Reflections on Three Common Mental Mistakes in Negotiation | Picture Book Professor

Reflections on Three Common Mental Mistakes in Negotiation

By James R. Holbrook

Three of the most common mental mistakes in negotiation are:

1. Viewing negotiation as dividing a fixed pie.
2. Anchoring on the first offer.
3. Escalating prior commitments.

Mental Mistake No. 1: Viewing negotiation as a fixed pie. Negotiators often wrongly assume that their interests are directly at odds with those of their counterparts. The prevalence of win-lose or zero-sum competition in our society, ranging from sports scores to class rankings, can lead us to view negotiation as a win-lose situation. Negotiators too often assume that the pie of negotiation resources is fixed in size, so that for me to get more pie you must get less. In fact, however, opportunities exist to expand the negotiation pie by creating new value. In this way, we both may get more resources, even if I wind up with a piece of the bigger negotiation pie that is actually smaller than yours.

The belief that the negotiation pie is fixed also causes negotiators to discount and devalue any position their counterpart takes. If the other side makes a self-described “last best offer,” we tend to respond with too much suspicion and reject it (thereby causing an impasse), instead of exploring the possibility of a value-creating trade, such as accepting the non-negotiable salary offered, while continuing to negotiate future performance-based bonuses that benefit both sides.

Solution: Share information. The simplest way to overcome the fixed-pie mental mistake in negotiation is to disclose information about your interests to your counterpart and request information about your counterpart’s interests. In particular, try to provide and obtain information that could lead to mutually acceptable tradeoffs, which create new value.

Mental Mistake No. 2: Anchoring on the first offer. “Anchoring” is the belief that you will be persuaded by my first offer to reach a negotiated agreement close to my opening number. For this reason, first offers in negotiation usually are aggressive numbers intended to be starting points. However, negotiators can be overly affected by their own first offers in negotiation. When I make the first offer or first counteroffer, my high anchor may create an expectation in me that you must move close to my number in order for us to reach agreement, an expectation that I may not be able to support with objective data. If you start with an equally unrealistic first offer, we may reach an impasse immediately, thereby ending the negotiation at the very beginning.

Unprepared negotiators are more likely to be trapped by mental mistakes, such as inappropriate anchors, than their prepared counterparts. When you come to the table unprepared, you put yourself at a distinct disadvantage.

Solution: Reject anchors. Prepare thoughtfully and thoroughly for negotiation. Obtain the best available objective data about the resolution value of the deal or dispute being negotiated. Set concrete goals for the negotiation in advance, with an explainable starting point and a realistic stopping point, so you won’t be swayed by your counterpart’s influence tactics of manipulation or deception.

Mental Mistake No. 3: Escalating prior commitments. Negotiators have a strong psychological need to justify their prior decisions and behaviors, both to themselves and to others. After they’ve invested a great deal of time and energy in a course of action, it’s difficult to acknowledge that past choices are not working and it is time to change direction. The escalation of prior commitments can become self-destructive by preventing us from fulfilling our own best interests. It can become a kind of functional “insanity,” the definition of which, often attributed to Albert Einstein, is doing the same thing over and over again while expecting different results.

Many of us would rather remain committed to a losing strategy, after investing sunk-costs, than admit we should quit a negotiation that is leading no where or settle for a feasible but disappointing deal.

Solution: Don’t fixate on the past.

Economists tell us that past investments should rarely affect our present decisions about the future. At each decision point during a negotiation, we must make sure we have a sound basis for escalating our commitment to a deal or dispute. In a very real sense, at the moment, the least amount of money we will spend is the money ($X) that will create the deal or resolve the dispute now; otherwise, we will incur future transaction costs ($Y) in addition to inevitably having to pay the resolution value of the deal or dispute at a later time: $X now are less than $X + $Y later.

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