Psychological Phenomena in Negotiation By James R. Coben Director, Dispute Resolution Institute Hamline University School of Law

Failure in Negotiations Obvious  The Inability to Reach Agreement BUT ALSO Unnecessarily high transaction costs Sub-optimal results

Competitive Bargaining Tactics  high initial demand  limited disclosure of information  few and small concessions  threats and arguments  false demands  commitment to positions  limited authority ploys

Primary Barriers to Settlement in Unassisted Negotiation  Strategic  Cognitive  Principal/Agent Problems  Reactive Devaluation

The Strategic Barrier Incentive to hide or actively mislead negotiating partner about critical information in order to claim value Rational behavior BUT likely to result in informational poverty and unreliability

Reactive Devaluation We devalue an offer PRECISELY because it comes from the other side

Cognitive Barriers Human beings are “hard wired” to distort information in the process of assimilating it It is “natural” for negotiators to act “irrationally”

Principal/Agent Barrier Agency Benefits Knowledge Resources Skills Strategic Advantages Agency Costs Different Preferences Different Incentives Different Information

The Psychology of Persuasion Weapons of Influence: Reciprocation Commitment and Consistency Social Proof Liking Authority Scarcity Robert B. Cialdini, The Psychology of Influence (Quill 1993)