Psychological biases In Negotiation. Anchoring and adjustment In the face of uncertainty, people fix on the first piece of information and subconsciously.

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Presentation transcript:

Psychological biases In Negotiation

Anchoring and adjustment In the face of uncertainty, people fix on the first piece of information and subconsciously assign it extra significance.In the face of uncertainty, people fix on the first piece of information and subconsciously assign it extra significance. Opening offers are anchorsOpening offers are anchors

Purchase a watch You are in a store, about to buy a new watch for $70. You are in a store, about to buy a new watch for $70. As you wait for the sales clerk, a friend of yours comes by and says she has seen an identical watch on sale for $40 in another store two blocks away. You know the service and reliability of the other store is just as good as this one. Will you travel two blocks to save $30? Will you travel two blocks to save $30?

Purchase a TV You are in a store, about to purchase a new TV for $800. You are in a store, about to purchase a new TV for $800. As you wait for the sales clerk, a friend of yours comes by and says she has seen an identical TV on sale for $770 in another store two blocks away. As you wait for the sales clerk, a friend of yours comes by and says she has seen an identical TV on sale for $770 in another store two blocks away. You know the service and reliability of the other store are just as good as this one. You know the service and reliability of the other store are just as good as this one. Will you travel two blocks to save $30? Will you travel two blocks to save $30?

referents Percentage saving versus value of timePercentage saving versus value of time ContextContext Power of objective external standardsPower of objective external standards

Program decision 1 The U.S. is preparing for the outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternatives programs are being considered. Which do you favor? The U.S. is preparing for the outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternatives programs are being considered. Which do you favor? If program A is adopted, 200 people will be saved. If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that all will be saved and a two- thirds probability that none will be saved. If program B is adopted, there is a one-third probability that all will be saved and a two- thirds probability that none will be saved.

Program Decision 2 The U.S. is preparing for the outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternatives programs are being considered. Which do you favor? The U.S. is preparing for the outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternatives programs are being considered. Which do you favor? If program A is adopted, 400 people will die. If program A is adopted, 400 people will die. If program B is adopted, there is a one-third probability that no one will die and a two- thirds probability that all will die. If program B is adopted, there is a one-third probability that no one will die and a two- thirds probability that all will die.

Results Group 1 (GAIN) Group 2 (LOSS) Program A (Secure) 76%13% Program B (Probability) 24%87%

Risk Preference Bias People tend to avoid taking risks when it means losing secure gains: positive framePeople tend to avoid taking risks when it means losing secure gains: positive frame People tend to accept risk to avoid a certain loss: negative framePeople tend to accept risk to avoid a certain loss: negative frame Risk-taking is not necessarily a personality characteristicRisk-taking is not necessarily a personality characteristic

Types of biases Ownership, endowment and sunk costsOwnership, endowment and sunk costs Reactive devaluationReactive devaluation Vividness, focal points, availability, and the tyranny of numbersVividness, focal points, availability, and the tyranny of numbers Egocentrism and over confidenceEgocentrism and over confidence AgreementAgreement

Lessons Information matters: negotiation is about perception Psychological factors (style, biases) influence how people process information Framing proposals can influence decisions Plan logically and systematically Use an outsider lens

The goal of A Negotiation… …is not to reach an agreement. Its to reach a good agreement.