The real bargaining problem lies in the dichotomy of zero sum and non-zero sum, or non-co-operative and co-operative, behaviors in negotiation.
The real bargaining problem is not just how people choose to behave that counts, it's how both independently choose to behave and then how their choices interact when they negotiate together.
Distributive Bargainer:
Zero sum and non-cooperative
One gets everything - at the expense of the other party
Integrative Bargainer:
Non-zero sum and cooperative
Both parties receive joint gains
Two distinct methods of negotiation:
Claimers see negotiation as the distribution of a fixed amount between them and you. The bigger their share the smaller is yours. This type of zero-sum transaction, they gain, you lose, often leads to manipulation and power games.
Creators – see negotiation as a means to joint gain
an agreement that both parties voluntarily enter into is likely to be better than no agreement at all
it must create additional value for both parties (win, win)
could create previously un-thought of solutions, which creates additional value
Negotiators have a choice in the way they behave (it is limited to reactive behavior towards the other negotiator's choice--and vice versa--This being the case, awareness of this fact is the first step to proactively changing behavior in the negotiation process towards Nash's solution)...
Rationality and Irrationality
Negotiating rationally means making the best decisions to maximize your interests.
People do not instinctively behave rationally, and only a small minority negotiates for joint maximization of gains. Training helps, but there is considerable difficulty in reaching win-win propositions unless there is trust between the parties. This would imply that win-win outcomes usually happen only in cases where there is a long-standing relationship.
Decision making biases that blind negotiators to opportunity and prevent them from gaining as much as possible from a negotiation:
Irrational Escalation - staying in the game just to prove that you will be the last one standing (even if it means you no longer have any feet to stand on!)
Escalation behavior is common in auctions ($20 bill), as well as strikes, marketing campaigns, price wars and competitive acquisitions.
The assumptions of zero-sum bargaining lead people to believe that they can only gain at the expense of the other party. ‘It seems to me that if it is in their best interest, it can't be in our best interest.’ Negotiate the ‘easy’ issues first may remove potential trade-offs from the equation.
It leads to claiming and ignores that negotiation can also lead to the creation of more.
People give a high or low initial entry position, thinking that this means they will have a better chance of ending up with a better bargain.
The way you frame an option can determine your willingness to accept an agreement. Example: Bank customers are more willing to pay increases in charges and fees than they are increases in interest rates.
Reframing referent points is a more rational response to unintended deadlock over them and can dramatically change your choice of alternative outcomes. Reframing is a matter of perception. Is the glass half empty or half full?
Negotiators are influenced more by the information that is easily available (see problems from own specialism) than they are by its relevance to the current decision. The rational remedy for negotiators is a more thorough search for relevant data and proper analysis of what is available.
Overconfidence is one of the more common errors of negotiators. Deciding what you want is the main task of the preparation but finding out what they want is the main task of the debate. Overconfidence produces inflexibility, lack of movement, lack of trading, impasse and deadlock.
Deductive rationality
Herbert Simon’s deduced behavioral model (deductive model) for individual rational choice:
Identify the problem
Search for alternate solutions and their consequences
Preference order the solutions and select a course of action
Simon assumed rational choice on the part of a decision maker. His model is not linear in nature. At each step, further identification, discussion and backtracking is possible – by iteration. Caveat: What works for the rational individual may not work for a negotiating pair.
Herbert Simon asserted that decision-makers are not perfectly rational because they are bounded by deficits in the information necessary to be perfect decision-makers: people do not have the time or the information processing ability to make perfect decisions.
People thus decide on satisficing criteria because of their bounded rationality: they decide upon minimum acceptable criteria.
The maximiser's choice is determined by restrictive assumptions and the satisficing choice is determined by the negotiator's perceptions.
Fisher and Ury: PRINCIPLED NEGOTIATION
Principled Negotiation is negotiation on the merits that serve the best interest. You look for mutual gains, and one must insist that the result will be based on objective standards The method of principled negotiation is hard on the merits and soft on the people. It employs no tricks and no positional posturing. Principled negotiation shows you how to obtain what you are entitled to and still be decent. It enables you to be fair while protecting you against those who would take advantage of your fairness.’
The method of principled negotiation finds its best expression in assisting in the sorting out of public or communal disputes (new airport runway) than to commercial bargaining and it lies closer to mediation methodology than to traditional bargaining. It’s an extreme (naive) Blue approach.
Principled negotiation is an insightful process but it is not the alternative to traditional negotiation that its proponents celebrate.
Fisher and Ury’s Prescriptions
This prescriptive model is widely used by mediators in dispute resolution, but may have less value for commercial negotiators, who need to realize joint gain.
These prescriptions deserve support as well as critique.
The four prescriptions of principled negotiation:
1. Separate the people from the problem
2. Focus on interests, not positions
3. Generate a variety of possibilities before deciding what to do
4. Insist that the result be based on some objective standard
Separate people from the problem
The behaviors of people should be irrelevant with respect to the outcome of the negotiation: it is not the people you are interested in. The outcome is going to be affected only by the merits of what they have to offer. You are not interested in changing these people either. Let them get their own counsel.
However, the contradiction lies in that disconnection of people from the problem requires co-operation, Blue style behavior.
Focus on interests, not positions
Often good advice, especially when dealing with fiercely defended positional posturing. But the advice suggests that positioning itself is a barrier and that is only true when positions are separated from the issues they are connected to.
Focus on interests is not enough: what we want (a position) cannot simply be separated from why we want it (an interest). A focus on interests does not remove the need to decide on positions.
Invent options for mutual gain: generate a variety of options
Fisher and Ury advise to do more than just deal with two competing solutions, for example by brainstorming and developing new solutions, which commit everyone and thus moving from red to blue play. Judgment is suspended until the options are listed.
In one-on-one negotiations that dominate private decision-making, this prescription may be too ambitious because there are simply no more options than the ones available.
Insist on objective criteria
To insist on objective criteria is to misunderstand negotiation in a commercial environment. Objective criteria might be helpful in legal battles, but in commercial negotiations subjectivity rules! Perhaps industry benchmarks are available as objective criteria but it is doubtful if they have any relevance in a negotiation. Third parties might be allowed to arbitrate on behalf of parties, but they cannot decide on behalf of them… Facilitators, tribunals, counsels etc. may work for larger organizations, but do not for day-to-day negotiations.
Fisher & Ury’s BATNA
Best Alternative To No Agreement
Best Alternative To a Negotiated Agreement
An analogy with the economic opportunity cost principle: pursuing an opportunity ‘costs’ its best alternative (buying an Audi A8 ‘costs’ an apartment in Prague). A BATNA is not an agreement, but the alternative that remains when no agreement is reached. Obviously, an agreement on an issue should always be better than it’s BATNA.
A useful tool for preparation, e.g. by focusing on your levels of dependence and commitment, it gives you a feel for your power in a negotiation.
For example: If you are selling your car and were offered £2000 yesterday then anything you are offered today has a BATNA of £2000. If you are offered £3000, that's above the BATNA so you might take it. If you are offered £1000 that's below the BATNA so would probably reject it.
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