Econstudentlog

Negotiation Theory and Research (1?)

I finished this book the day before yesterday. Here’s what I wrote about the book on goodreads, where I gave it 2 stars:

“The book covers a lot of the research that exists in this field, but the research that has been done is in my opinion not very impressive. Another general problem I have with the book is that the authors much too rarely comment upon methodological issues in the research they cover – they’ll frequently make grand conclusions based on just a few studies (often just one or two papers), the validity of which are completely unknown(/unknowable) given the coverage. A simple word search for ‘sample size’ in this book will yield you exactly zero hits. Occasionally big and wide-reaching conclusions (promoting further theorizing later on in the coverage) will be drawn from data/research which frankly quite obviously provides completely insufficient support for the conclusion being drawn.

Even when you feel inclined to trust the results of the research you’ll often feel that it’s not really telling you very much, because the authors mostly frame the findings in terms of ‘it has been found that there’s an effect’, rather than ‘the effect size was…’. Where effect sizes are mentioned, sample sizes aren’t (and confidence intervals aren’t mentioned either), so it’s really hard to critically evaluate the coverage and the research results included without actually reading the papers in the references; which in a way makes reading the book a bit superfluous – why would you read a book if you need to read the papers the book ‘covers’ anyway in order to figure out if you can trust what the authors are telling you in the book?

There’s some useful content in there, it’s not like this stuff is all totally useless – some of the specific observations included are quite likely sound and important/useful to know about. Some chapters are better than others. But especially the second half of this book was a disappointing read.”

In the post below I’ll talk a little bit about some of the more specific ideas/research they cover, but before I do that I’ll note that there’s a lot of stuff they do not cover; specifically they talk very little about bargaining models from microeconomics, mechanism design, contract theory and related stuff. It’s not that kind of book – the book deals with the psychology of negotiation. There are some economic concepts included, you can’t write a book like this without them, but it’s occasionally quite obvious that some of the researchers are not particularly familiar with even reasonably simple ‘formal models’ in micro (such as those you might encounter at the advanced undergraduate level or early graduate level as a student of economics); and that this unfamiliarity might have lead them to overlook some important factors/ideas, in particular in the context of the role of uncertainty and risk in negotiations. At least in a couple of situations I found it somewhat strange that parallels to micro models and what they might have to say about this stuff were not made. But anyway, the book applies an almost purely behavioural economics/psychological approach to the topic at hand. This also means that if you’ve read along for a while here on this blog or you are familiar with this kind of research, some of the specific findings might not be that surprising to you. I’ve included them anyway, but as implied by the goodreads review above I maintain a skeptical mind – I’m quite open to the idea that some of the results in this book are simply wrong.

It’s noted early on that in two-party negotiations, negotiators tend to be more concessionary in positively-framed negotiations than in negatively-framed negotiations. They tend to be inappropriately affected by anchors (which among other things also translates into the person presenting the first offer in a negotiation tending to have an advantage over the other party), and when it comes to outcomes that favour themselves they tend to be overconfident and overly optimistic. They often frame the negotiation context in terms of a fixed pie even though the size of the pie is often partly endogenous (i.e. people tend to miss out in negotiations because they have a tendency to assume the other guy’s win is their loss, even if in many contexts the potential choice set will include deals which will benefit both parties due to the existence of different tradeoffs/valuations of specific variables between/among negotiators. People have been shown to make the assumption that ‘the pie is fixed’ in studies where by design it was not). Many studies have shown that people often escalate conflict when a rational analysis would be to change the strategy instead, and that they (very surprisingly!) interpret disputes in ways that favour themselves.

Positive mood may increase the tendency of a negotiator to select a cooperative negotiating strategy, which may lead to better negotiating outcomes. I’m more uncertain about this one than ‘the opposite’ result; that anger leads to poorer outcomes. Angry negotiators have been shown to be more likely to reject offers in ultimatum games, and anger seems to impair memory so that angry negotiators tend to forget details from negotiations. Angry people have also been shown to be less accurate when assessing the interests of the other party and to be more self-centered during negotiations. One study indicated that joint gains in negotiations involving angry people are lower than in negotiations involving controls.

Negotiations are complex interactions with a lot of uncertainty, and standard ‘cognitive miser’ models of human behaviour tell us that in such contexts we tend to cut down on uncertainty and simplify matters to ease decision-making and resolve tension associated with uncertainty e.g. by making use of cognitively available heuristics of various kinds, which may then influence negotiations in foreseeable ways. Like in other contexts, specific variables will affect the likelihood of people defaulting to heuristic reasoning; three specific variables are mentioned in this context in the book, the need for closure variable which I’ve talked about before, time pressure (less time for mental processing -> higher likelihood of relying on heuristics), and accuracy motivation (“Individuals differ in their accuracy motivation — or their desire to form accurate, rather than biased, judgments […] In general, the higher one’s level of accuracy motivation, the greater the likelihood that one will engage in systematic and thoughtful information processing […] Accuracy motivation has also been examined in negotiation contexts and has been found to reduce negotiators’ reliance on simple heuristics and improve the accuracy of their perceptions”).

What’s in focus for us during a negotiation matters a great deal, because when we focus on something specific we tend to have a hard time focusing on other stuff as well because our attention span is limited; a few reviews specifically make the point in this context that “people often act on a limited set of data that prompts an affective response that cuts off cognitive deliberation.” It makes sense to believe that what’s most likely to come into focus in this context is stuff which is easily available to us; many predictions follow from this idea, some of which have been tested and are talked about elsewhere in the book. I think the authors here are making a similar point as I believe was made by a few of the authors in Yzerbyt et al., a point also popularized by people like Kahneman in popular science books like Thinking, Fast and Slow (I skimmed the first 100 pages of this book a while back, before concluding that reading the book would not be worth my time), that it may (always? often? in some contexts?) be argued to be faulty to perceive of the primary effect of affect on decision-making as affect influencing the decisive cognitive processes, rather than affect deciding on which decisions are made – affect may in some sense more or less bypass cognitive processes completely in the decision-making process (we might rationalize decisions later, but such rationalizations may have little to nothing to do with why the decisions were made). All kinds of stuff gets ignored when people try to cut down on the level of complexity and uncertainty they face during negotiations, and “[s]ubstantial research on the Acquiring a Company problem suggests that bounded awareness leads decision makers to ignore or simplify the cognitions of opposing parties as well as the rules of the game”. The choice set is also affected. It’s cognitively expensive to consider what your opponent might be thinking, and it’s cognitively expensive to come up with and explore/analyze new/additional ideas for how to solve the problem at hand, so when stuff gets complicated you focus on yourself and your preferences, and you cut down on the amount of work that goes into figuring out why your opponent thinks the way he does and the number of alternatives you’re willing to consider.

When considering the potential deals that might result from a negotiation, people will usually consider a range of outcomes to be acceptable. At the top of that range you have the aspiration price and at the bottom you have the reservation price; a related important concept to be familiar with is the BATNA (Best Alternative To a Negotiated Agreement). It matters whether you focus on the upper range or the lower range of acceptable outcomes when you negotiate, and the authors argue that given the level of complexity and uncertainty involved in negotiations, people will tend to focus either on one or the other: “In general, negotiators achieve better outcomes for themselves when they focus on their aspiration price than when they focus on their reservation price”. A related point made here is that: “The more difficult the goal a negotiator is trying to achieve, the better the outcome obtained from the negotiation”. Presumably there are some relevant constraints at play here which they don’t talk about in the text; if you make unrealistic offers, it seems likely that this sort of behaviour would increase the likelihood that the other party walks away, leading to a poor outcome.

Although (or perhaps because?) they don’t talk about this in the book, I thought I should caution that I’m not convinced the above comments indicate that risk averse individuals who focus on reservation price rather than aspiration price are not optimizing (‘are leaving money on the table’) or that a risk-averse individual will necessarily ‘do better’ by focusing on the aspiration price; the negotiation strategies people employ presumably in part reflect their risk profiles, and if you’re more risk averse than another individual then you may well prefer an outcome with a lower expected value. The impression I got from reading the chapter in question was that most readers would be very tempted to conclude from the coverage that it’s always better to focus on the aspiration price during negotiations; I’m not sure they’ve actually shown that this is the case. There may be some reasons for assuming this is not the case; for example they note later on in the chapter that people who achieve high outcomes during a negotiation in multiple studies have been found to be less satisfied with their outcomes than people who achieve worse outcomes – so the relationship between subjective and objective outcomes is perhaps different from what people might expect it to be. Of course how important such concerns are depend upon the context of the negotiation; in organizations you’ll often want people to optimize expected value and (competent) owners will generally try to give people incentives to try to get them to do that, but when people negotiate in other contexts other concerns may be more important. That said, a general point probably worth keeping in mind is that tradeoffs like these exist and influence outcomes. It’s easier to focus on your aspiration price (and get the other guy to focus on your aspiration price) if you’re the one to make the first offer; as already mentioned people who make the initial offer in a negotiation do better than people who don’t. But they tend to be less happy about the outcome, and in particular people who make the initial offer tend to become dissatisfied with the result of the negotiation if an initial offer made by them is immediately accepted by the other party.

Behavioural differences in negotiation contexts are, it must be noted, not all dispositional in nature; situational factors may also affect preferences and behaviour in negotiation contexts in all kinds of ways. And people who negotiate will often neglect to take situational factors into account when making attributions during negotiations (…in Western societies, it is argued/added in a later chapter; there an argument is made that in East Asian societies people will be more likely to explain the behaviour of negotiation partners in terms of situational factors than in terms of dispositional factors, compared to what’s the case in the West).

Okay, so like most other people you have the impression that how the other party behaves during a negotiation may affect how you behave during the negotiation. But are your ideas about how the other party’s behaviour might influence you correct? People have looked at this stuff, and here’s a relevant quote: “Research by Diekmann and her colleagues […] suggests that negotiators are aware that the behaviors of their counterparts will influence their negotiation behaviors, but that they are not always accurate in forecasting how these counterpart behaviors will affect them. In a series of studies, these researchers found that negotiators expected that they would behave more competitively when negotiating against a competitive opponent than a cooperative opponent. However, in actual negotiations, this did not occur.”

When I started out writing this post I did not intend to write more than one post about the book, but I see now that this will certainly be necessary if I’m to cover all the stuff I’d ideally like to cover. If I don’t cover the rest of the chapters, you should note that there’s a lot of stuff in there which I did not get to talk about here.

January 15, 2015 - Posted by | books, Psychology

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