Irrational tendencies that may afflict good negotiators

With practical negotiation being so messy and human beings so unreliable, a preference for rationality in negotiation is understandable.

By assuming that people are rational it is possible to develop models of negotiation that produce normative principles for rational behaviour.

The main problem with assuming rationality is that it is at variance with how people behave. While the derivation of rational behaviour from assumptions produces insights into what would happen if people behaved according to the assumptions, it is a misnomer to rely on rationality if people do not behave that way.

And practitioners are at a risk of compounding their errors if they follow plausible right-sounding but deductive prescriptions derived from preferences for rationality in circumstances that are contrary to assumptions.

Escalation

Escalation behaviour is common in auction, as well as strikes, marketing campaigns, price wars and competitive acquisitions.

You commence a course of action fully determined to succeed but you forget, or irrationally discount, the likely reaction others who have as much influence on the outcome as you have.

You cut a price by a small amount to gain market share but your competitors follow suit, wiping out any gains you would have made if they ignored your price cut.

Fixing the pie

The assumption of zero-sum (winner take all) bargaining –that there is a fixed size of pie only- leads people to believe that they can only gain at the expense of the other party.

It is understandable to acknowledge that the interests of your counterparty are just as important, otherwise your counterparty may choose to walk away from the table.

Anchoring

Your initial entry position acts as an anchor upon which changing pressures in the negotiation pull you towards a settlement or deadlock. The anchor influences perceptions of the other negotiator about what is possible.

Quoting an opening purchase price Sh100 for an item which should be averaging Sh250 when the seller quotes Sh280 may require that you open up to realistic price sooner.

The problem arises when you decide on when to open .Upon what information is your decision based? The irrationality of anchoring on non-relevant information leads to entry points that deter negotiation when they appear to be unrealistic for the other party.

Certainly, outcomes are influenced by opening positions because your entry point can structure or influence their expectations, but they can also influence the outcome negatively-they cause the other negotiator to walk away when they believe you to be too extreme.

Referent behaviour

The way you frame an option can determine your willingness to accept an agreement. While fairly subtle, this idea is widely applicable in negotiation.

For example, depending on airfare, airline customers are more willing to pay for modest increases in air fare than removal of other frills like “free” food and drinks for long distance routes. This is because the absence of “free’’ food and drinks on board is more visible.

Reframing referent points is a more rational response to unintended deadlock over them and can dramatically change your choice of alternative outcomes.

Consider a management-union dispute over the size of a wage rise. If you see the management’s offer relative to your initial higher demand you will perceive the offer as a loss from what you would have gained if they had paid your entry demand in full.

If you see the management’s offer as an increase over your current lower wage you will perceive their offer as a gain.

Deception of prominence

Negotiators are influenced more by the information that is easily available than they are by its relevance to the current decision.

Functional managers see their company’s problems almost totally from within their own specialism.

A finance manager sees the main problem to be efficient use of resources and the excess of work in progress and unsold products stored in warehouse; production in the lack of equipment and the scheduling of small batches rather than long runs; and sales manager in the lack of stocks of innumerable quantities of everything that any customer might require at short notice.

The rational remedy for negotiators is a more thorough search for relevant data and proper analysis of what is available. Step out of what you know and appreciate additional information and relevance of what is not known to you in the negotiation circumstance.

It helps to further understand the position of your counterparty. It is not that little knowledge is dangerous as much as that it may not be relevant.

Overconfidence

Overconfidence in the likely success of your preferred position is one of the more common errors of negotiators.

When you prepare your negotiating stance you often overestimate the likelihood of you prevailing. You do not take the other party’s role sufficiently into account.

The implication of your overconfidence is that the other negotiator is irrational and that he will accept from your settlements that are contrary to his aspirations. This results in behaviour that is likely to be less flexible than it needs to be if agreement is the ultimate aim.

Mr Were is a consultant with Anchorage Ltd, a financial and business advisory firm based in Nairobi. Email: [email protected].