Is Your Negotiation Strategy Wrong?

Kellogg professor Thomas Lys, whose basic training is in economics, and Stanford professor Margaret Neale, whose basic training is in psychology, bridge that divide in their new book, Getting (More of) What You Want: How the Secrets of Economics and Psychology Can Help You Negotiate Anything, in Business and in Life.

“Behavioral economics has become mainstream, and we set out to build on that groundwork to enhance the performance of negotiators,” Lys says. Using decades of empirical research, the two authors have analyzed a range of negotiating strategies to determine which are most effective—and when. Their research led to a number of touchstones for how to negotiate better.

Don’t assume. We all have certain expectations in terms of what is possible during a negotiation, some of which may be holding us back. “It’s a good idea to broaden your perspective about what is negotiable,” Lys says, “and to think about how your expectations influence your behavior.”

One common roadblock is what Lys calls “confirmation bias”—the deceptive sense that we already know most of what we need to know: what the issues are, what our counterpart wants, and how the process is likely to proceed.

“One mistake people make is that when they analyze a situation, they only analyze the situation from their own perspective,” Lys says. “They spend very little time analyzing their counterpart’s perspective—not just from a rational perspective, but also from a psychological perspective.” When diplomats get together to discuss the terms of a cease-fire, for example, they always have to ask themselves: Is this a deal that the other side can even entertain? Do I really know what they want?

Lys says that the average person’s approach is too narrowly focused on getting the negotiation over with. While it may be tempting to accomplish the task as quickly as possible, negotiators who “come out of the gates swinging” often make the negotiation more adversarial than it needs to be and leave value on the table. “You shouldn’t think of a negotiation as a zero-sum game,” Lys says. “You should think about it like solving a problem—there may be more than one solution.”

Create value—but make sure to claim it, too. It is common wisdom that one should create value in a negotiation, since it is the only way to achieve the much-vaunted “win-win.” But value creation has long been overrated, Lys says, and the Getting to Yes framework ignores a critical point: “It’s not what you create that matters,” he says, “it’s what you take home.” Ironically, viewing value creation as your primary focus might actually handicap your ability to claim value.

Not that Neale and Lys are advocating a bullheaded approach. The point is simply to recognize that negotiations are fundamentally exchanges of information, and revealing information indiscriminately can handicap your ability to claim value. “Sharing information is necessary to create value in negotiations—but sharing the wrong information or oversharing can create a strategic disadvantage for claiming value,” Lys says. So it is best to think carefully about the information being exchanged. What have you revealed, and what you have learned?

Neale and Lys rank information by how strategic it is. One’s “reservation price”—the tipping point at which the negotiator is indifferent between walking away and an agreement—is almost sacrosanct. “You should never give away your reservation price,” Lys says. “In fact, if you do, we find that your counterparts are likely to assume that you are lying.” Other information, including your priorities among the issues in question, should be revealed strategically. “Of course you should create value,” Lys says, “but you should understand the implications of what it is you are sharing.”

Consider whether your preferences are really at odds. Be clear about your goals before entering a negotiation, and try to understand your counterpart’s goals. Neale and Lys advise taking one’s preparedness a step further. Before any negotiation, they say, it is important to identify exactly what kinds of issues you are dealing with. They divide these issues into three categories: distributive (those where the parties have opposing preferences), integrative (those where parties have different preferences, but one assigns greater value than the other), or congruent (those over which the parties have no dispute).

“Most people think that virtually all issues are distributive,” Lys says, “but that’s a misperception.” Knowing what kind of issues you are dealing with helps you develop a strategy. “If I discover a congruent issue,” Lys says, “I can use that information to claim additional value.” Take, for example, the case of a recently hired management consultant who is assigned to work in Kuala Lumpur, a location the firm assumes is less desirable than Singapore or Hong Kong. Unbeknownst to the firm, though, Kuala Lumpur is the new hire’s top choice. This means she can make a concession that costs her nothing at all, and she may be in a position to ask for something in return. Or, she may use that information strategically to gain goodwill by offering to go to Kuala Lumpur.

Know when to make the first offer. It is a question any negotiator faces: whether to make the first offer or wait to hear from the other side. “The biggest advantage to making a first offer is the anchoring effect,” whereby the first stated reference anchors the entire negotiation. When a carpet salesman quotes a price—even if it is high—that first “offer” can have a powerful impact on the final deal. The buyer will haggle, of course, but research shows that negotiation outcomes are strongly influenced by the first offer—by where the negotiations begin.

The disadvantage to making the first offer is that you reveal information that your opponent can use to his or her advantage. For example, by making the first offer and asking to be assigned to Kuala Lumpur, the recruit allows the firm to infer that Kuala Lumpur is a congruent issue, and the firm can now use that information strategically.

So the decision about whether to make the first offer involves weighing the advantage of the anchoring effect against the disadvantage of surrendering information. Lys says that in general—and contrary to popular wisdom—it is best to make the first offer, especially if you are well prepared. Then again, if you are really well prepared and you think that your counterpart is not, you may want to let him or her make the first offer, “because the anchoring effect will not have as powerful an impact on you.”

Don’t give up on a better deal. Typically, a negotiation proceeds roughly along these lines: you set up a meeting, you exchange information strategically, and you come to a final agreement. But what if there were a way to get even more value from the exchange? In some cases, Lys recommends arranging a post-settlement settlement. Once we have an agreement, you and I are better off than we were at the beginning. That makes the situation less adversarial, because we have both benefited from the interaction. “At that point, you might ask: Is there another deal out there that’s better for both of us?”

Of course, in some situations this approach may not be the best strategy. When Lys and Neale conducted seminars in the Middle East, they found that a post-settlement settlement often led to a total breakdown when one party found out that their counterpart benefited more than they did. “We found situations where people canceled the original deal when they learned how much the other party got,” Lys says. “People simply refused to accept deals that may have tarnished their image, even when the deal itself was fine.” So just as in the negotiation itself, information sharing during the post-settlement settlement should be tempered.

Reappraise your emotions. Emotions can affect our ability to negotiate. Lys says this is because we often seek two things simultaneously—emotional satisfaction and value—and that as a negotiation progresses, people tend to confuse the two. “A good way to avoid this is to write down your goals and stick to them,” Lys says. “You should only deviate from these goals if you learn something you could not possibly have known before.”

Surprisingly few people actually follow this rule: Neale and Lys found that up to 25 percent of people agree to an outcome that violates one of the parties’ reservation price. “They get so involved, and they’ve spent so much time negotiating, that they simply cannot walk away.”

Lys says emotions that arise in a negotiation should not be suppressed—in some cases, they can be used to your advantage. If a homebuyer tries to lower the price unfairly after inspection, the homeowner may find that an angry response—coupled with an explanation—causes the buyer to back down. But Lys does recommend a “reappraisal” strategy—that is, working to understand why your counterparts are behaving the way they are. That understanding can mitigate your emotional response and can change how you assess the situation. Suppressing and fabricating emotion both require cognitive energy that is then not available for solving the dispute.

“As we write in the book, negotiation is not improvisational theater,” Lys says. “It requires planning, strategy, and discipline if you want to get it right.”

Order Getting (More of) What You Want: How the Secrets of Economics and Psychology Can Help You Negotiate Anything, in Business and in Life today.