OBS 220: The Mind and Heart of the Negotiator

Chapter 3
Negotiation dance: The entire process of making an opening offer and then reaching a mutually
agreeable settlement.

The Bargaining Zone

The bargaining zone, or zone of possible agreement (ZOPA), is the range between negotiators’
reservation points. The final settlement of a negotiation should fall somewhere above the seller’s
reservation point and below the buyer’s reservation point.

In a positive bargaining zone, negotiators’ reservation points overlap: the most the buyer is willing to
pay is greater than the least the seller will accept. This overlap means that mutual agreement is better
than resorting to BATNAs.

The seller’s reservation point is $11; the buyer’s reservation point is $14. The most the buyer is willing to
pay is $3 greater than the very least the seller is willing to accept. The bargaining zone is between $11
and $14, or $3.

If the parties fail to reach agreement in this situation, the outcome is an impasse and is suboptimal
because negotiators leave money on the table and are worse off by not reaching an agreement than
they are by reaching an agreement.

In a negative bargaining zone, negotiators may spend fruitless hours trying to reach an agreement.

The seller’s reservation point is $14 and the buyer’s reservation point is $12. The most the buyer is
willing to pay is $2 less than what the seller is willing to accept at a minimum.

This negative bargaining zone indicates that there is no positive overlap between the parties’
reservation points.
Bargaining surplus is the amount of overlap between parties’ reservation points. A measure of the value
that a negotiated agreement offers to both parties over the value of not reaching settlement.

Negotiators’ surplus: The positive difference between the settlement outcome and the negotiator’s
reservation point.

The total surplus of the two negotiators adds up to the size of the ZOPA or bargaining surplus. Surplus
represents resources more than what is possible for negotiators to attain in the absence of a negotiated
agreement. The fact that negotiated settlements fall somewhere in the ZOPA, and that each negotiator
tries to maximize his or her share of the bargaining surplus, illustrates the mixed-motive nature of
negotiation.

Value-claiming Strategies

Most negotiators will not reveal their reservation point, but it may emerge unintentionally. The essence
of negotiation: how do people make sure they reach agreement if the ZOPA is positive, while
simultaneously claiming as much of the pie as possible?

Even if someone reveals their reservation point, we have no way to verify that they are telling the truth.
The negotiator is always at an information deficit because the other party’s reservation point is usually
not verifiable, whereas a BATNA is based on objective factors and can therefore be verifiable.

1) Accurately Assess your BATNA

• Brainstorm every option you can imagine if you do not reach an agreement in your current
negotiation. Generate many options.
• Assign a probability to the likelihood of being able to exercise that BATNA.
• Rank order your alternatives in terms of attractiveness to you.

2) Unpack Alternatives

Negotiators who have multiple alternatives may perform worse, because they make fewer demands and
achieve worse outcomes. By unpacking their multiple alternatives, negotiators can make more
aggressive opening offers and ultimately achieve better outcomes.
 3) Improve Your BATNA

BATNAs need maintenance and nourishment. Negotiators should spend a considerable amount of time
attempting to improve their BATNA before entering a negotiation.

4) Determine Your Reservation Point, but Do Not Reveal It

Do not reveal your BATNA or your reservation price during negotiation, even in the friendliest of
situations. If you do, the counterparty has no incentive to offer you more. In only two circumstances do
we think it is appropriate to truthfully reveal your reservation price:
• You have exhausted your time to negotiate and are about to exit the negotiation without a deal
and you sense that the bargaining zone may be very small or perhaps negative.
• You have a great BATNA and consequently, an aggressive reservation price, and you would be
happy if the counterparty matched or barely exceeded your reservation point. In this sense,
negotiators “signal” their BATNA.

5) Research the Other Party’s BATNA and Try to Estimate their Reservation Point

The most valuable piece of information you can have about the counterparty is his or her reservation
point. This information allows you to make the counterparty an offer that barely exceeds their
reservation point and to claim the entire bargaining surplus for yourself.

When the counterparty discloses their BATNA at the outset of the negotiation, negotiators make fewer
demanding offers, disclose more truthful information, and settle for less profit than when the
counterparty does not disclose a BATNA.

6) Set High Aspirations

Because you will usually never get more than your first offer, your first offer represents an important
anchor point in the negotiation. The outcome of any negotiation is usually the midpoint between the
first two offers that fall within the bargaining zone. Negotiators whose aspirations exceed those of the
counterparty get more of the bargaining zone.

Chilling Effect: When negotiators make proposals that the other party considers extreme, it may cause
the chilling effect. Making an extreme offer is a risky strategy because the recipient may be offended
and walk away from the table. Both low- and high-power negotiators are equally offended by extreme
offers, but it is low-power negotiators who walk away.

It is to a negotiator’s advantage to set a high, somewhat difficult aspiration point early in the
negotiation. The combination of high goals and cooperation is associated with the best outcomes.
Goal-Setting Paradox: When a negotiator focuses on his or her target point during negotiation, this
increases the value of the outcome that is ultimately received.

Promotion-focused negotiators conceptualize goals as ideals and opportunities; conversely, prevention-

focused negotiators conceptualize goals as obligations and necessities. Prevention-focused negotiators
who set goals in the upper end of the ZOPA are less likely to concede and outperform promotion-
focused negotiators. Negotiators who focus on ideals do not feel as satisfied as negotiators who focus
on their reservation point or BATNA. This is known as the goal-setting paradox.

The winner’s curse occurs when the negotiator’s first offer is immediately accepted by the counterparty.

Boulwarism: Immediate acceptance signals that the negotiator did not set his or her aspirations high
enough.

First Offer

The practitioner-researcher paradox refers to the fact that intuition and folklore advises negotiators to
never open first, whereas much scientific research argues that negotiators should always open first due
to a “first mover advantage.” When the recipient has opposing preferences, the negotiator who makes
the first offer has an advantage.

Anchoring Information Model

The Anchoring Information Model (AIM) predicts when and why making the first offer helps or hurts
negotiators. According to the model, first offers have two effects:
1) They serve as anchors that pull final settlements toward the initial first-offer value (anchoring),
which usually produces a first-mover advantage.
2) They convey information about the sender’s priorities, which makes the sender vulnerable to
exploitation and increases the risk of a first-mover disadvantage.
Negotiators need to evaluate two things when considering whether to make the first offer.
o How much information do they have regarding the negotiation.
o How much information does the other party have about them?
A first-mover disadvantage exists in some situations when there is significant asymmetric information.

Symmetric Information: When the negotiator has good information, and the other party is believed to
also have good information; it is wise to make the first offer.
When negotiators have good information, they are not likely to fall prey to the winner’s curse (asking for
too little) or the chilling effect (asking for way too much). If both parties lack information about the
negotiated object or service in question, negotiators are advised to also make the opening offer.

Asymmetric Information: The negotiator is best advised to not open first.

Suppose that the negotiator is highly informed and prepared but has good reason to think that the other
party is not well-prepared or informed. The negotiator should encourage the counterparty to make the
opening offer. When the negotiator is naïve, but the counterparty has relevant information. You risk
falling victim to the winner’s curse by offering too much or asking for too little. You should invite the
other party to make the first offer.

Anchoring Effect

The first offer that falls within the bargaining zone acts as a powerful anchor point in negotiation.
Negotiators who make the first offer are protected from being psychologically anchored by the
counterparty’s offer. Buyers who use the anchoring tactic make higher profits than those who don’t, but
the counterparty believes their own outcome is worse than their expectations and consequently, they
are less willing to interact in the future. In a market situation, anchoring decreases profit amongst
negotiators because it increases the rate of impasse and prolongs negotiation.

Range Offers

The counterparty will consider the lower end of the range as the employee’s target and negotiate down
from there. The tandem anchoring account argues that counterparties are influenced by both endpoints
of the range as they evaluate the proposer’s reservation price as well as how polite they believe an
extreme counteroffer would be.

Precise vs Round Numbers

Counterparties respond more aggressively to round numbers than precise numbers. Negotiators who
make precise offers are viewed as having more information than negotiators who make round offers.
Early vs Late Offers

Late first offers are more likely to lead to creative agreements that meet both parties’ interests, as
compared to early first offers—even when controlling for the overall duration of the negotiation. This is
because late first offers allow negotiators to learn about the counterparty’s interests.

Re-Anchoring

When the other party surprises you by opening first, you should counteroffer. Your risk of being
anchored by the counterparty is reduced if you’ve planned your opening offer and presented it.
Counteroffers do two things.
• They diminish the prominence of the counterparty’s initial offer as an anchor point in the
negotiation.
• They signal your willingness to negotiate.
An effective counteroffer moves the focus away from the other party’s offer as a reference point.

Concessions are the reductions that a negotiator makes during a negotiation. Negotiators need to
consider four things when formulating counteroffers and concessions:
1. Concession reciprocity (versus aversion).
2. The pattern of concessions.
3. The magnitude of concessions.
4. The timing of concessions.

1) Reciprocity vs Aversion
Concession reciprocity refers to the tendency of negotiators to reciprocate concessions. Concession
aversion refers to the tendency for some negotiators to be disinclined to make concessions. Negotiators
show stronger concession aversion and ultimately claim more value when negotiation proposals are
framed to highlight their own, rather than the counterparty’s, resources.

2) Concession Pattern
Unilateral concessions are concessions made by one party; bilateral concessions are concessions made
by both sides. Once you put an offer on the table, be patient. Patience and silence can be important
negotiation tools. Many negotiators make what we call premature concessions—they make more than
one concession in a row before the other party responds or counteroffers.

3) Magnitude of Concessions
The magnitude of a negotiator’s concessions is a powerful communication device. Negotiators who
make large concessions may lose credibility and the other party may be less willing to concede. We
advise negotiators to match the concession magnitude of the counterparty or make concessions that are
slightly smaller in magnitude. Each successive concession should be smaller in magnitude than the
previous concessions.

GRIT model: The graduated reduction in tension (GRIT) model is a method in which parties avoid
escalating conflict to reach mutual settlement within the bargaining zone. The GRIT model calls for one
party to make a concession and invites the other party to reciprocate by making a concession. The
concession offered by the first party is significant, but not so much that the offering party is
tremendously disadvantaged if the counterparty fails to reciprocate.
Even-Split Ploy: A common technique is the even-split between whatever two offers are currently on
the negotiation table. The person who suggests the even split is in an advantageous position. You can
avoid the even-split ploy by watching the magnitude of your concessions.

4) Timing of Concessions
Refers to whether they are immediate, gradual, or delayed. In an analysis of buyer-seller negotiations,
sellers who made immediate concessions received the most negative reaction from the buyer, who
showed the least satisfaction and evaluated the object of sale most negatively. When the seller made
gradual concessions, the buyer’s reaction was most positive, with high satisfaction.

Substantiation

The arguments or persuasive rationale that often accompanies an offer. The way in which an offer is
presented affects the course of negotiations. If your proposals are labeled as “fair,” “even splits,” or
“compromises,” they carry more impact. It is important to be more informed than the other party.

Power Conversation Tactics

Five different power conversation tactics that negotiators use to gain power, including: information-
seeking, patronizing, organizing, proposing, and sharing. Information-seeking leads to greater power,
whereas failure to seek information, patronizing, and proposing lead to loss of power.

Constraints vs Disparagement

Constraint rationales refer to one’s own limited resources, disparagement rationales critique the
negotiated object or service. Negotiators who highlight their own constraints are more successful than
negotiators who argue down the value of an item.

Agreement vs Option

At some point in negotiation, a negotiator might label a proposal as an “agreement” or an “option.”

Holding the economic value of such a proposal constant, the labeling of that proposal influences
acceptance rates.

Fairness Arguments

Negotiators often use one of three fairness principles when it comes to slicing the pie: equality, equity,
and need:
1. Equality rule, or blind justice, prescribes equal shares for all. Outcomes are distributed
without regard to inputs, and everyone benefits (or suffers) equally.
2. Equity rule, or proportionality of contributions principle, prescribes that distribution
should be proportional to a person’s contribution.
3. Needs-based rule, or welfare-based allocation, states that benefits should be
proportional to need.
Egocentrism Affects Judgements of Fairness

People’s utility functions were social rather than individual, meaning that individual satisfaction was
strongly influenced by the payoffs received by the other, as well as the payoffs received by the self.

In positive or neutral relationships, people preferred equality; in negative relationships, people

preferred advantageous inequity.

Relationships Affect Judgements of Fairness

When negotiators share similar attitudes and beliefs, are physically close to one another, or when it is
likely they will engage in future interaction, they prefer equality rule. When the allocation is public
(others know what choices are made), equality is used; when allocation is private, equity is preferred.

Fairness rules also depend on whether people are dealing with rewards versus costs. Equality is often
used to allocate benefits, but equity is more commonly used to allocate burdens. When a situation is
complex, involving multiple inputs in different dimensions, people are more likely to use the equality
rule. Different fairness rules are a potential source of conflict and inconsistency.
Social Comparison

Social comparison is an inevitable fact of life in organizations and relationships. Negotiators who feel
more envious about their counterparty’s outcomes, perform better in negotiations than those who do
not feel envy. When it comes to pay and compensation, people are more concerned about how much
they are paid relative to other people than about the absolute level of their pay.

Equity principle

People make judgments about what is fair based on what they are investing in the relationship and what
they are getting out of it. Inputs are investments in a relationship that usually entail costs. In many
cases, A’s input is B’s outcome, and B’s input is A’s outcome.

Equity exists in a relationship if each person’s outcomes are proportional to his or her inputs. Equity
refers to equivalence of the outcome/input ratio of parties; inequity exists when the ratio of outcomes
to inputs is unequal.

Equity exists when a person perceives equality between the ratio of his or her own outcomes (O) to
inputs (I) and the ratio of the other person’s outcomes to inputs, where a and b represent two people.

The basic equity formula may be reconstructed as follows:

Each k takes on the value of either +1 or -1, depending on the valence of participants’ inputs and gains.

Restoring Equity

When people find themselves in an inequitable relationship, they become distressed. Distress drives
people to attempt to restore equity. People who believe they are underpaid feel dissatisfied and seek to
restore equity.
People use the following six means to eliminate the tension arising from inequity:
1. Alter the inputs. The senior VP could work less hard, take on fewer projects, take more days off.
2. Alter the outcomes. The senior VP could make his office bigger.
3. Cognitively distort inputs or outcomes. The senior VP could minimize the importance of his
contributions and maximize the perceived value of his office—for example, by deciding that his
office was quieter than that of his counterpart.
4. Leave the situation. The senior VP could quit his job.
5. Cognitively distort either the inputs or the outcomes of an exchange partner. The senior VP
may view the other VP as contributing more, or perhaps regard the big office to be less
attractive than it is.
6. Change the object of comparison. The senior VP may stop comparing himself to the other
senior VP and start comparing himself to someone else in the company.

The use of the first two strategies depends on whether the person has been over- or under rewarded.
Over-rewarded individuals can increase their inputs or decrease their outcomes to restore equal ratios,
whereas under-rewarded people must decrease their inputs or increase their outcomes.

Final Offers

▪ Making an irrevocable commitment such as a “final offer” should be done only when you really
mean what you say and are prepared to walk away from the bargaining table.
▪ You should only walk away from the bargaining table if your B A T N A is more attractive than
the counterparty’s offer.

Face Saving

“Face” is the value a person places on his or her public image, reputation, and status vis-à-vis other
people in the negotiation.
▪ Direct threats to “face” in a negotiation include making ultimatums, criticisms, challenges, and
insults.
▪ When a person’s “face” is threatened, it can tip the balance of their behavior away from
cooperation toward competition, resulting in an impasse.
▪ The best way to help the other party “save face” is to not indicate that you think he or she has
lost face.

Just a reminder: My notes are a basic reference of the textbook. Refer to the
textbook for more information.