Psychological biasesPsychological biases

In NegotiationIn Negotiation

Anchoring and Anchoring and adjustmentadjustment

• In the face of uncertainty, people fix In the face of uncertainty, people fix on the first piece of information and on the first piece of information and subconsciously assign it extra subconsciously assign it extra significance.significance.

• Opening offers are anchorsOpening offers are anchors

Purchase a watchPurchase a watch

You are in a store, about to buy a new You are in a store, about to buy a new watch for $70. watch for $70.

As you wait for the sales clerk, a friend As you wait for the sales clerk, a friend of yours comes by and says she has of yours comes by and says she has seen an identical watch on sale for seen an identical watch on sale for $40 in another store two blocks away. $40 in another store two blocks away.

You know the service and reliability of You know the service and reliability of the other store is just as good as this the other store is just as good as this one. one.

Will you travel two blocks to save $30? Will you travel two blocks to save $30?

Purchase a TVPurchase a TV

You are in a store, about to purchase a You are in a store, about to purchase a new TV for $800. new TV for $800.

As you wait for the sales clerk, a friend As you wait for the sales clerk, a friend of yours comes by and says she has of yours comes by and says she has seen an identical TV on sale for $770 seen an identical TV on sale for $770 in another store two blocks away. in another store two blocks away.

You know the service and reliability of You know the service and reliability of the other store are just as good as this the other store are just as good as this one. one.

Will you travel two blocks to save $30?Will you travel two blocks to save $30?

referentsreferents

• Percentage saving versus value of Percentage saving versus value of timetime

• ContextContext

• Power of “objective” external Power of “objective” external standardsstandards

Program decision 1Program decision 1

The U.S. is preparing for the outbreak of The U.S. is preparing for the outbreak of an unusual Asian disease that is expected an unusual Asian disease that is expected to kill 600 people. Two alternatives to kill 600 people. Two alternatives programs are being considered. Which programs are being considered. Which do you favor?do you favor?

If program A is adopted, 200 people will If program A is adopted, 200 people will be saved.be saved.

If program B is adopted, there is a one-If program B is adopted, there is a one-third probability that all will be saved and third probability that all will be saved and a two-thirds probability that none will be a two-thirds probability that none will be savedsaved..

Program Decision 2Program Decision 2

The U.S. is preparing for the outbreak The U.S. is preparing for the outbreak of an unusual Asian disease that is of an unusual Asian disease that is expected to kill 600 people. Two expected to kill 600 people. Two alternatives programs are being alternatives programs are being considered. Which do you favor?considered. Which do you favor?

If program A is adopted, 400 people If program A is adopted, 400 people will die.will die.

If program B is adopted, there is a If program B is adopted, there is a one-third probability that no one will one-third probability that no one will die and a two-thirds probability that all die and a two-thirds probability that all will die.will die.

ResultsResults

Group 1(GAIN)

Group 2(LOSS)

Program A(Secure) 76% 13%

Program B(Probability) 24% 87%

Risk Preference BiasRisk Preference Bias

• People tend to avoid taking risks People tend to avoid taking risks when it means losing secure gains: when it means losing secure gains: positive framepositive frame

• People tend to accept risk to avoid a People tend to accept risk to avoid a certain loss: negative frame certain loss: negative frame

• Risk-taking is not necessarily a Risk-taking is not necessarily a personality characteristicpersonality characteristic

Types of biasesTypes of biases

• Ownership, endowment and sunk Ownership, endowment and sunk costscosts

• Reactive devaluationReactive devaluation

• Vividness, focal points, availability, Vividness, focal points, availability, and the tyranny of numbersand the tyranny of numbers

• Egocentrism and over confidenceEgocentrism and over confidence

• AgreementAgreement

LessonsLessons

Information matters: negotiation is about Information matters: negotiation is about perceptionperception

Psychological factors (style, biases) influence Psychological factors (style, biases) influence how people process informationhow people process information

Framing proposals can influence decisionsFraming proposals can influence decisions

Plan logically and systematicallyPlan logically and systematically

Use an outsider lensUse an outsider lens

The goal of A Negotiation…The goal of A Negotiation…

……is not to reach an is not to reach an agreement.agreement.

It’s to reach a It’s to reach a goodgood

agreement.agreement.