Cognitive Biases in Negotiation (by https://www.inkling.com/read/essentials-of-negotiation-lewicki-5th/chapter-5/cognitive-biases-in-negotiation)

Cognitive Biases in Negotiation

So far we have examined how information is perceived, filtered, distorted, and framed. In this section, we examine how negotiators use information to make decisions during the negotiation. Rather than being perfect processors of information, it is quite clear that negotiators (like all decision makers) have a tendency to make systematic errors when they process information.25 These errors, collectively labeled cognitive biases, tend to impede negotiator performance; they include (1) the irrational escalation of commitment, (2) the mythical belief that the issues under negotiation are all fixed-pie, (3) the process of anchoring and adjustment in decision making, (4) issue and problem framing, (5) the availability of information, (6) the winner’s curse, (7) negotiator overconfidence, (8) the law of small numbers, (9) self-serving biases, (10) the endowment effect, (11) the tendency to ignore others’ cognitions, and (12) the process of reactive devaluation. Next, we discuss each of these in more detail.

1. Irrational Escalation of Commitment

Negotiators sometimes maintain commitment to a course of action even when that commitment constitutes irrational behavior on their part. This is an example of a broader psychological phenomenon known as “escalation of commitment,” which is the tendency for an individual to make decisions that stick with a failing course of action.26 Classic examples include a country that continues to pour military resources into an unwinnable armed conflict or an investor who continues to put more money into a declining stock in hopes its fortunes will turn (“throwing good money after bad,” as escalation of commitment is sometimes colloquially described). Escalation of commitment is due in part to biases in individual perception and judgment. Once a course of action is decided, negotiators often seek supportive (confirming) evidence for that choice, while ignoring or failing to seek disconfirming evidence. Initial commitments become set in stone (see the later section on anchoring and adjustment), and a desire for consistency prevents negotiators from changing them. This desire for consistency is often exacerbated by a desire to save face and to maintain an impression of expertise or control in front of others. No one likes to admit error or failure, especially when the other party may perceive doing so as a weakness.

One way to combat these tendencies is to have an advisor serve as a reality checkpoint—someone who is not consumed by the “heat of the moment” and who can warn negotiators when they inadvertently begin to behave irrationally. Also, research suggests that decision makers are less likely to escalate if they experienced regret following a previous escalation situation.27

2. Mythical Fixed-Pie Beliefs

Many negotiators assume that all negotiations involve a fixed pie.28 Negotiators often approach integrative negotiation opportunities as zero-sum situations or win–lose exchanges. Those who believe in the mythical fixed pie assume there is no possibility for integrative settlements and mutually beneficial trade-offs, and they suppress efforts to search for them.29 In a salary negotiation, the job applicant who assumes that salary is the only issue may insist on $55,000 when the employer is offering $52,000. Only when the two parties discuss the possibilities further do they discover that moving expenses and starting date can also be negotiated, which may facilitate resolution of the salary issue.

The tendency to see negotiation in fixed-pie terms varies depending on how people view the nature of a given conflict situation.30 Negotiators focusing on personal interests are most likely to come under the influence of fixed-pie beliefs and approach the situation competitively. Negotiators focusing on values are less likely to see the problem in fixed-pie terms and more inclined to approach the situation cooperatively.

3. Anchoring and Adjustment

Cognitive biases in anchoring and adjustment are related to the effect of the standard (or anchor) against which subsequent adjustments are made during negotiation. A classic example of an anchor in negotiation is hearing the other side’s first offer and then thinking, “Gee, that offer was much lower than I expected; perhaps I’ve misconstrued the value here and should reconsider my goals and tactics.” Anchors like this set a potentially hazardous trap for the negotiator on the receiving end because the choice of an anchor (e.g., an initial offer or an intended goal) might well be based on faulty or incomplete information and thus be misleading in and of itself. However, once the anchor is defined, parties tend to treat it as a real, valid benchmark by which to adjust other judgments, such as the value of the thing being negotiated, or the size of one’s counteroffer.31 A study of real estate agents, for example, showed that agents appraising the value of a house were very strongly affected by its asking price.32 The asking price served as a convenient anchor to use in appraising the value of the house. Goals in negotiation—whether set realistically or carelessly—can also serve as anchors. These anchors may be visible or invisible to the other party (a published market price versus an uncommunicated expectation), and, similarly, the person who holds them may do so consciously or unconsciously (a specific expectation versus an unexamined, unquestioned expectation or norm). Thorough preparation, along with the use of a devil’s advocate or reality check, can help prevent errors of anchoring and adjustment.

4. Issue Framing and Risk

As we discussed earlier in this chapter, a frame is a perspective or point of view that people use when they gather information and solve problems. Frames can lead people to seek, avoid, or be neutral about risk in negotiation. The way a negotiation is framed can make negotiators more or less risk averse or risk seeking. For instance, people respond quite differently when they are negotiating to “gain” something rather than to “not lose” something.33 A basic finding from research that led to the development of what is known as “prospect theory” is that people are more risk-averse when a decision problem is framed as a possible gain, and risk-seeking when it is framed as a loss.34 In other words, negotiators may overreact to a perceived loss when they might react more positively to the same situation if it is framed as a perceived gain. Hence, as a negotiator you must “avoid the pitfalls of being framed while, simultaneously, understanding positively and negatively framing your opponent.”35 When negotiators are risk-averse, they are more likely to accept any viable offer simply because they are afraid of losing. In contrast, when negotiators are risk-seeking, they are apt to wait for a better offer or for future concessions.

This positive/negative framing process is important because the same offer can elicit markedly different courses of action depending on how it is framed in gain–loss terms. Negotiations in which the outcomes are negatively framed tend to produce fewer concessions and reach fewer agreements, and negotiators perceive outcomes as less fair than negotiations in which the outcomes are positively framed.36 Remedies for the potentially pernicious effects of framing are similar to those we have mentioned for other cognitive biases (e.g., awareness of the bias, sufficient information, thorough analysis, and reality checks) but can be difficult to achieve because frames are often tied to deeply held values and beliefs or to other anchors that are hard to detect.

5. Availability of Information

Negotiators must also be concerned with the potential bias caused by the availability of information or how easy information is to retrieve—that is, how easily it can be recalled and used to inform or evaluate a process or a decision.37 One way the availability bias operates in negotiation is through presentation of information in vivid, colorful, or attention-getting ways, making it easy to recall, and making it central and critical in evaluating events and options. Information presented through a particularly clear message, diagram, or formula (even one that is oversimplified) will likely be believed more readily than information presented in a confusing or detailed format—regardless of the accuracy of each. The availability of information also affects negotiation through the use of established search patterns. If negotiators have a favorite way of collecting information or looking for key signals, they will use these patterns repeatedly and may overvalue the information that comes from them.

6. The Winner’s Curse

The winner’s curse refers to the tendency of negotiators, particularly in an auction setting, to settle quickly on an item and then subsequently feel discomfort about a negotiation win that comes too easily.38 If the other party capitulates too quickly, the negotiator is often left wondering, “Could I have gotten this for less?” or asking “What’s wrong with the item/product/option?” The negotiator may suspect that the other party knows too much or has insight into an unseen advantage; thus, either “I could have done better” or “This must be a bad deal.”

For example, in an antique store several years ago one of the authors of this book saw a clock that he and his wife fell in love with. After spending the afternoon in the neighborhood deciding on a negotiation strategy (opening offer, bottom line, timing, feigned disinterest, the good guy/bad guy tactic), the author and his wife returned to the store to enact their strategy. The store owner accepted their first offer. Upon arriving home, suffering from the winner’s curse, they left the clock in the garage, where it remains collecting dust.

The best remedy for the winner’s curse is to prevent it from occurring in the first place by doing the advance work needed to avoid making on offer that is unexpectedly accepted. Thorough investigation and preparation can provide negotiators with independent verification of appropriate settlement values. Negotiators can also try to secure performance or quality guarantees from the other party to make sure the outcome is not faulty or defective.

7. Overconfidence

Overconfidence is the tendency of negotiators to believe that their ability to be correct or accurate is greater than is actually true. Overconfidence has a double-edged effect: (1) it can solidify the degree to which negotiators support positions or options that are incorrect or inappropriate, and (2) it can lead negotiators to discount the worth or validity of the judgments of others, in effect shutting down other parties as sources of information, interests, and options necessary for a successful integrative negotiation. One study found that negotiators who were not trained to be aware of the overconfidence heuristic tended to overestimate their probability of being successful, and were significantly less likely to compromise or reach agreements than trained negotiators.39 In another study, overconfident individuals were more persistent and were more concerned about their own outcomes than were the realistically confident negotiators.40 This does not mean, however, that negotiators should always seek to suppress confidence or optimism. Research on distributive bargaining found that negotiators biased toward optimism achieved more profitable settlements compared with negotiators with accurate perceptions or with a bias toward pessimism.41 Clearly, more research is needed on the interplay of optimism, overconfidence, and negotiation outcomes.

8. The Law of Small Numbers

In decision theory, the law of small numbers refers to the tendency of people to draw conclusions from small sample sizes. In negotiation, the law of small numbers applies to the way negotiators learn and extrapolate from their own experience. If that experience is limited in time or in scope (e.g., if all of one’s prior negotiations have been hard-fought and distributive), the tendency is to extrapolate prior experience onto future negotiations (e.g., all negotiations are distributive). This tendency will often lead to a self-fulfilling prophecy, as follows: people who expect to be treated in a distributive manner will (1) be more likely to perceive the other party’s behavior as distributive and (2) treat the other party in a more distributive manner. The other party will then likely interpret the negotiator’s behavior as evidence of a distributive tendency and will therefore respond in kind. The smaller the prior sample (i.e., the more limited the negotiation experience), the greater the possibility that past lessons will be erroneously used to infer what will happen in the future. Styles and strategies that worked in the past may not work in the future, and they certainly will not work if future negotiations differ significantly from past experiences.

9. Self-Serving Biases

People often explain another person’s behavior by making attributions, either to the person (i.e., the behaviors were caused by internal factors such as ability, mood, or effort) or to the situation (i.e., the behaviors were caused by external factors such as the task, other people, or fate).42 In “explaining” another person’s behavior, the tendency is to overestimate the causal role of personal or internal factors and underestimate the causal role of situational or external factors. For example, consider the student who arrives late for a morning class. Perhaps she is lazy (an internal, dispositional explanation), or perhaps she had a flat tire driving to campus (an external, situational explanation). Absent other information, the professor tends to be biased toward the internal explanation (she’s lazy). Perceptual biases are often exacerbated by the actor–observer effect, in which people tend to attribute their own behavior to situational factors, but attribute others’ behaviors to personal factors saying in effect, “If I mess up, it’s bad luck (the situation, someone else’s fault, etc.); if you mess up, it’s your fault!”43

Research has documented the effects of self-serving biases on the negotiation process. For instance, one study found that negotiators in different school districts chose comparison school districts in a self-serving way; that is, the districts they chose as comparison standards for their own district’s activities were those that made their districts look most favorable.44 Another study found that negotiators believed that they used more constructive tactics than their counterparts and that the strength of this self-serving bias increased with the strength of the conflict between the parties.45

Perceptual error may also be expressed in the form of biases or distortions in the evaluation of information. For instance, the false-consensus effect is a tendency to overestimate the degree of support and consensus that exists for one’s own position, opinions, or behaviors.46 We also have a tendency to assume that our personal beliefs or opinions are based on credible information, while opposing beliefs are based on misinformation.47 Any of these biases can seriously damage a negotiation effort—negotiators subject to them would make faulty judgments regarding tactics or outcome probabilities.

10. Endowment Effect

The endowment effect is the tendency to overvalue something you own or believe you possess. The existence of the endowment effect was shown rather dramatically in a series of experiments involving coffee mugs.48 In one experiment, some participants were asked whether they would prefer a sum of money or the mug at various possible dollar levels. Based on their responses, it could be determined that they assigned an average value of just over $3.00 to the mug. Other participants were asked to value the mug as a potential buyer; the average value they assigned to the mug was just under $3.00. Members of a third group were actually given the mug and then asked if they would sell the mug for various amounts. Their answers indicated that they placed a value of more than $7.00 on the mug!

In negotiation, the endowment effect can lead to inflated estimations of value that interfere with reaching a good deal. Discussing endowment effects in the context of negotiations over environmental issues, Max Bazerman and his colleagues argued that the status quo serves as a “potentially dysfunctional anchor point, making mutually beneficial trades more difficult.”49 A similar process occurs upon accepting an offer in a negotiation. One study demonstrated that once accepted, a proposal was liked more by negotiators than other proposals that they themselves had offered during the negotiation process.50

11. Ignoring Others’ Cognitions

Negotiators often don’t ask about the other party’s perceptions and thoughts, which leaves them to work with incomplete information, and thus produces faulty results. Failure to consider others’ cognitions allows negotiators to simplify their thinking about otherwise complex processes; this usually leads to a more distributive strategy and causes a failure to recognize the contingent nature of both sides’ behaviors and responses. Although this “failure to consider” might be attributed to some basic, underlying bias against the other party, research suggests that it is more often a way to make the complex task of decision making under conditions of risk and uncertainty more manageable.51 Research also suggests that training and awareness of this trap reduces its effects only modestly.52 The drive to ignore others’ cognitions is very deep-seated, and it can be avoided only if negotiators explicitly focus on putting in the effort needed to form an accurate understanding of the other party’s interests, goals, and perspectives.

12. Reactive Devaluation

Reactive devaluation is the process of devaluing the other party’s concessions simply because the other party made them.53 Such devaluation may be based in emotionality (“I just don’t like him”) or on distrust fostered by past experience. Reactive devaluation leads negotiators to minimize the magnitude of a concession made by a disliked other, to reduce theiress to respond with a concession of equal size, or to seek even more from the other party once a concession has been made.54 Reactive devaluation may be minimized by maintaining an objective view of the process, by assigning a colleague to do this task, by clarifying each side’s preferences on options and concessions before any are made,55 or by using a third party to mediate or filter concession-making processes.

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