FROM THE OTHER PARTY?

There are 4 strategies to control the negotiation if the other party is biased by irrationality:

1. Incorporate the consequences of their biases in your strategy, use your second system thinking, but be ready to adapt to the other side’s first system mistakes. If someone is obsessed with selling his company at a certain price point (perhaps because a broker mentioned a high number, or because a sibling sold her company for that amount), recognize the vividness of that number to him. Then, rather than fight it, see if you can creatively meet this vivid need. When you start thinking about the decision biases of others, you can custom-design negotiation strategies that adapt to their errors.
2. Help others be less biased, would you rather negotiate with a good negotiator or a bad negotiator? The answer is simple: we’d rather negotiate with good negotiators; bad negotiators will usually just get in the way of good deals. How can you promote carefully, reasoned, and systematic thinking? Consider again that negotiators tend to be far more biased under time pressure than when they have time to think through a proposal or idea. Thus, when you have provided the other side with an offer that you believe to be better than your competitor’s proposal, give him time to think it through rather than pushing for an immediate answer. Most of us also assume that we want the other side to be less prepared. However, ill-prepared negotiators typically want to bargain over one issue at a time and to withhold information. They are also less able than prepared negotiators to evaluate or propose multi-issue (package) deals. All of these behaviours inhibit value creation. The best thing you can do to help an ill-prepared negotiator (and to help yourself) is to encourage her to be more prepared. If the negotiation is not going smoothly, you might suggest that both parties would benefit from thinking more about the issues that have surfaced during the recent discussion.
3. Calibrate the information provided by others, how can you identify whether your counterpart is being overly optimistic and trying to pass on that optimism to you on the negotiation? Try this: instead of negotiating with one person, ask four different persons for their opinions on the appropriate listing price. Then ask each agent to bring you computer printouts of the original listing prices of the last ten deal they sold as well as the final selling price of each of these deals.
4. Use contingency contracts to resolve conflicts stemming from biases, “Curing” your negotiation counterpart’s biases is not always the answer. Your opponent may be extremely confident about his view of the future, while you are confident that he is wrong. Rather than arguing the point, it sometimes pays to leverage the other side’s biased expectations. How? Using a contingency contract. Contingency contract allows both sides in a negotiation to bet on their beliefs about the future. When you know that the other side is biased, you can draft a contract that allows him to bet on the information that you believe to be inaccurate. In doing so, you make a bet that you expect to be favourable to you and costly to your counterpart.

STRATEGIES TO INFLUENCE

When you are making a pitch, asking for concessions, or trying to amass support for your proposal, success also depends on your ability to “sell” your ideas, persuade reluctant opponents, and convince others regarding the merits of your case. These skills not only help you claim value for yourself but also create value for both parties. One of the most common complaints of seasoned negotiators is that defensive, untrusting, or incompetent people can stymie even mutually beneficial ideas and proposals. The book gives you some of the most fascinating current research on the psychology of influence and persuasion — including the pioneering work of renowned social psychologist Robert Cialdini — to develop strategies that will help you convince others to comply with your requests, proposals, and ideas. There are eight strategies to influence others during a negotiation:

1. Highlight their potential losses rather than their potential gains, people are more motivated to avoid losses than they are to accrue gains, consistent with the principle of loss aversion. In other words, decision-makers weigh information about potential losses more heavily than they do information about potential gains — even when the gains and losses are of equal magnitude. As a result, when you frame the same set of information as a loss, it will be more influential in negotiation than when you frame it as a gain.
2. Disaggregate their gains and aggregate their losses, people seem to prefer gaining something in instalments but losing something in one lump sum. To maximize pleasure, then, you should separate the total gain into lots of small wins (rather than one big win). Meanwhile, to minimize pain, you should put all of the losses together — this gives you only one loss to absorb.
3. Employ the “door in the Face (DITF)” technique, meaning asks for an extreme thing first so that your counterpart will have a concession on your less extreme second offer. When the person making the request moderates his demands (and asks for something less extreme), the other side views this as a concession that must be reciprocated. In other words, because the rejected party has “compromised” by asking for less, it is incumbent on the other side to “meet them halfway.” Another factor is the contrast affect — our tendency to judge the size of something based on the context in which it is situated. Why DITF? this is referring to the image of a salesperson having the door slammed in his face when he makes an outrageous request. Of course, in this case, the salesperson does not walk away after the door is slammed; instead, she makes a second, less outrageous request.
4. Employ the “foot in the door (FITD)” technique, research suggests that once someone has agreed to an initial request, they are more psychologically committed to seeing the process through to its end. Thus, the willingness to agree with one request leads to an increased commitment to agree with additional requests that naturally follow from the initial request. This approach, which has been referred to as the “foot in the door” (FITD) strategy, may appear to contradict the “door in the Face (DITF)” strategy in which the more extreme request is made initially. However, these strategies have different underlying mechanisms and objectives. DITF (aim for rejection, then moderate your demand) is appropriate when your goal is to make your key demand seem reasonable. The FITD (aim for compliance with a simple request, then increase your demands) is appropriate when you need to build commitment toward your key demand.
5. Leverage the power of justification, human beings are “hardwired” to accommodate the (seemingly) legitimate demands and impositions of others because doing so allows us to build mutually rewarding relationships with them. In other words, we are willing to go the extra mile to help those who will become obligated to us, but not to help those who feel they can simply impose their will upon us and who may not ever reciprocate. So, even though people tend to resist the demands you impose upon them, they are willing to lower their resistance and consider your demands if they feel that at least you think the demands are justified. The rule of thumb is you have to give a why (because) statement on every demand you make to make it more justified. The power of persuasion relies much on the reasoning.
6. Leverage the power of social proof, imagine the seller of a house limits the open-house viewing of the property to only one hour so that all potential buyers will be present at the same time. As a potential buyer, how do you see this? the house will be sold out because of the queue line? It is the power of social proof, sometimes as a negotiator, you need to engineer a situation to engineer human psychology.
7. Make token unilateral concessions, Some years ago, a national trade association for construction subcontractors determined that it needed to survey its membership. They were aware, however, of one of the key barriers to such market research: target audiences are notoriously reluctant to respond to surveys and questionnaires. In the hopes of learning how best to increase response rates, they decided to test the power of providing a financial incentive for filling out the survey. One randomly chosen subgroup of members was sent the questionnaire with no financial incentive. Of this subgroup, 20.7 per cent returned a completed questionnaire. Another randomly chosen subgroup of members was promised a $50 payment for completing and returning the questionnaire. Unfortunately, the $50 incentive did not significantly change behaviour; this time, 23.3 per cent of members responded. Why such a weak effect? One plausible theory is that the incentive was not large enough; perhaps the association should have promised $100 or $200. However, consider what happened with the third group of members. This group was sent the questionnaire and, along with it, a single $1 bill. This time, 40.7 per cent of members returned a completed questionnaire! Standard economic theories fail to explain the behaviour of these survey respondents. Not only was the $1 incentive considerably smaller than the $50 incentive, but the $1 incentive was not really an “incentive” at all — it was guaranteed payment regardless of whether the member complied with the request. The more salient your guaranteed concession is to the other side (e.g., the other side knows that you sacrifice something first for you), the more likely it is that they will be compelled to reciprocate in substantive ways.
8. Use reference points to make your offers and demands seem reasonable, people do not objectively evaluate the cost of an item or an issue; rather, they evaluate costs in comparison with salient reference points (e.g., the total amount they are spending that day). This is exactly why car salespeople get away with selling so many add-ons. When you are already paying $30,000 for the car, paying an additional $200–$500 for floor mats or scratch proofing does not seem like a big deal. On the other hand, if you already owned the car and someone came to your door selling floor mats or scratch proofing at the same prices, you would probably slam the door in their face! The other thing is people care not only about the value of the item they are purchasing but also about getting a “good deal.” The desire to get a good or “fair” deal makes negotiators susceptible to influence.

DEFENDING THE INFLUENCE OF OTHER PARTIES

Because we know how to influence, we also need to have a defence strategy from other parties’ influence. There are 6 strategies :

1. Prepare systematically, as we have discussed in the previous section.
2. Create a scoring system, as we have discussed in the second article.
3. Explicitly separate information from influence, when the other side makes a seemingly compelling statement, effective negotiators ask themselves questions such as these: “Did I learn something new here? If so, what did I learn? How should I evaluate what she said in the context of my interests and my priorities?” Here is another line of questioning that can help separate influence from information: “Would I be willing to do this for anyone else? Would I have been willing to do this yesterday — or even an hour ago? Can I defend my decision to critical others?
4. Rephrase their offer in other terms, you might rephrase their loss-frame statement (to yourself ) using a gain frame — and then see how tempting their proposal seems. REMEMBER THE GAINS AND LOSSES MINDSET.
5. Appoint a devil’s advocate, a useful negotiation strategy is to appoint someone on your side to play the role of devil’s advocate. This person’s role is to question your beliefs regarding everything relevant to the negotiation.
6. If possible, do not negotiate under time pressure, influence tactics are more likely to have an effect when their target must respond quickly. This suggests that negotiators should try to set aside ample time to negotiate, be willing to wait a day or more before making important decisions, and be comfortable asking other parties to allow time for consideration of the offer or proposal.

Of course, these defence strategies are not mutually exclusive. Negotiation geniuses rely simultaneously on many or all of them. The influence strategies that we have described will not help you improve your ideas or offers; rather, they simplify the task of selling what you have to offer. And, while these strategies are a powerful means of persuading others to accept your offers and comply with your demands, negotiators who rely exclusively on influence strategies are likely to achieve only limited success, for two reasons. First, as highlighted, those who focus exclusively on “selling” rather than on “negotiating” will forgo opportunities to learn about the other side’s interests, and as a consequence, to create value. Second, if you are up against a tough negotiator — or embroiled in a bitter dispute — your ability to get the other side to comply, concur, or consent may be seriously limited. If all you have to fall back on are the “soft” strategies of influence, you will be seriously outgunned. Not all negotiations go smoothly, and not all negotiators are amicable.