A lot of people think that negotiation means compromise. I want something favorable to me, you want something favorable to you and we meet in the middle. This is often a dangerous mindset. Negotiation often includes compromise but the most useful tools of negotiation bypass compromise altogether. Let's examine just two of these tools.
Negotiators strive to find ways to meet interests at low or no cost. A "negotiator's fable" offers a good illustration. Two sisters each wanted an orange but they had just one orange between them. Each wanted the whole orange and neither had anything they could trade to the other that the other valued more than the fruit.
In the end, they compromised. Each took half the orange and went on her way. One sister happily ate her fruit, throwing away the peel. The other peeled her half, throwing away the fruit and using the peel to garnish a dish.
The compromise in this story was completely unnecessary. Each sister could have had the full value of the orange if they had identified each other's true interests and acted accordingly. Compromise destroyed value that was there for the taking.
Real world negotiations often offer similar opportunities for negotiating parties to meet each other's interests in creative ways that cost far less than their value.
Negotiators increase the value of a deal by identifying differences in relative valuation. If I'm selling you goods and want to deliver them in four months while you ask for two months we can compromise at three months. But should we? What if it costs me $100,000 to deliver in three months (vs. four) and $250,000 to deliver in two and it's worth $50,000 for you to receive in three (again, in comparison with four) and $500,000 to receive them in two months?
In that case, our compromise is our worst option, destroying $50,000 in value compared with delivery in four months and $250,000 in value compared with delivery in two months. If we negotiate well we won't compromise -- we'll settle on a higher price and delivery in two months.
Showing posts with label Interests vs. Positions. Show all posts
Showing posts with label Interests vs. Positions. Show all posts
Monday, July 18, 2011
Monday, April 4, 2011
The Problem(s) with Fairness, part 2
Last week we explored the inherent unreliability of fairness claims. Our sense of what's fair is so tied to our own self-interest and perspective that four out of ten people change their minds on a simple fairness standard depending on which side they imagine themselves to be on. Given this, it's hardly surprising that when we actually are on different sides of a dispute we often find that each side thinks that their demands are fair.
This leads to two problems. The first is that our human minds are extremely vulnerable to irrational behavior when we think we're being treated unfairly. A popular experiment illustrates this.
Imagine you're playing the following game. You and another person have been chosen at random to divide $100 between you, but there's a catch. The other person gets to make the division -- that is, they decide how much they get and how much you get. You then get to decide if you accept their split. If you accept, the split happens and if you don't accept then neither of you gets anything. You're not allowed to talk beforehand and the game is anonymous -- no one will ever know you were chosen to play unless you decide to tell them about it.
Now suppose the split is revealed and it's $90 to the other person and $10 to you. Do you accept? Remember, your only alternative to accepting is to get nothing -- there are no second chances or renegotiations.
From a purely rational perspective you should take the $10. Refusing is equivalent to finding a $10 bill on the street and throwing it in the trash just to make sure that some stranger out there doesn't get $90. And yet, a very large number of people will refuse "unfair" offers when this game is played with real money.
During debriefs, people who didn't accept often offered rational explanations for their decision. They may have worried about signaling effects -- other people might see them as someone who could be pushed around or who would take any deal. Brain scans call these explanations strongly into question.
A comparison of brain scans show that the planning section of the brain fires in people who receive "fair" splits (typically offering them at least 40% of the money). They are thinking rationally about the money. What part fires in the brains of people who receive unfair offers?
Disgust.
Now imagine you're having a dispute with someone and you're arguing about what's fair. We know from self-interest bias that each of your perceptions of fairness are likely to be biased in opposite directions. As a consequence, you're each likely to think that the other person is putting forward something unfair while claiming that it's fair. We also know the natural human reaction to perceived unfairness -- disgust. How optimistic are you that you'll be able to bridge the gap using reason when each of you are bound by this intense emotional response?
This leads to two problems. The first is that our human minds are extremely vulnerable to irrational behavior when we think we're being treated unfairly. A popular experiment illustrates this.
Imagine you're playing the following game. You and another person have been chosen at random to divide $100 between you, but there's a catch. The other person gets to make the division -- that is, they decide how much they get and how much you get. You then get to decide if you accept their split. If you accept, the split happens and if you don't accept then neither of you gets anything. You're not allowed to talk beforehand and the game is anonymous -- no one will ever know you were chosen to play unless you decide to tell them about it.
Now suppose the split is revealed and it's $90 to the other person and $10 to you. Do you accept? Remember, your only alternative to accepting is to get nothing -- there are no second chances or renegotiations.
From a purely rational perspective you should take the $10. Refusing is equivalent to finding a $10 bill on the street and throwing it in the trash just to make sure that some stranger out there doesn't get $90. And yet, a very large number of people will refuse "unfair" offers when this game is played with real money.
During debriefs, people who didn't accept often offered rational explanations for their decision. They may have worried about signaling effects -- other people might see them as someone who could be pushed around or who would take any deal. Brain scans call these explanations strongly into question.
A comparison of brain scans show that the planning section of the brain fires in people who receive "fair" splits (typically offering them at least 40% of the money). They are thinking rationally about the money. What part fires in the brains of people who receive unfair offers?
Disgust.
Now imagine you're having a dispute with someone and you're arguing about what's fair. We know from self-interest bias that each of your perceptions of fairness are likely to be biased in opposite directions. As a consequence, you're each likely to think that the other person is putting forward something unfair while claiming that it's fair. We also know the natural human reaction to perceived unfairness -- disgust. How optimistic are you that you'll be able to bridge the gap using reason when each of you are bound by this intense emotional response?
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