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Negotiating 101: Why People Suck at Negotiating

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Free agency begins on July 1st and deal-making season is soon to be upon us. I love this time of year. Your Winnipeg Jets have about a dozen restricted free agents this summer, including Evander Kane and Ondrej Pavelec. They also have about a dozen players soon to become unrestricted free agents. Hopefully Kevin Cheveldayoff's brushing up on his negotiation skills. And if not, hopefully he reads this.

I also hate this time of year because we're getting closer to the time of year when I hear and read about how team X overpaid Player Y or General Manager Z can't negotiate worth a damn. And every year, I laugh most of it off because people typically have no idea what they're talking about. Negotiation research and theory draws on a multitude of fields including psychology, economics, law, communications, sociology, and anthropology, and more. It's understandable that people aren't experts in all of these fields; I'm not either. Despite that, a fair number of us know a thing or two about most of them and we have tons of practice negotiating since every one of us does it almost every day, yet most people are bad negotiators. Like...terrible negotiators. Just godawful. In fact, when tested on their negotiation skills, less than 4 percent of managers reach win-win outcomes (Nadler, Thompson, & Van Boven, 2003). Furthermore, even when negotiators are privately in perfect agreement, they actually fail to realize it a full 50 percent of the time (Thompson & Hrebec, 1996).

Most people don't have the faintest clue about the theory behind negotiations or how to achieve a desirable outcome. With this in mind, I intend to educate people! Lesson one begins after the jump, where I'll explain some common negotiation errors, myths, and some of the most common reasons why most people are bad negotiators.

First things first. Let's get some negotiation myths out of the way right off the bat:

  • Myth: Negotiations are fixed sum
  • Myth: The best negotiators are tough
  • Myth: Experience is a great teacher (more on this below)
  • Myth: Good negotiators take risks
  • Myth: Good negotiators are born
  • Myth: Good negotiators rely on intuition

Okay, some negotiations are fixed sum. These ones are called distributive negotiations and the more one party wins, the more the other party loses. The size of the pie is fixed and the negotiation is simply over how to distribute a fixed amount of resources. Most negotiations aren't like that though. Most negotiations are integrative negotiations, where both parties can benefit from working together somehow and both parties can reach their goals together. And because of mutual adjustment and the interdependence of parties in a negotiation, your success partially depends on the actions of the other party in the negotiation, so assuming they're a trustworthy partner you might as well work together.

As for the rest, the key to any negotiation, as we'll go over in the near future, is preparation; you know what you want to get, what you want to give up, what your bottom line is, and how you're going to make it happen. What might look like "playing hardball" to an outside observer is in fact a carefully prepared strategy tailored to your purpose. What may look like a risk to someone else is in fact not a risk at all, but rather a calculated and planned concession.

Moving on, let's get some of the common negotiation errors out of the way. They include:

  • Leaving money on the table ("lose-lose" negotiation)
  • Settling for too little (the "winner's curse")
  • Walking away from the table ("Chicken" is a dangerous, dangerous game)
  • Settling for terms worse than your alternative (the "agreement bias")

Negotiation is highly psychological and can mess with our heads. Psychological aspects of negotiations include the desire/need to look good, esteem, fear, desire to win, emotions, values, expectations, power, control, and a whole host of others. Sometimes we even mess with our own heads. For example, sometimes people want to reach an agreement so badly that they end up agreeing to a worse deal than their alternative. They get too committed, too emotional, lose their focus, make errors in calculation, they pity the other party, whatever. Maybe they felt that if no agreement is reached then the negotiation has failed. For whatever reason, people can often end up with a worse deal than if they hadn't made a deal at all. As stupid as that sounds, it happens all the time. It happens so often that they came up with a name for it: the agreement bias.

Other times, people are so happy to "win" a negotiation that they settle for too little. They're so happy they "won" that they don't even realize they could have achieved a better result. Sound silly? It might be more common than you think. Think of any car you've ever bought, or a job you negotiated your salary for, or even any flea market you've ever bargained at over a $5 knick knack. Did you get the best deal you could have? Unlikely. But reality is less important than peoples' perception of reality, so you "won", right? You betcha. You got the car you wanted, your dream job, or the souvenir you had your eye on. You walked away pretty damn proud of yourself and happy with the result, despite the fact that a better deal could have been reached. That's the winner's curse right there. It's a mindfuck, isn't it? And not the kind that starts with dinner and drinks and leaves you craving a peanut butter and jelly sandwich.

So why are people such bad negotiators? Well, there are a few reasons...

  • Faulty Feedback

With most negotiations, people just get one crack at it. They never know what would have happened if they had negotiated differently or what someone else might have achieved in the same situation. They don't know what could have been achieved and have very little or no feedback about how they could have achieved a better result.

  • "Satisficing" and Excessive Optimizing

Satisficing is accepting a satisfactory result too easily. Essentially, people who do this aren't setting a high enough goal for themselves in a negotiation. Rather than try to achieve an optimal result, these people accept any satisfactory result and don't try to improve their situation. For example, suppose you'd be willing to pay up to $10 for a flea market souvenir. Satisficing would be accepting a $10 price right away rather than continue negotiating for a better deal. Excessive optimizing is just the opposite. When people optimize excessively, they refuse to accept anything but the best result and by providing the other party (or parties) with very little wiggle room, they can often end up with nothing.

  • Self-Reinforcing Incompetence

This one's my personal favourite. Most people negotiate poorly. With experience and a little confirmation bias thrown in, they become even better at negotiating poorly. It's a vicious cycle with no end in sight.

That's enough for today but hopefully you enjoyed it because there's a lot more of where that came from. In the future I'll get into the crux of negotiation theory, particularly reservation points, BATNAs, bargaining zones, and trading. After that, I think it might be interesting to get into some hardball tactics. As always, comments and critiques are welcome and encouraged.

Special thanks to Dr. Stephen W. Nason for teaching the bulk of the information provided in this post.