CONTENTS

TitlePage

Dedication

Introduction:BecomingaNegotiationGenius

PARTI:THENEGOTIATOR’STOOLKITChapter1:ClaimingValueinNegotiationChapter2:CreatingValueinNegotiationChapter3:InvestigativeNegotiation

PARTII:THEPSYCHOLOGYOFNEGOTIATIONChapter4:WhenRationalityFails:BiasesoftheMindChapter5:WhenRationalityFails:BiasesoftheHeartChapter6:NegotiatingRationallyinanIrrationalWorld

PARTIII:NEGOTIATINGINTHEREALWORLDChapter7:StrategiesofInfluenceChapter8:BlindSpotsinNegotiationChapter9:ConfrontingLiesandDeceptionChapter10:RecognizingandResolvingEthicalDilemmasChapter11:NegotiatingfromaPositionofWeaknessChapter12:WhenNegotiationsGetUgly:DealingwithIrrationality,Distrust,Anger,Threats,

andEgoChapter13:WhenNottoNegotiateChapter14:ThePathtoGenius

Glossary

Notes

Acknowledgments

AbouttheAuthors

Copyright

DedicatedtoShikhaandMarla

Yourideasandencouragementinfluenceeverythingwedo.

INTRODUCTION

BecomingaNegotiationGenius

Whatisanegotiationgenius?Let’sstartwiththesimpleobservationthatyouoftenknowanegotiationgeniuswhenyou seeone.Youcan seegenius in thewayapersonthinksabout,preparesfor,andexecutesnegotiationstrategy.Youcan see genius in the way a person manages to completely turn around aseeminglyhopelessnegotiationsituation.Youcanseegeniusinthewayapersonmanagestonegotiatesuccessfuldeals—consistently—whilestillmaintainingherintegrity and strengthening her relationships and her reputation. And, in alllikelihood,youknowwhothenegotiationgeniusesareinyourorganization.Thisbookwillsharewithyoutheirsecrets.

Consider the following stories, in which negotiators faced great obstacles,onlytoovercomethemtoachieveremarkablelevelsofsuccess.Butwewillnotrevealhow they did it—yet. Instead, we will revisit these stories—and manyotherslikethem—inthechaptersthatfollow,aswesharewithyouthestrategiesandinsightsyouneedtonegotiatelikeageniusinallaspectsoflife.

AFIGHTOVEREXCLUSIVITYRepresentatives of a Fortune 500 company had been negotiating the purchase of a new productingredientfromasmallEuropeansupplier.Thepartieshadagreedtoapriceof$18perpoundforamillionpoundsofproductperyear,butaconflictaroseoverexclusivityterms.ThesupplierwouldnotagreetoselltheingredientexclusivelytotheU.S.firm,andtheU.S.firmwasunwillingtoinvestinproducing anewproduct if competitorswouldhave access tooneof its key ingredients.This issueappeared tobeadealbreaker.TheU.S.negotiatorswereboth frustratedand surprisedby the smallEuropeanfirm’sreticenceontheissueofexclusivity; theybelievedtheirofferwasnotonlyfair,butgenerous. Eventually, they decided to sweeten the deal with guaranteed minimum orders and awillingnesstopaymoreperpound.TheywereshockedwhentheEuropeanfirmstillrefusedtoprovideexclusivity!Asalastresort,theU.S.negotiatorsdecidedtocallintheirresident“negotiationgenius,”Chris,who flew to Europe and quickly got up to speed. In amatter ofminutes, Chriswas able tostructureadealthatbothpartiesimmediatelyaccepted.Hemadenosubstantiveconcessions,nordidhethreatenthesmallfirm.HowdidChrismanagetosavetheday?WewillrevisitthisstoryinChapter3.

ADIPLOMATICIMPASSEIn the fallof2000, somemembersof theU.S.Senatebegancalling foraU.S.withdrawal from theUnitedNations.Meanwhile, at theUnitedNations, theUnitedStateswason thevergeof losing itsvoteintheGeneralAssembly.Theconflictwasoveradebtofcloseto$1.5billion,whichtheUnitedStatesowedtotheUN.TheUnitedStateswasunwillingtopayunlesstheUNagreedtoavarietyofreforms that it feltwere long overdue.Most important, theUnited Stateswanted a reduction in its“assessments”—thepercentageoftheUN’syearlyregularbudgetthattheUnitedStateswasobligatedtopay—from25percentto22percent.Theproblemwasthis:iftheUnitedStatespaidless,someoneelsewouldhavetopaymore.There were other serious complications as well. First, UN regulations stipulated that Richard

Holbrooke, U.S. ambassador to the UN, had to convince all 190 countries to ratify the changesdemanded by theUnited States. Second, Holbrooke faced a deadline: if he could not strike a dealbeforetheendof2000,themoneysetasidebyCongresstopayU.S.dueswoulddisappearfromthebudget.Third,nonationseemedwillingtoincreaseitsassessmentsinorderfortheUnitedStatestogeta break. How could Holbrooke convince even one nation to increase its assessment when they allclaimed this was impossible? As the end of 2000 approached, Holbrooke decided on a differentstrategy.He stopped trying to persuade other nations to agree to his demands.What he did insteadworkedwonders: the issuewas resolved,andHolbrookewascongratulatedbymemberstatesof theUNaswellasbymembersofbothpoliticalpartiesintheU.S.Congress.HowdidHolbrookeresolvethisconflict?WewillrevisitthisstoryinChapter2.

ALAST-MINUTEDEMANDTheCEOofaconstructioncompanywasnegotiatingadealinwhichhisfirmwouldbecontractedtobuildmidsizeofficebuildings for a buyer.Aftermonthsof negotiationshad finally concluded—butjust before the contract was signed—the buyer approached the builder with an entirely new andpotentiallycostlydemand.Thebuyerwantedtoincludeaclauseinthecontractthatwouldrequirethebuilder topay largepenalties if theproject’scompletionwasdelayedbymore thanonemonth.Thebuilderwas irritatedby this suddendemand; it seemedas though thebuyerwas trying tosqueezealast-minute concession from him. The builder weighed his options: he could accept the buyer’sdemandandsealthedeal;hecouldrejectthebuyer’sdemandandhopethiswouldnotdestroythedeal;or he could try to negotiate to reduce the proposed penalties. After considering these options, thebuilderdecidedonanentirelydifferentapproach.Henegotiatedwiththebuyertoincreasetheamountofpenaltieshe(thebuilder)wouldhavetopayiftheprojectwasdelayed—andthereviseddealmadebothpartiesbetteroff.How?WewillrevisitthisexampleinChapter3.

ACAMPAIGNCATASTROPHEIt was 1912, and former president Theodore Roosevelt was campaigning for a third term. Thecampaignwastough;everydayseemedtopresentnewchallenges.Butherewasachallengethatno

one had anticipated. Three million copies of Roosevelt’s photograph had already been printed forcirculationwith a campaign speechwhenRoosevelt’s campaignmanager discovered a catastrophicblunder: thephotographerhadnotbeenaskedpermission for theuseofRoosevelt’sphotograph.Tomakemattersworse,itwassoondiscoveredthatcopyrightlawallowedthephotographertodemandasmuchas$1percopytousethephotograph.Losing$3millionin1912wouldbeequivalenttolosingover $60 million today. No campaign could afford that. The alternative was almost equallyunattractive;reprintingthreemillionbrochureswouldbetremendouslycostlyandcouldcauseseriousdelays.Thecampaignmanagerwouldhavetotrytonegotiatealowerpricewiththephotographer,buthow?Thephotographerseemedtoholdallthecards.Thecampaignmanager,however,hadsomethingbetter:aneffectivestrategythatheusedtonegotiateanalmostunbelievabledeal.Wewillrevealthedeal—andthestrategy—inChapter1.

Aswehope topersuadeyou,people are rarelyborn“negotiationgeniuses.”Rather, what appears to be genius actually reflects careful preparation, anunderstandingoftheconceptualframeworkofnegotiation,insightintohowonecanavoidtheerrorsandbiasesthatplagueevenexperiencednegotiators,andtheabilitytostructureandexecutenegotiationsstrategicallyandsystematically.Thisbook will provide you with this framework—and with an entire toolkit ofnegotiationstrategiesandtacticsthatyoucanputtoworkimmediately.Asyoubegin to apply the framework and strategies in the many negotiations youencounter—inbusiness,inpolitics,orineverydaylife—youwillbegintobuildyourownreputationasanegotiationgenius.

OURAPPROACH

Just twenty-five years ago, courses on negotiation were rarely taught inmanagementschoolsor inexecutiveeducationprograms.Nowtheyareoneofthe most sought-after courses in business schools throughout the world.Negotiationcoursesarealsotremendouslypopularinlawschoolsandschoolsofpublic policy and government. Why? Because in our increasingly complex,diverse,anddynamicworld,negotiationisbeingseenasthemostpracticalandeffective mechanism we have for allocating resources, balancing competinginterests, and resolving conflicts of all kinds. Current and future managers,lawyers, politicians, policymakers, and consumers allwant andneed toknowhow to get better outcomes in their negotiations and disputes. Negotiation is,perhapsnowmorethanever,anessentialskillforsuccessinallareasoflife.

Why,then,dosomanypeoplecontinuetonegotiateineffectively?Inourworkaseducatorsandconsultants,oneofthebiggestproblemswe’veencounteredisthepervasivebelief thatpeopleareeithergoodorbadatnegotiation,andlittlecanbedonetochangethat.Wecouldnotdisagreemore. Inaddition, toomany

people—includingmanyseasoneddealmakers—thinkofnegotiationasbeingallart and no science; as a result, they rely on gut instinct or intuition as theynegotiate.But gut instinct is not a strategy.Nor is “shooting from the hip” or“wingingit.”

Weofferamoresystematicandeffectiveapproach.Thisapproach leveragesthe latest research in negotiation and dispute resolution, the experience ofthousands of our clients and executive students, and our own experience asnegotiators,consultants,andeducators.IthasbeenchallengedandrefinedinourMBAandexecutiveeducationcoursesattheHarvardBusinessSchoolandinourworkwithoverfiftymajorcorporationsinmorethantwenty-fivecountries.Theresultingframeworkwillhelpyouminimizeyourrelianceonintuition,increaseyourunderstandinganduseofprovenstrategies,andachievesuperiornegotiatedoutcomesconsistently.

Wealso aim todispel thenotion that negotiating effectively is as simple asachieving “win-win agreements.” If you’re likemany of the executiveswe’veworkedwith,you’vehadtheexperienceofwantingtobargainingoodfaithforamutuallyrewardingoutcome,onlytofindthattheotherpartyisplayinghardball,behaving unethically, or negotiating entirely in their own self-interest.Or youmayhavefoundyourselfnegotiatingfromapositionofweakness,dealingwithsomeonewhowas not sophisticated enough to negotiate effectively, or sittingacrossfromsomeonewhodidnothavetheauthoritytonegotiatethekindofdealyouwanted.Howdoesthe“win-win”principlehelpyouinthesesituations?Incomplex negotiations, whichmight includemultiple parties, great uncertainty,threatsof litigation,heightenedemotions,andseeming irrationality, itmaynoteven be clear what “win-win” really means. Because such complexities arecommonplace,youmustdealwith themsystematically.Thisbookwillprovideyouwiththetoolsyouneedtodoexactlythat.Inotherwords,whilepreservingthevirtuesofawin-winmind-set,wewillhelpyouunderstandhowtostrategizeeffectivelywhen“win-win”won’tsaveyou.

Followingisabriefoutlineofwhatyouwillfindinthisbook.

PARTI:THENEGOTIATOR’STOOLKIT

InPartI,wedevelopaframeworkthatyoucanusetoanalyze,preparefor,andexecutealmostanynegotiationyoumightencounter.PartIalsooffersatoolkitof comprehensive principles, strategies, and tactics that will help you execute

each stage of the deal, from before the first offer is ever made to the finalagreement. It turns out that a significant percentage of the million-dollarproblemsthatourexecutiveclientsconfronthavesolutionsthatarecontainedinthese initial chapters. Because we develop the framework and the toolkitmethodically,we recommend thatyou readPart I straight through in theorderpresented.

Chapter 1: Claiming Value in Negotiation. We begin by focusing on atopic of great importance and appeal to all negotiators: how do I get the bestpossibledeal formyside?Webuildournegotiationframeworkbyanalyzingastraightforwardtwo-partynegotiationinwhichabuyerandsellerarebargainingover one issue: price. This chapter covers, among other topics: negotiationpreparation, common negotiator mistakes, whether to make a first offer,responding tooffers from theotherparty, structuringyour initialoffer, findingouthowfaryoucanpushtheotherparty,strategiesforhagglingeffectively,andhowtomaximizenotonlyyouroutcome,butalsothesatisfactionofbothparties.

Chapter2:CreatingValueinNegotiation.Hereweexpandthe“claimingvalue”frameworkbyexaminingthemoredifficult—andmorecritical—taskofvaluecreation.Akey insightof thischapter is thatnegotiatorswhofocusonlyonclaimingvaluereachworseoutcomesthandothosewhocooperatewiththeothersidetoimprovethedealforbothparties.Todemonstratethis,weconsideramorecomplexnegotiationinwhichpartiesarenegotiatingmultipleissuesandfacinggreateruncertainty.Thischaptercoverstopicssuchas:strategiesforvaluecreation, a framework for negotiating efficient agreements, preparing for andexecuting complex negotiations, how and when to make concessions, how tolearnabouttheotherside’srealinterests,andwhattodoafterthedealissigned.

Chapter3:InvestigativeNegotiation.Muchofwhatnegotiatorsmustdotocreateandcapturevaluedependsontheirabilitytoobtaininformationfromtheother side.Thischapterpresentsapowerfulapproach to informationgatheringthat we call “investigative negotiation.” The principles and strategies of

investigative negotiation will help you discover and leverage the interests,priorities, needs, and constraints of the other party—even when that party isreluctantorunwillingtosharethisinformation.

PARTII:THEPSYCHOLOGYOFNEGOTIATION

Even experienced negotiators make mistakes when preparing and executingnegotiation strategy. After all, even seasoned dealmakers are human, and allhuman beings are vulnerable to psychological biases— systematic andpredictable departures from rationality—that can derail an otherwise soundnegotiationstrategy.PartIIbuildsoncutting-edgeresearchonthepsychologyofnegotiation and decision-making.We distill theory into the practical tools youwillneedtoavoidthesecostlymistakes,andtorecognizeandleveragemistakeswhentheyaremadebytheotherside.

Chapter4:WhenRationalityFails:BiasesoftheMind.Inthischapter,we focus on cognitive biases—the mistakes that even the best of negotiatorsmakebecauseofthewaysinwhichourmindsoperate.Aswewillillustrate,thehuman mind is accustomed to taking shortcuts that, while often useful formaking decisions quickly, can also lead to disastrous strategic moves innegotiation.

Chapter5:WhenRationalityFails:BiasesoftheHeart.Nextwelookatmotivationalbiases—themistakeswemake because of our desire to view theworld thewaywewish itwere rather thanhow it truly is.Unfortunately, it ispossible tohaveaweaknegotiation strategyand still feelgoodaboutyourselfandyourprospects for success. It isalsopossible tocontinuedown thewrongpathandneverallowyourselftodiscoverhowandwhenachangeinstrategyiscritical.Chapter5willhelpyoutoidentifyandavoidthesepotentialpitfalls,andtoseetheworldthroughamoreobjectiveandrealisticlens.

Chapter6:NegotiatingRationallyinanIrrationalWorld.Hereweoffer

still more strategies for overcoming your own biases and for leveraging thebiasesofothers.Wealsoexplainwhenitisinyourbestinteresttohelptheothersidebelessbiased.Why?Becausetheir irrationalityoftenhurtsyouaswellasthem.

PARTIII:NEGOTIATINGINTHEREALWORLD

Finally,weturntoavarietyoftopicsthatarealltoooftenignoredinnegotiationseminarsandbooks,butwhicharecrucialforsuccessinreal-worldnegotiations.How can you tell if someone is lying? How do you persuade reluctantnegotiators to agree toyourdemandsorproposals?Howshouldyounegotiatewhen you have little or no power? How should you incorporate ethicalconsiderations into your negotiation strategy?How should you negotiate withyourcompetitors,opponents,andenemies?Asinthefirstpartofthebook,ourinsightsandadviceonthesetopicsemergefromtheexperienceofthousandsofreal-world negotiators and from years of systematic and scientific research onnegotiation, strategic decision-making, psychology, and economics. Each ofthesechapterscanbereadasastand-aloneentity,sofeelfreetochoosefirstthetopicsthataremostrelevanttoyoursituation.

Chapter7:Strategiesof Influence. It isoftennotenough tohaveagoodidea,awell-structuredproposal,oragreatproductorservicetooffer.Youalsoneedtoknowhowtosellittotheotherside.Thischapterpresentseightprovenstrategies of influence that will increase the likelihood that others will acceptyourrequests,demands,offers,andproposals.Notethatthesestrategiesdonotimprovethemeritsofyourcase;rather, theymakeitmorelikelythattheothersidewill say “yes”without requiring you to change your position.Of course,youwillalsobethetargetoftheotherside’sinfluencestrategies,soweprovidedetailed defense strategies that will defuse their attempts to manipulate yourpreferencesandinterests.

Chapter 8: Blind Spots in Negotiation. Many negotiators focus toonarrowly on a negotiation problem and fail to adequately consider how thecontext,thedecisionsoftheotherside,andtherulesofthenegotiationgamewillaffect their strategy and their prospects for success. They also miss out on

opportunitiesforchangingtherulesofthegametoachievebetterresults.Inthischapter,weprovidespecificadviceonhowtobroadenyourfocustoensurethatyouconsideralloftheelementsthatmightcomeintoplayasyounegotiate.

Chapter9:ConfrontingLiesandDeception.Whilemanypeopleidentifywith thenotion that “honesty is thebest policy,”most people admit to havinglied at some point in their negotiations and virtually everyone believes thatothers have lied to them. In this chapter we address questions such as:Whatmightmotivatesomeonetolieinanegotiation?Whataresomeofthestrategiccostsoflying?Howcanyoutellifsomeoneislying?Howcanyoudeterpeoplefromlyingtoyou?Whatshouldyoudoifyoucatchsomeoneinalie?Ifyouareinterestedintellingthetruth,butdon’twanttoloseyourshirtatthebargainingtable,whataresomesmartalternativestolying?

Chapter 10: Recognizing and Resolving Ethical Dilemmas. Manypeople believe that ethics are too personal and idiosyncratic to be discussedbroadly or categorically. This is undoubtedly true—to a degree. Yet recentresearch suggests that people often behave less ethically than they themselvesconsiderappropriate.Inothercases,theyarenotevenawareofthedamagetheyareinflictingonotherswhentheypursuecertainstrategies.Andintheshadowofmajor corporate scandals, there’s a renewedemphasis onmaintaining integritywhilestillachievingnegotiationsuccess.Weprovideaframeworkfor thinkingmorecarefullyandcomprehensivelyabouttheseissues.

Chapter11:NegotiatingfromaPositionofWeakness.Thischapter isabout power—and the lack of it. Most negotiators will at some point findthemselves in a position ofweaknesswith seemingly few, if any, alternatives.(Indeed, many of our executive students and clients complain that they arealways negotiating from a position ofweakness visà-vis their customers, theirboss, or their spouse!) Such negotiations require careful analysis, creativethinking,andinsightsintohowsuchsituationscanbeturnedaround.Weshowhowyoucaneffectivelynegotiatewhenyoulackpower,andhowyoumightbe

abletoupsetthebalanceofpowersothatyoumovefromapositionofweaknesstoapositionofstrength.

Chapter12:WhenNegotiationsGetUgly:Dealingwith Irrationality,Distrust,Anger,Threats,andEgo.Howdoyounegotiatewhen theothersideappearstobeentirelyirrational?Howdoyounegotiatewhentrusthasbeenlostandtheotherpartyisunwillingtocometothetable?Howcanyoudefusehardball tactics such as ultimatums and threats? How should you deal with aparty that is angry or one that is too proud to admit that their strategy wasflawed? Our approach in this chapter recognizes that most importantnegotiationsincludeatleastsomeofthesedifficultiesandthatignoringthemisnotonlyextremelyineffective,butoftenentirelyimpossible.

Chapter13:WhenNottoNegotiate.Thereareoccasionswhennegotiationisnottheanswer.Ifyouhavelimitedpowerandfewprospectsforsuccess,youmightdosurprisinglybetterbygivingupwhatlittlepoweryouhave.Or,ifthecosts of negotiating are high, you might want to find cheaper alternatives tomaking the deal or resolving the dispute. In other instances, negotiation itselfmaybeabarriertocreatingthekindofrelationshipyouwantwiththeotherside.Butwhat shouldyoubedoing instead? In thischapter,weprovideyouwithaframeworkfordistinguishingbetweenthetimeswhenyoushouldbeplayingthenegotiationgameandthetimeswhenyoushouldbechangingthegame.

Chapter14:ThePathtoGenius.Geniusinnegotiationrequiresknowledge,understanding,andmindfulpractice.Thisbookcangiveyouthefirstandhelpyou with the second, but the third will be largely up to you. We end byconsideringwhat happenswhenyou turn the last page andheadback into therealworld.Whichmind-setwillmaximizeyourabilitytoputyourlearningintopractice?Whathabitswillyouwanttocultivateintheweeksandmonthsahead?Whatexpectationsshouldyouhaveofyourselfandothers?Howmightyouhelpothersinyourorganizationnegotiatemoreeffectively?

AsentimentonceexpressedbyRalphWaldoEmersoncapturestheessenceofour message: “Man hopes; Genius creates.”When the task is difficult, whenobstacles arise, when negotiations are unraveling, andwhen it looks as if thedeal is lost, most negotiators will panic or pray. Negotiation geniuses, incontrast, will only strengthen their resolve to formulate and execute soundnegotiationstrategy.Wehopethatthisbookconvincesyoutodothelatter,andprovidesyouwiththeinsightsandtoolsyouwillneedtonegotiatelikeageniusatthebargainingtable—andbeyond.

CHAPTER1

ClaimingValueinNegotiation

The year was 1912, and the U.S. presidential election was in full swing.FormerpresidentTheodoreRoosevelthaddecidedtoreturntothepoliticalarenaduetohisfrustrationwiththewayhissuccessor,PresidentWilliamHowardTaft,hadbeenrunningthecountry.Itwasatoughcampaign,andeverydayseemedtopresentanewchallenge.Butherewasachallengethatnoonehadanticipated:three million copies of Roosevelt’s photograph had already been printed forcirculation with a campaign speech when Roosevelt’s campaign managerdiscovered a catastrophic blunder—the photographer had not been asked forpermissiontousethephotograph.Tomakemattersworse,copyrightlawallowedthephotographertodemandasmuchas$1percopyofthephotograph.In1912,a loss of $3 million would be equivalent to a loss of more than $60 milliontoday.Nocampaigncouldaffordthisprice.Thealternativewasalmostequallyunattractive; reprinting three million brochures would be tremendously costlyand could cause serious delays. The campaignmanager would have to try tonegotiateabetterdealwiththephotographer.Ifyouwerethecampaignmanager,howwouldyouhandlethisnegotiation?

Now consider how Roosevelt’s manager dealt with the situation. Aftercarefully analyzing the problem, he sent the following telegram to thephotographer: “Planning to distribute threemillion copies of campaign speechwithphotographs.Excellentpublicityopportunityforphotographers.Howmuchareyouwillingtopaytouseyourphotographs?Respondimmediately.”

Thephotographerdidnottakelongtoissueareply.Hesentbackatelegramwith the following message: “Appreciate opportunity, but can only afford$250.”1

Most people, when they hear this story, are taken aback. How did thecampaign manager turn around such a hopeless situation so completely? Thereasonforthisreactionisthateventhemostseasonednegotiatorsmaynotthinksystematically about negotiations, nor prepare for and execute negotiations

strategically. Our goal is to make the manager’s solution to the negotiationproblem appear obvious to you.By understanding and applying the principlesandstrategiesofvalueclaimingcoveredinthischapter,you,too,willbeabletohandle difficult negotiations with the kind of genius demonstrated byRoosevelt’scampaignmanager.

STRATEGIESFORCLAIMINGVALUEINNEGOTIATION

Throughoutthisbook,wewilltalkalotaboutvalue.Howdowedefinetheterm,exactly?Value is whatever people find useful or desirable. Youmaymeasurevalue in dollars, utility, happiness, or a variety of other metrics. Negotiationhelps tocreatevalue throughagreements thatmakebothpartiesbetteroff thantheywerewithout an agreement.Buthowmuch better off is eachparty?Thisdepends,inpart,onwhichpartymanagedtoclaim(orcapture)moreofthevaluethatwascreated.Forexample,ifabuyernegotiatesaverylowpriceforanitem,sheclaimsmorevalue;thesellerclaimsmoreofthevalue(createdbythedeal)whenthepriceishigh.

For many people, learning to negotiate more effectively means one thingaboveall else:“Howcan Igetabetterdeal formyself?”Or,putanotherway,“How can I claim the lion’s share of the value in any negotiation?” WhileNegotiationGeniustakesamuchbroaderviewofnegotiation,we,too,startwiththisbasicgoal:gettingthebestpossibledealforyourself.

Webeginbyconsideringanegotiationoverthesaleofrealestatethatallowsus to address key issues that you will face in virtually all negotiations. TheHamiltonRealEstatecaseisarelativelysimplenegotiation:twoparties(abuyerandaseller)arenegotiatingoverone issue (price).Within this framework,wecoverallofthefollowingaspectsofnegotiating:preparingtonegotiate,avoidingcommon negotiator mistakes, deciding whether to make the first offer,responding to the other side’s offers, structuring your initial offer, finding outhow far you can push the other side, haggling effectively, claimingmaximumvaluewithoutsacrificingtherelationship,andmanagingyourownsatisfaction.

Whenweuse theHamiltonRealEstatecase inournegotiationcourseswithexecutivesandMBAstudents,weassignhalfof theparticipants to the roleof“seller”andtheotherhalftotheroleof“buyer.”Eachsideisgivenconfidentialinformationregardingitsneedsandinterests,andisaskedtoprepareitsstrategyfor thenegotiationsimulation.Thetwosides thenmeetandtry tonegotiatean

agreementoverthesalepriceoftheproperty.

Asyoureadthecasefromtheperspectiveoftheseller,thinkabouthowyouwouldapproachthisnegotiation.

HAMILTONREALESTATE2

Youare the executivevicepresident ofPearl Investments, a holding companythat specializes in real-estate investments. Among your many real-estateholdings is a large piece of property located in the town of Hamilton. TheHamilton real estate is earmarked for divestment, and you are responsible fornegotiatingitssale.

TheamountthatapotentialbuyerwillpayfortheHamiltonpropertydependsonanumberoffactors,includingthebuyer’sabilitytopayandtheirplanneduseoftheproperty.Eachofthesefactorsiscritical.Forexample,yourexpertshaveestimatedthatifthelandweredevelopedforcommercialuse(e.g.,asetofofficebuildings), the land might be worth 1.5 to 2 times as much as if it weredeveloped for residential use (e.g., apartment buildings). Unfortunately,commercial developers are unlikely to be interested in the property becauseHamilton zoning laws do not allow for commercial development.While somelocal politicians have recently discussed allowing commercial development inHamilton,theyhavetakennoactioninthisdirection.Asaresult,Hamiltonhasfallenofftheradarforcommercialdevelopers.

Over the last few weeks, you have entertained offers from a few potentialbuyers. All but one of these offers has fallen substantially short of yourexpectations.TheofferofmostinteresttoyouisfromQuincyDevelopments,adeveloperthatisplanningtoconstructasetofhigh-endapartmentbuildingsontheHamiltonproperty.Theofferisfor$38million.

Apartfrombeingthehighestofferyouhavereceived, thisdeal interestsyoubecauseofQuincyDevelopments’reputationforbargainingingoodfaith.Whilethis gives you some confidence that the offer is reasonable, you are notnecessarilyreadytoacceptitasis.Youexpectthatyoucouldnegotiatethepriceupanadditional10–15percentifyouchosetopursuetheoffer.YoudonotthinkthatQuincyDevelopmentswouldgoanyhigherthanthat.

For now, however, you have chosen not to negotiate with Quincy

Developments.Why?BecauseEstateOne,apremierreal-estatecompanyintheregion,hasjustsentwordthatitisalsointerestedintheHamiltonproperty.Youbelieve that Estate One would develop the property for the construction ofluxurycondominiums,asitdoeswithvirtuallyallofitsproperties.YoushouldbeabletonegotiateahighersellingpricefortheHamiltonpropertyifthelandistobeusedforluxurycondominiumsratherthanforapartmentbuildings.

You have decided to meet with the CEO of Estate One, Connie Vega, tonegotiatea sale. If these talksarenot successful,youplan to return toQuincyDevelopments and finalize a deal. You will not wait for other offers. QuincyDevelopmentshassaidthatitsofferexpiresinthreedays.

HereiswhatyouknowaboutEstateOne:Itisamidsizecompanythatisoneof the biggest regional developers of residential real estate.EstateOne’sCEOhasbeenwiththecompanysinceitsfoundingtwentyyearsagoandisknowntobeextremelywellconnectedpolitically,linkedtoknowledgebrokersatalllevelsofstateandlocalgovernment.EstateOneisnotacompetitorofyours.

Toprepare for thenegotiation,youhavecollectedasmuchdataaspossible.The following information is public knowledge, and is certainly known to theCEOofEstateOne:

•PearlInvestmentspurchasedtheHamiltonpropertysevenyearsagoatapriceof$27million.

•Sincethepurchase,landvalueinHamiltonhasincreasedsubstantially.AnevaluationofrecentsalesofsomewhatcomparablepropertiessuggeststhattheHamiltonpropertycouldbeworth$36–44millionifdevelopedforresidentialuse.

•Ifthelandisusedfortheconstructionofluxurycondominiumsinsteadofapartmentbuildings,itisprobablyworthanadditional20percent.

TheimpendingHamiltonnegotiationraisesmanyquestions.Whatwouldyoudo first in thisnegotiation?Howwouldyouapproach theCEOofEstateOne,Connie Vega?Would youmake the first offer or would you let her make it?What information, ifany,wouldyousharewithher?What information, ifany,wouldyoutrytoacquirefromher?HowmuchwouldyouexpecttoearnontheHamiltonsale?Howwouldyouknowifyougotagooddeal?

PREPARINGTONEGOTIATE

Overthecourseoftrainingandconsultingwithtensofthousandsofnegotiatorsand dealmakers, we have become aware that, by far, the most common andcostlymistakes innegotiation takeplacebefore talksevenbegin. Interestingly,the problem is usually not faulty preparation, but a lack of preparationaltogether! Under the false assumption that negotiation is “all art and noscience,”mostpeoplefail toprepareadequatelyfornegotiation.Whencoupledwiththebeliefthatthe“realaction”beginsatthebargainingtable,evensmart,thoughtful,andmotivatedpeoplewalkintosubstantivenegotiationsill-prepared.

Thus,itiscriticalthatyouadoptathoroughmethodologytohelpyouprepareto negotiate. Our five-step pre-negotiation framework offers a simple yeteffective approach. (In the chapters that follow,wewill add to this list asweconfrontmorecomplexnegotiations.)

Step 1: Assess your BATNA. The first step in any negotiation is to askyourself, “Whatwill I do if the current negotiation ends in nodeal?” Inotherwords, you need to assess your BATNA, or best alternative to negotiatedagreement—the course of action you will pursue if and when the currentnegotiationendsinanimpasse.3WithoutaclearunderstandingofyourBATNA,itisimpossibletoknowwhentoacceptafinalofferandwhentowalkawayinorder topursueotheroptions.YourBATNAassessment requires the followingthreesteps:

1.Identifyalloftheplausiblealternativeoptionsyoumightpursueifyouareunabletoreachanagreementwiththeotherparty.

2.Estimatethevalueassociatedwitheachalternative.

3.Selectthebestalternative;thisisyourBATNA.

IntheHamiltoncase,youhaveanumberofalternativesifthenegotiationwithConnie Vega ends in impasse: you might wait for other offers, you mightapproachQuincyDevelopmentstofinalizethedeal,oryoumightdecidenottosellatall.TheinformationavailabletoyoustronglysuggeststhatyourBATNA

wouldbetofinalizeadealwithQuincy.

Step2:Calculateyourreservationvalue.AnanalysisofyourBATNAiscriticalbecause itallowsyoutocalculateyourreservationvalue (RV),oryourwalk-awaypoint in thecurrentnegotiation.As theseller in theHamiltoncase,your reservationvalue is the lowestofferyouwouldbewilling toaccept fromConnieVega.Whatmightthisofferbe?Ifthenegotiationendedinimpasse,youwouldreturntoQuincyandfinalizethesale.Quincyhasoffered$38million.Is$38millionyourreservationvalue?Notquite,becauseyoucouldnegotiatethisprice furtherwithQuincy. Specifically, you believe that you could negotiate a10–15 percent increase in the offer, yielding an amount ranging from $41.8–$43.7million.Yourreservationvalueshouldfallwithinthisrange.

What determines your exact reservation valuewithin this range? If you areriskaverse,youmightbeinclinedtoleantowardthelowerendoftherange.ButifyouareoptimisticaboutyourabilitytonegotiatewithQuincy,youmightleantowardtheupperend.Let’ssaythatyoudecideonthemidpointofthisrangeandset $42.65million as your reservationvalue. IfConnieVega’s final offer fallsbelow this amount, youwillwalk away from thedeal. If it is higher than thisamount, and you are sure that you cannot negotiate a still higher price withConnie,youwill accept thedeal.Anotherway to thinkaboutyour reservationvalueis toconsider ityour indifferencepoint. IfConnie’s finaloffer isexactly$42.65million,youareindifferentbetweenacceptingthisofferandrejectingitinfavorofpursuingyourBATNA.

Asyoucansee,acarefulassessmentofyourBATNAisessential ifyouaregoing to establish a rational reservation value that is based on a realisticassessment of your alternatives. Unfortunately, people often make strategicmistakes when they confuse their BATNAs with other elements of thenegotiation.Keep inmind that your BATNA isnot what you think is fair, orwhatyouoriginallypaidfortheitemyouareselling,orthepricethatyouhopetoachieve.YourBATNAistherealityyouwillfaceifyoureachnodealinthecurrentnegotiation.

Step 3: Assess the other party’s BATNA. Now that you have assessed

yourBATNAandcalculatedyourreservationvalue,youknowthelowestofferyouwouldbewillingtoaccept in theHamiltonnegotiation.Ofcourse,youdonotwanttosettleforalowsaleprice,soyouwillneedtofigureouthowhighapriceyoumightbeabletonegotiate.Inotherwords,youhavetofigureouttheotherparty’s reservation value.ConnieVega’s reservation value is the highestamountthatEstateOnewouldbewillingtopayfortheHamiltonproperty.Howcanyoudeterminethisamount?Howwillyouknowhowfaryoucanpushtheother side? You figure this out by assessing the other party’s BATNA. Thiscriticalstepcanmakethedifferencebetweengettingagooddealandgettingagreatdeal.Sometimesitevenmarksthedifferencebetweenphenomenalsuccessandutterfailure.

RememberRoosevelt’scampaignmanager?HadhefocusedonlyonhisownBATNA(reprintthreemillionbrochures)andhisownreservationvalue(paythephotographerthousandsofdollars), thenegotiationwouldhavebeenadisaster.Themanager’sgeniuslayinhisdecisiontoassessthephotographer’sBATNA.Inotherwords,heasked,“Whatwould thephotographerdo if thenegotiationendedinimpasse?”IfnodealcouldbestruckandRooseveltdecidednottousethe photograph, the photographer would make little or no money on thephotograph; the photographer would also lose the opportunity for nationalpublicity.Inotherwords,whilethecampaignmanager’sBATNAwasquitepoor,sowas the photographer’s!As a result, the photographer could be induced toacceptlittleornomoneyatall.

Similarly, in the Hamilton negotiation, thinking through Connie Vega’salternativescanhelpyoutodiscoverherBATNA.Presumably,ifsheisunabletopurchasetheHamiltonproperty,ConniewillwanttoinvestEstateOne’sdollarsinadifferentdevelopmentproject;herpreferredalternativemaybetotrytofindanother piece of property on which to build luxury condominiums. If suchpropertiesare inshort supply in the townofHamilton,herBATNAmaybe tobuild elsewhere—or towait until other properties become available. Youwillwant to think through each of these alternatives carefully—from Connie’sperspective.Fornow, let uspresume that your analysis suggests thatConnie’sBATNAistowaititout.Inotherwords,ifsheisunabletoreachanagreementwithyou,EstateOnewillholdontotheircashandwaitfornewopportunitiestoariseinthefuture.

Step 4: Calculate the other party’s reservation value. Now that youhaveevaluatedConnie’sBATNA,areasonablewaytodetermineherreservationvalue is to considerwhat she is likely to dowith theHamilton property.YouknowthatEstateOnetendstodevelopitspropertiesforresidentialconstruction.Furthermore, you believe that Estate One will build condominiums on thepropertyratherthanrentalapartments,whichmakesthepropertymorevaluableto them than it would be to Quincy. Specifically, development for theconstructionof condominiumswould increase the value of the property by20percent.ToassessEstateOne’sreservationvalue(orhighestwillingnesstopay),thefollowingreasoningmaybeappropriate:

•Estimatessuggestthatthepropertyisworth$36–44millionifusedforapartmentbuildings.

•Themidpointofthisrangeis$40million.

•A20percentincrease(duetodevelopmentforcondominiums)over$40millionyieldsavalueof$48million.

•Thus,itisreasonabletoexpectthatConnieVega’sreservationvalueis$48million(assumingthevaluationhasalreadyfactoredinthecostsofdevelopment).

Step 5: Evaluate the ZOPA. Once you have an idea of each party’sreservation value, you can evaluate the zone of possible agreement, orZOPA.The ZOPA is the set of all possible deals that would be acceptable to bothparties.Putanotherway,theZOPAisthespacebetweentheseller’sreservationvalueandthebuyer’sreservationvalue.Inthecurrentnegotiation,theZOPAisanyofferthatfallsbetween$42.65millionand$48million:

Figure1.1:TheZoneofPossibleAgreement

TheZOPAcontainsallpossibleagreementsbecauseanypointinthisrangeisapossiblefinaldealtowhichbothpartiescouldagree;anypointoutsideofthisrangewillberejectedbyoneofthetwoparties.Youwillrejectanyofferbelow$42.65million;ConnieVegawillrejectanypriceabove$48million.

The ZOPA gives you the lay of the land, but tells you little about whereexactlythenegotiationwillactuallyend.YouwillwanttomakeadealatahighpricethatisasclosetoConnie’sreservationvalueaspossible,whileConniewillwantthepricetobeaslowaspossible.Andsothenegotiationbegins.Yourtaskin this negotiation is not simply to get a deal, but to claim asmuch value aspossible. Now that you have an idea about how much value is up for grabs($48M–$42.65M=$5.35M),youarereadytodoyourbestatclaimingthelion’sshareofit.

MAKINGTHEDEAL

If you were a student in one of our negotiation courses, you would haveapproximately twenty minutes to negotiate this deal. This would give youenough time to reach an agreement because this is a relatively simple (price-only)negotiation.Afterthetwentyminuteswereup,wewouldcollectalloftheagreements—thatis,thepriceagreedtobyeachbuyer-sellerpair—andthenputthemontheboardforeveryonetosee.Thereasonfordoingsoisthatitallowsus to consider, during the class discussion, which strategies led to better (orworse)outcomes.Butthereisanadditionalbenefittomakingtheresultspublic:youwouldbeamazedathowseriouslymostMBAandexecutivestudentstakeanexercisewhentheirperformancewillbejudgedbyagroupoftheirpeers!

To set upour own analysis of the case, let’s consider howyour negotiationwithConniemighthaveunfolded:

YoumetwithConnieandengagedinsomesmalltalk.YouweregladtolearnthatConniewasindeedveryinterestedintheproperty.Assubstantivediscussionsbegan,youtookcontrolandstartedtomakethecaseforahighsaleprice.Youalsomentionedthatyouhadreceivedseveralotheroffersandthatyouwere seriously consideringoneof them.To leverage themomentumyouhadcreated,you thenmadeanaggressiveopeningoffer:“Consideringthefactthatmultiplepartiesareshowinganinterestinthis property, and the fact that the land is worth 20 percent more when used for condominiumdevelopment,we believe that a $49million sale price is both fair and acceptable.”Connie seemedtakenaback;sheshookherheadassheresponded:“Well,thatiscertainlynotwhatwehadexpected.”Justasyoubegantowonderwhetheryouhadaskedfortoomuch,Connie,toyourgreatrelief,decided

tomakeacounteroffer:$45million.ThisofferalreadyexceededyourRV(excellent!),butyouwantedtomakeasmuchprofitasyoucould,soyoucontinuedtohaggle.Attheendoftheday,youwereabletoconvinceConnietoacceptapriceof$46million.

Howwouldyou feel at the endof thisnegotiation?Whatdidyoudo right?What, ifanything,couldyouhavedonebetter?Howcanyouevaluatewhetheryougotagooddeal,agreatdeal,orabaddeal?

NEGOTIATIONPOSTMORTEM

Oneway to evaluate your performance is to ask whether you surpassed yourreservationvalue:clearly,youdid.Whilethisiscertainlygoodnews,itmaynotbeagreatmeasureofnegotiationsuccess.Why?Becauseit’spossibletosurpassyour RV and yet only claim a small portion of the total value up for grabs.AnotherwaytoevaluateyourperformanceistoconsidertheentireZOPA.Theprice you negotiated ($46 million) seems closer to Connie’s RV than yours,suggestingthatyouclaimedsignificantlymorethan50percentofthevaluethatwasupforgrabs(thoughnotallofit).Dependingonhowhighyouraspirationswereattheoutsetofthisnegotiation,youmightbehappyordispleasedwiththisoutcome.

While these two metrics are useful, they both suffer from one importantdrawback: they evaluate your performance relative only to what you knewbeforethenegotiation.Amorecompletemeasurewouldevaluateyouroutcomeaccordingtowhatyoucouldhavediscoveredduringthenegotiation.Howwouldyou feel if you discovered that Connie’s RV was not $48 million but $46million? Presumably, you would feel that you did even better than you hadoriginallythought:youcapturedalloftheZOPA.Alternatively,howwouldyoufeelifConnie’sRVwasmuchhigher—$55or$60million?Inthatcase,Conniewouldhavecapturedthelion’sshareofthevalue.Asyoucansee,howwellyouactuallyperformedinthisnegotiationdependsonanevaluationofhowwellyoucouldhavedone.

Now consider some information that onlyConnie knew at the outset of thenegotiation:

•EstateOnewasactuallynotinterestedindevelopingtheHamiltonpropertyforresidentialconstruction;theyhopedtousethispropertytoenterthecommercialdevelopmentindustry.

•ConnieVega,withherstrongpoliticalties,wasamongthefirsttoknowthatzoninglawsinHamiltonwerescheduledtochangeinthecomingmonths,makingcommercialdevelopmentpossible.

•EstateOnewouldhavebeenwillingtopayupto$60milliontopurchasetheHamiltonproperty.

Giventhisnewinformation,howshouldweevaluatethedealyounegotiated?Clearly,the$46millionsalepricelooksalotlessimpressive!Inthisnewlight,theoutcomeyounegotiatedismuchclosertoyourRVthanitistoConnie’s.ItlooksasifConniecapturedmostofthevaluethatwasupforgrabs.Youcouldhavedonemuchbetter!Butthenagain,isitreallyfairtoevaluateyouroutcomerelativetoinformationthatyoudidnotevenhaveduringthenegotiation?

We think so.Negotiation geniuses are not bound by their circumstance norlimitedby the informationwithwhich theyareendowed.Negotiationgeniusesknow how to act on information they have, acquire information they do nothave,andprotect themselves frominformation theycannotobtain.Asa result,theyevaluatetheirperformancebythestrictestofstandards.

COMMONNEGOTIATORMISTAKES

Now that you havemore information aboutwhatwas happening on the otherside of the table, take another look at your negotiation with Connie Vega. Inhindsight,whatmistakesdidyoumake?Whatmightyouhavedonedifferently?HowcouldyouhaveclaimedalargershareoftheZOPA?

Tostart,hereareafewclearmistakes:

1.Youmadethefirstofferwhenyouwerenotinastrongpositiontodoso.

2.Youmadeafirstofferthatwasnotsufficientlyaggressive.

3.Youtalkedbutdidnotlisten.

4.Youtriedtoinfluencetheotherpartybutdidnottrytolearnfromher.

5.Youdidnotchallengeyourassumptionsabouttheotherparty.

6.YoumiscalculatedtheZOPAanddidnotreevaluateitduringthenegotiation.

7.Youmadegreaterconcessionsthantheotherpartydid.

Asit turnsout, thesemistakesareamong themostcommonthatnegotiatorsmakeastheyattempttoclaimvalueinadeal.Inthefollowingsections,wewillintroduce you to a better approach to the Hamilton negotiation—and tonegotiationsmoregenerally—byansweringaseriesofquestionsthatexecutives,students,andclientshaveaskedushundredsof times. Indoingso,ourgoal isnotonly to equipyouwith effectivenegotiation strategies, but also toprovideyouwithanunderstandingof importantpsychologicalprinciples thatwillhelpyouanticipateandrespondtothenegotiationbehaviorsofothers.

SHOULDYOUMAKETHEFIRSTOFFER?

Whenweposethisquestiontotheexecutivesinourclasses,mostinsistthatyoushouldnevermakethefirstoffer.Instead,theysay,lettheotherpartymakethefirst offer; this provides valuable information and tells you where they arecomingfrom.Buttherearealsomanyexecutiveswhobelieveyoushouldalwaysmakethefirstoffer;bydoingso,theyargue,youtakecontrolofthedialogueandnegotiate “on your terms.” The right answer—hardly surprising to those whoknowatrickquestionwhentheyseeone—is“itdepends.”

Theprimarybenefitofmakingafirstofferinnegotiationisthatitestablishesananchor.An anchor is a number that focuses theother negotiator’s attentionandexpectations.Especiallywhentheotherpartyisuncertainaboutthecorrect,fair,orappropriateoutcome,theyarelikelytogravitatetowardanynumberthathelpsthemfocusandresolvetheiruncertainty.Asitturnsout,firstofferstendtoserve thispurposewell: theyanchor thenegotiationandstrongly influence thefinaloutcome.

Forexample,imaginethatyoucalculatedConnie’sreservationvaluetobe$48millionandthatyouexpectedhertomakeanaggressivefirstofferofabout$40million.If,instead,shemakesafirstofferof$32million,youarelikelytostartquestioningyourassessmentofConnie’sRV.WouldConniestartso lowifshecould actually pay as much as $48 million? Is Estate One planning to buildapartments, not condominiums? Perhaps their maximumwillingness to pay ismuchlowerthan$48million.Whentheotherpartysetsananchor,itinfluencesnotonlyyourperceptionsoftheirRV(and,hence,oftheZOPA),butalsoyourcounteroffer.Youmayhaveplannedtostart thenegotiationat$50million,butgiven Connie’s surprisingly low first offer, you now begin to think that you

shouldstartalittlelower.Anofferof$50millionnowseemsextreme,carryingwith it the risk of impasse. Instead, you counter the $32million offer with amorereasonable-soundingofferof$45million.Connie’sanchorhasworked.

Thepowerofanchors issubstantial.Researchhasshownthatanchorsaffecteven those with negotiation experience and expertise. In one remarkabledemonstrationofthepowerofanchors,professorsGregNorthcraftandMargaretNealeinvitedreal-estateagentstoevaluateahousethatwasforsale.4Theagentswereallowedtowalkthroughthehouseandtheneighborhood,andweregivenaMultipleListingService(MLS)informationsheetthatprovideddetailsaboutthehouse, including its size and dimensions, the year it was built, the amenitiesincluded, et cetera. They were also given detailed information about otherpropertieslocatedinthesameneighborhood.Theinformationprovidedtoeachagentwas identicalwithone exception: the “list price”on theMLSsheet thatwas given to the agent was randomly picked from one of the following: (a)$119,000,(b)$129,000,(c)$139,000,or(d)149,000.5

In real estate, the listprice is the“firstoffer”madeby the seller.Thus, thisstudymanipulatedthefirstoffertoseewhetheritwouldaffecttheperceptionsofexperienced real-estate agents. After seeing the house and reading all of theinformation,agentswereaskedtoevaluatethehouseonfourdimensions:

1.Whatisanappropriatelistpriceforthishouse?(AppropriateListPrice)

2.Whatdoyouestimateistheappraisalvalueofthishouse?(AppraisalValue)

3.Asabuyer,whatisareasonableamounttopayforthehouse?(WillingnesstoPay)

4.Whatisthelowestofferyouwouldacceptforthishouseifyouweretheseller?(LowestAcceptableOffer)

Figure 1.2 graphs the responses to these questions by agents who wereprovidedeachofthelistprices.Asyoucansee,agentswerestronglyinfluencedbywhicheverlistpricetheywerearbitrarilyassigned!Oneverymeasure,thosegivenahigherlistpricethoughtthehousewasworthmorethandidthosegivena lower list price. Furthermore, when the agents were asked whether theiranswers had been influenced at all by the list price given to them on theinformationsheet,morethan80percentofthemsaidno.

Figure1.2ThePowerfulEffectsofAnchoring

Giventhepowerfuleffectsofanchoring,itbecomesclearthattheremaybeanadvantage tomakinganaggressive firstoffer inanegotiation.Why, then, is itsometimesbettertolettheotherpartymakethefirstmove?

Whenmadeprematurely,afirstoffercanbeextremelycostly.Considerwhathappened in the Hamilton negotiation. Your “aggressive” first offer of $49million was based on your belief that Connie’s reservation value was $48million.As it turns out, your perceptionwas incorrect, and the first offerwasdisastrously low. (NowonderConnie looked taken abackwhen youmade it!)Because Connie’s actual RV was $60 million, you probably could havenegotiatedamuchhighersalepricethanyouactuallydid.However,themomentyoumadeafirstofferof$49million,yousettheupperlimitforwhatyoucouldpossibly capture. In otherwords, you lost your claim to a largeportionof theZOPAbymakingafirstoffer thatwaswellbelowtheotherparty’sreservationvalue. It’s not every day that you lose $11 million simply by opening yourmouth!Yetevenexperiencednegotiatorswhostandtolosethousandsormillionsofdollarsoftenerrbymakingafirstofferwhentheyarenotinapositiontodosowisely.

As this discussion suggests,whether you shouldmake the first offer or not

depends upon how much information you have. If you believe you havesufficientinformationabouttheotherside’sreservationvalue,itpaystomakeareasonable(i.e.,sufficientlyaggressive)openingofferthatanchorsthediscussioninyour favor. Ifyoususpect thatyoumaynothaveenough informationabouttheZOPA,you’dbewisetodeferanopeningofferuntilyouhavecollectedmoreinformation.Inthiscase,itmayevenbeagoodideatolettheotherpartymakethefirstoffer.Youmightforgotheopportunitytoanchorthenegotiation,butyoualsoavoidthedownsideofnotanchoringaggressivelyenough.Noticethatalackof information can also lead you to anchor too aggressively, demanding anamount thatmightoffend theother side anddrive themaway. Inotherwords,askingfortoolittlediminishestheamountofvalueyoucancapture;askingfortoomuchdiminishesyourchancesofconsummatingthedeal.Aswewilldiscussshortly,negotiationgeniusesknowhowtobalancethesetwoconcerns,andtheyknowwhichfactorstoconsiderwhenstructuringtheirinitialoffer.

HOWSHOULDYOURESPONDTOTHEIRINITIALOFFER?

Whentheotherpartymakesthefirstmove,youbecomevulnerabletotheeffectsofanchoring.Becauseanchoringeffectscanbeverysubtle, this is likely tobetrueevenifyouareawareoftheseeffects.However,thereareanumberofwaysyoucanprotectyourselffrombeingoverlyinfluencedbytheotherside’sanchor:

STRATEGY1:IGNORETHEANCHOR

Thebestthingtodointheeventthattheotherpartymakesanaggressivefirstoffer—whether high or low—is to ignore it. This doesn’t mean you shouldpretendyoudidn’thearit.Rather,respondtothiseffect:“Judgingbyyouroffer,Ithinkwemightbelookingatthisdealinverydifferentways.Let’strytobridgethatgapbydiscussing…” In thismanner,youcan shift theconversation toanentirelydifferenttopic,onethatallowsyoutoreassertcontrolofthediscussion.

STRATEGY2:SEPARATEINFORMATIONFROMINFLUENCE

Everyoffer isacombinationof informationand influence.Theotherparty’soffer tells you something about what she believes and what she wants(information),butitalsohasthepowertoderailyourstrategy(influence).Yourtaskistoseparatetheinformationcontainedintheparticularsoftheoffer(andtheway inwhich itwasmade) fromtheotherside’sattempt to influenceyourperceptions.Thebestwaytostaveoffinfluenceistosticktoyouroriginalgameplan. If youwalked inwith a prepared first offer, don’t allow the other side’s

anchor to soften it. This does not mean that you should ignore substantialinformationthatchangesyourbeliefsabouttheactualZOPA.Forexample,iftheother side has just provided credible evidence that she has an attractive offerfrom a competitor of yours, this might be reason to adjust your counteroffer.However, it is important to realize that anchors will affect perceptions andcounterofferseven in theabsenceofanyreal informationprovidedtoyou.Forexample,thenegotiator’smindcansometimesfailtodistinguishbetweenthesetwostatements:

•InformationandInfluence:“WehavereceivedabetterofferfromCompanyX.Asaresult,wethinkyourinitialofferislow.Wewouldlikeyoutoincreaseitto$7million.”

•InfluenceOnly:“Asyouknow,thereareothercompanieswithwhomwedobusiness.Wehavespokenwiththem.Asaresult,wethinkyourinitialofferislow.Wewouldlikeyoutoincreaseitto$7million.”

Thefirststatementprovidessome(butnotmuch)substantiveinformationthatshouldpromptyoutothinkaboutwhethertoaccept,challenge,orquestionthestatementbeingmade.Thesecondstatementsimplyreiterateswhatyoualreadyknew,butusesphraseologythathelpstheothersideemphasizeitsanchor.Thus,youhaveeveryreasontoignorethisstatement.

STRATEGY3:AVOIDDWELLINGONTHEIRANCHOR

Many negotiators believe that if someone anchors aggressively, you shouldpush them to justify the anchor, thereby exposing the frivolousnature of theirextreme demands. This is a dangerous strategy. Why? Because the more ananchor isdiscussed inanegotiation, themorepowerful itbecomes. Ifyouaskthe other party to justify their offer or discuss it further (e.g., “How did youcomeupwith thatnumber?”),you increase thepowerof that anchor todefinethenegotiationparameters.Almostalways,yourcounterpartwillfindawaytoframethenegotiationsuchthattheiroffermakesatleastamodicumofsense.

On theotherhand,youdonotwant tomissouton theopportunity to learnsomething new about the deal or about your counterpart’s perspective. Toresolvethisdilemma,trythefollowing:ifyouaresurprisedbytheiroffer,probealittletofindoutifthereisinfactanysubstantivenewinformationthatyoucan

obtain.Ifnosuchinformationisforthcoming,quicklyshiftattentionawayfromtheanchorbysharingyourownperspectiveanddefiningthenegotiationinyourterms.

STRATEGY4:MAKEANANCHOREDCOUNTEROFFER,THENPROPOSEMODERATION

Finally,ifitisnotpossibletoignoreordismisstheotherparty’sanchor,youshould offset its influence bymaking an aggressive counteroffer. In doing so,you retain the ability to capture as much of the ZOPA as possible. However,counteringaggressionwithaggressioncomesatarisk:thepossibilitythatbothpartieswillbecomeentrenchedandreachanimpasse.Tomitigatethisrisk,youshouldoffsettheiranchorwithanaggressivecounteroffer,andthensuggestthatyou need towork together to bridge the gap. In addition, you should offer tomakethefirstmovetowardmoderationbydiscussingyourownperspective(i.e.,by justifying your aggressive counteroffer). This allows you to deflate theiranchor while shifting from an aggressive exchange to a quest for commonground.Forexample,inresponsetoanaggressiveanchor,youmightsay:

Well,basedonyouroffer,whichwasunexpected,itlookslikewehavealotofworkaheadofus.Fromourperspective,afairpricewouldbecloserto$X[yourcounter-anchor].Iwillexplaintoyouhowwearevaluingthisdeal,butitappearstomethatifwearetoreachanyagreement,wewillbothhavetoworktogethertomakeithappen.

STRATEGY5:GIVETHEMTIMETOMODERATETHEIROFFERWITHOUTLOSINGFACE

Iftheotherparty’sinitialofferisveryextreme—faroutsidetheZOPA—youmay need to inform them that their offer is not even a basis for starting thediscussion. This assertion should be followed by information regarding yourown perspective and a candid invitation to reopen negotiations from a verydifferentstartingpoint.

Of course, itmay not be easy for them to quickly reduce their demands sodrastically—doing sowould reveal that theywere simplyposturingwhen theymade their initial offer.As a result, youmaywant to give them some time to“thinkaboutit.”Iftheydecidetomoderatetheirdemands,theywillneedtimetosave face. They can return to the bargaining table in a day or a week, after“having figured out a way to make this happen,” “having re-crunched thenumbers,”or“havingfoughtitoutwithourconstituents.”Inotherwords,whenreacting to very extreme offers, your foremost goal should be to re-anchorsuccessfully, not to convey your outrage.And re-anchoring successfully often

means helping the other side find a way to retract earlier demands andarguments.

WHATSHOULDMYFIRSTOFFERBE?

Suppose you have collected enough information before and during thenegotiation to make an appropriate first offer. How aggressively should youanchor?Therearefourfactorstoconsider:

1.KeeptheentireZOPAinplay.Howcanyoumeetthegoalofmakinganoffer thatkeepstheentireZOPAinplay?Bymakinganoffer thatfallsoutsidetheZOPA—one that you know the other sidewill not accept. In thismanner,when substantivenegotiationsbegin,youwill still have theability to claimasmuchvalue as possible.The idea is to force the other party tonegotiate theirway into the ZOPA. If your first offer is already inside the ZOPA, you havegiven up the ability to claim value that lies between your offer and the otherparty’sRVfromtheverystart.IntheHamiltonnegotiation,yourfirstoffer($49million) was well within the actual ZOPA (as revealed to you after the fact),thereby eliminating the possibility of any agreement between $49million and$60million.

2.Provideajustificationforyouroffer.HowfaroutsidetheZOPAshouldyour offer be? Should your offer in the Hamilton negotiation have been $61million?$70million?$100million?Ontheonehand,thehigheryourfirstoffer,themorelikelyitisthatifyoureachanagreement,itwillbeclosertotheotherside’s reservation value than to yours (and hence more profitable for you).However,themoreaggressiveyourfirstoffer,themorelikelyitisthattheotherpartywillbeoffendedbyit,thinkthatyouarenotserious,orbelievethatthereisnowayofreachinganagreementwithyou.

Howcanyoubalancetheseconcerns?First,consider thecontext: thedegreeof aggressiveness should be appropriate to the situation. In most real-worldnegotiation contexts, you will not want to be too far outside the ZOPA;otherwise,youlosecredibility.Inothersituations(businessdisputesinvolvingamediator, contentious labor-management negotiations, haggling with a streetvendor, et cetera), it is normal and expected for both parties to open with

extremedemands.Itwouldbeunwiseinthesecasestomoderateyourdemandstoomuchbecausetheothersideisstilllikelytoanchoraggressively.

Todetermineyourexactoffer,askyourselfthefollowingquestion:“WhatisthemostaggressiveofferthatIcanjustify?”Youshouldnevermakeanoffersoextreme that it cannot be stated as follows: “I would like to propose X,because…” If you cannot finish this sentence in anymeaningfulway, you areprobablyaskingfortoomuch.

In the Hamilton negotiation, you could have leveraged a variety ofinformationtojustifyincreasinglyaggressiveofferstoConnieVega,asfollows:

•“Wethink$48millionisafairpricebecausetheaverageofrecentsalepricesintheareasuggeststhatthelandisworth$40millionandbecausecondominiumdevelopmentmakesthelandworth20percentmore.”

•“Wethink$52.8millionisafairpricebecauserecentsalepricesintheareasuggestthatthelandisworthasmuchas$44millionandbecausecondominiumdevelopmentmakesthelandworth20percentmore.”

•“Wethink$60millionisafairpricebecausethelandcanbeusedforcommercialdevelopment,whichmakesitworthatleastoneandahalftimeswhatitisworthifusedforresidentialdevelopment(whichis$40milliononaverage).”

•“Wethink$88millionisafairpricebecausethelandcanbeusedforcommercialdevelopment,whichmakesitworthasmuchastwotimeswhatitmightbeworthifusedforresidentialdevelopment(whichis$44million).”

While Connie would surely respond to these different offers with varyinglevels of receptivity or apprehension, the inclusion of the justification wouldmake it difficult for her to dismiss your offers out of hand. Shemaywant tochallengeyourassumptions—butthat’snotaproblem,asitincreasestheamountof time that you spenddwelling on your perspective andyour anchor.Conniemight want to aggressively bargain down the price—also okay, because youhaveopenedhighenoughthatsheshouldworktonegotiateintotheZOPA(andyoushouldallowhertodoso!).

Finally,themostaggressiveoffers($60and$88million)aresmartevenifyoudonotbelievethatthepropertywillbeusedforcommercialdevelopment—and

evenifbothofyouknowthatitwon’t.Regardless,theanchorhasbeenset,andthe other side’s counteroffer will likely be less aggressive than it otherwisewouldhavebeen.

3.Sethigh,butrealisticaspirations.Inournegotiationseminars,weaskparticipantstowritedowntheirtargetprice—thatis, theoutcometheyhope toachieve—beforethenegotiationbegins.Afterthesimulationhasconcluded,weanalyze the relationship between negotiators’ target price and final negotiatedprice. These two correlate highly; that is, those who have more aggressivetargetstendtoachievemorefavorableoutcomesthandothosewithmoremodestgoals.

Why?First,thosewhosethighaspirationstendtomakemoreaggressivefirstoffersinordertoreachtheirtarget.Thus,aspirationsinfluencefirstoffers,whichinturninfluencefinalprices.Second,thosewithaggressivetargetsworkharderathagglingoncebothparties’openingoffersareon the table.Highaspirationsserveasself-fulfillingprophecies;theymotivatethekindsofbehaviorsthathelpusachieveaggressivetargets.

This simple advice—“Always reach for the stars!”—is nonetheless oftenignoredbynegotiators; fewsetexplicit targetsprior tonegotiation.But targetsthat are inspired by high aspirations and yet grounded in reality (i.e., in yourassessment of the ZOPA) are effective because they motivate behavior andminimizeyoursusceptibilitytoinfluencetactics.

4.Considerthecontextandtherelationship.Themost important thingtoconsiderwhenmakinganyofferisthecontextofthenegotiation.Whattypeof relationship do you have with the other side?Will hard bargaining be ill-received? Are reputations at stake? What norms drive your interactions? Forexample,youmighthaveevaluatedtheZOPAperfectlyandjustifiedyourofferbrilliantly, but if you lose sight of the fact that your tactics could affect therelationship, you might lose the deal—or worse, lose the deal, damage therelationship,andruinyourreputationallatthesametime.Thus,yourofferandyour justifications shouldbe informedbyyourunderstandingof theneedsandsensitivitiesof the relationship.Yourgoalshouldnotsimplybe toget thebest

possible deal while preserving the relationship, but to get the best deal whilestrengtheningtherelationshipandyourreputation.Youmayhavetoforgosomeshort-termgainstomeetthisgoal,butthissacrificewillalmostalwaysbeworththeprice.

HOWFARCANIPUSHTHEM?

Knowing the other side’swalk-away point tells you just how far they can bepushed—andhowmuchvalueyoucancapture.Ofcourse,theothersidehasnoincentivetorevealtheirreservationvaluetoyou.How,then,canyouobtaintheinformationthatwillhelpyouestimatetheirRVwithgreateraccuracy?Herearethestepstofollow:

Step1.Exhaustallpre-negotiationsourcesofinformation.Thereareoftendozensofwaystocollectinformationthatdonotentailguessingoraskingtheotherpartydirectly.Forexample, inareal-worldHamiltonnegotiation, theseller should begin by talking to state and local politicians to assess thelikelihood that commercial zoning lawswill change. ConnieVega gained thisinformationfromherpoliticalties,butthatdoesn’tmeanitisconfidential.(And,notethatyourownconfidentialroleinformationraisedthisissueaswell.)Youcouldhavesavedmillionsonthedealbyseekingoutthisinformation.HereareotherpotentialsourcesofinformationintheHamiltoncase:

•EstateOneboardmembersorexecutiveswithwhomyouorothersinyourorganizationhaveties.

•IndividualsandfirmsthatEstateOnehasdealtwithinthepast.

•Commercialdeveloperswhomightbetrackingproposedchangesinzoninglaws.

•BusinessesnearorinHamiltonthatmightbeaffectedbyproposedchangesinzoninglaws.

•ResidentsofHamiltonwhomayhaveheardaboutproposedchangesinthezoninglaws.

Consider another situation in which such background information is key:negotiating a joboffer.Often,whenMBAstudents come tous seeking adviceregardingnegotiationswithprospectiveemployers,theyareconfusedaboutwhat

is negotiable, the degree to which each issue is negotiable, and howmuch isreasonable todemand.Whenweask themwhat theyhavedone toresolve thisuncertainty, they usually tell us that they have only discussed these questionsinformallywith their classmates.That is certainlynotenoughofaneffort.Weencourage them to talk to students from their program who were hired thepreviousyearbythesamefirm,friendsandacquaintanceswhohaveworkedin(or who have offers from) firms in the same industry, and staff in theMBAplacementoffice.Theycanalsoobtaininformationfromindustrypublicationsorfrom websites that provide hiring and salary data for a wide variety ofprofessions.Moregenerally,inanynegotiation,onceyouknowwhatyoudonotknow,itisimportanttoseekoutallpotentialsourcesofinformation.

GainingaclearerunderstandingoftheZOPAandtheotherside’sinterestsisjustonebenefitof acquiring informationprior tonegotiation. Informationalsohelps you to avoid beingmanipulated or lied to during the negotiation. If theother party perceives that you have done your homework, theirwillingness todeceive you decreases. Yet another potential benefit of gathering informationprior to negotiation is that you are likely to be taken more seriously. Yourcounterpartmaybenefitfromyourignorance,butdotheyreallywanttomakeadeal with someone who is completely unprepared? This is unlikely. Preparednegotiatorsnotonlymakefewerstrategicmistakes,theyalsocommandgreaterrespectbothduringandafterthenegotiation.

Step2.Identifyyourassumptionspriortothenegotiation.Socratesisbelievedtohavesaid:“Iamlikelytobewisertothissmallextent,thatIdonotthink I know what I do not know.” Such wisdom about one’s limitations iscritical in negotiation. For example, you are unlikely ever to know the otherside’sexactreservationvalue.Asaresult,youdonotknowtheZOPA;youcanonly estimate the ZOPA—and revise that estimate as you gather moreinformation.

Wisenegotiatorscreateacomprehensive listofwhat theyareassumingandwhat they do not know prior to negotiation. In theHamilton negotiation, youassumed that commercial development was not an option. What otherassumptionsdidyoumake?PerhapsyouassumedthatEstateOnedoesnotknowaboutyourofferfromQuincy.Butwhat if theydo?WhatifConnieknowstheCEOofQuincy—andyouhaveliedaboutthesizeofQuincy’soffer?

Of course, in any negotiation, each party makes an infinite number ofassumptions.You cannot keep track of each one—and you don’t have to.Butyoudoneedtoidentifyandbeawareofalloftheassumptionsthatunderlieyourplannedcourseofaction.Forexample, ifyoudonotplan to refer toQuincy’sbid,youdon’thavetoworryaboutassumptionsregardingQuincy.Butbecauseyourplandoesrequireanassessmentoftheotherparty’sRV,youmustkeepinmindyourassumptionsregardingEstateOne’splansfortheland.

Step 3.Askquestions that challenge your assumptions. Thewrongway toapproachanegotiation is tostartbargainingas ifyourassumptionsarecorrect.Instead,askquestionstoclarifymatters.ConsiderthesethreealternativeapproachestostartingtheHamiltondiscussion:

A.“Weunderstandthatyoumightbeinterestedindevelopingthislandfortheconstructionofluxurycondominiums.Wethinkthat’sgreat.Ofcourse,webothunderstandthatthismakesthelandquitevaluable.”

B.“Perhapsweshouldbeginbydiscussingyourneeds.Whatareyourplansforthisexcellentpieceofrealestate?”

C.“Ifthelandisusedforcommercialdevelopment,thatwillmakeitquitevaluable.Withthatinmind,let’sdiscusssomespecifics.Whatareyourplansforthisexcellentpieceofrealestate?”

Approach A has the merit of preparing the discussion for an aggressiveanchor; the mention of the land’s high value is a nice touch. However, theproblemwiththisapproachisthatitpotentiallygivesaway$11million.EvenifConnie had been willing to truthfully answer every question regarding EstateOne’splans, thefactthatyoudidn’taskheranydirectquestionsmakesiteasyforhertoletyoupersistinyourignorance.ApproachBpotentiallysavesyouupto$11millionbecauseitforcesConnietoexplicitlylieifshewantstoconvinceyou that Estate One is not planning commercial development. Approach Ccombinesandimprovesonthemeritsofthepreviousapproaches;here,youtakeananchoringposition andalso ask adirect question aboutEstateOne’splans.Thisapproachisevenmorepowerfulbecauseitframesthequestionintermsofcommercial development. This makes it difficult for Connie to lie, as it nowsoundsasifyoualreadyknowofEstateOne’splans(evenifyoudonot).Thus,

thisapproach—anchoring, interrogating, and sounding sufficiently informed—encapsulates all the characteristics of an effective approach in the face ofuncertainty.

Step4.Ask indirectquestions.Naturally, the other partywill sometimesrefusetoanswerquestionsthatcouldhelpyoudeterminetheirreservationvalue.Inthatcase,youneedtoaskquestionsthatarelessdirect—andlessthreatening.For example, youmight ask Connie about the challenges her company faces,what Estate One hopes to accomplish in the next ten years, what kinds ofprojectsyoumightbeabletohelpthemwithinthefuture,orhowtheHamiltonpurchase fits into their portfolio of projects. Given that Estate One is not acompetitorofyours,thesearereasonablequestionsforyoutoaskandforhertoanswer.

Similarly, consider the questions that our MBA job candidate might askprospective employers to determine the hiring manager’s likely reservationvalue:

•Howmanyhoursdoemployeestypicallyworkeachweek?

•WhatkindsofprojectswillIbeworkingon?

•Whowillmyclientsbe?

•Whomdoesthefirmtypicallyhire?

•Withwhomdoesthefirmtypicallycompeteforhiring?

•What,ifany,aretheformalconstraintsoncompensationfornewhires?

Step5.Protectyourselffromliesanduncertaintywithcontingencycontracts.Supposeyouhavedoneeverythingright:youhaveidentifiedwhatyou do not know, you have exhausted all sources of information prior tonegotiation, and you have done everything you possibly can to obtaininformationfromtheotherside.Yetyouremainuncomfortablebecauseyoustilllack certain vital information. For example, imagine that Connie has told you

thatEstateOnewillnotusetheHamiltonpropertyforcommercialdevelopment.Althoughyouhavenowayofknowingwithanycertainty,youbelievethisisalie.Whatshouldyoudonow?

Consider the use of a contingency contract. Contingency contracts areagreementsthatleavecertainelementsofthedealunresolveduntiluncertaintyisresolvedinthefuture.IntheHamiltonnegotiation,acontingencycontractmightstate:“Thesalewillbemadeatabasepriceof$46million,withtheconditionthat if the land is used for commercial development in the next seven years,Estate One will pay an additional $10 million to Pearl Investments.” Themoment this clause is included in the agreement, Estate One no longer has amotivationtolie!BecausethesalepriceisnowtiedtoEstateOne’splans,theycannotbenefit fromdeceivingyou.Furthermore,even ifConniewasnot lying(i.e., Estate One is not currently planning commercial development), thecontingency contract protects you against a future change of plans by EstateOne.

Notice that if Estate One is planning to use the land for commercialdevelopment,andifConniewantstokeepthisasecret,shewilllikelyresisttheinclusionofyourproposedcontingencycontract.Whatthen?Herunwillingnessto agree to the contingency shouldbe awarning sign that something couldbevery wrong! Why would she resist this clause if Estate One were entirelyuninterestedincommercialdevelopment?Thus,contingencycontractsnotonlyprotectyoufromlies,butalsohelpyoudetectlies.

EFFECTIVEHAGGLINGSTRATEGIES

When most people think about negotiation, they think about haggling— theiterativegive-and-takethattakesplaceaftereachpartyhasmadeitsinitialoffer.Hagglingisanecessarycomponentofeverynegotiation.Why?Becauseitisnotsufficient that parties discuss options that exist within the ZOPA; to reach aspecific negotiated agreement, they must coordinate and ratify a mutuallyacceptablefinaldeal.Sinceneitherpartywantstoconcedemorethantheother,eachtendstoconcedeslowlyand,typically,onlyinresponsetotheotherside’sconcessions.Nonetheless,somenegotiatorsareexcellenthagglers,whileothersfallpreytotheotherside’sinfluencetacticsandendupconcedingtoomuch.Inaddition,somenegotiatorsfail totakebasicstepstoensurethattheotherpartywillnottakeadvantageofthem.Hereweconsidereachoftheseissuesandofferspecificadviceabouteffectivehaggling.

STRATEGY1:FOCUSONTHEOTHERPARTY’SBATNAANDRESERVATIONVALUE

ThinkbacktowhenRoosevelt’scampaignmanagerdiscoveredthathemightowe asmuch as $3million to a photographer. Insteadof focusingonhis ownweak BATNA (reprint millions of brochures), the manager focused on thephotographer’sweakBATNA(makenomoneyandloseapublicityopportunity).Indoing so, themanagernotonlyavoidedpayingahighprice,but alsomadesome money on the deal. Negotiators who focus on their own BATNA (i.e.,“WhatcanIdowithouttheotherparty?”)tendnottosethighaspirationsandarehappygettinganythingbetterthantheirRV.Meanwhile,thosewhofocusontheotherparty’sBATNA(“Whatwilltheydowithoutme?”)arepayingattentiontotheamountofvaluetheybringtotheotherparty.Thesefolkstendtosethigheraspirationsandcapturemorevalueinthedealstheynegotiate.

STRATEGY2:AVOIDMAKINGUNILATERALCONCESSIONS

Once each party hasmade an initial offer, it’s time to takemeasured stepstowardamutuallyacceptableagreement.Negotiationgeniusesarewillingtobeflexible and to make concessions, but they also demand reciprocity. It isimportanttoavoidmakingunilateralconcessions.Luckily,anormofreciprocitypervadesmost negotiation contexts: partieswidely expect and understand thattheywill take turnsmaking concessions. If the other party violates this norm,youshouldrectifythisproblemimmediately.Thenextfivepointsshowhowtodoso.

STRATEGY3:BECOMFORTABLEWITHSILENCE

Many people are uncomfortablewith silence. As a result, they speakwhentheyshouldnot.Aparticularlydangeroustimetospeakisafteryouhavemadeyourofferandtheothersideisconsideringit.Iftheothersideseemstobetakingtoolongtorespond,negotiatorsoftengrownervousandstartbargainingagainstthemselves.Beforeyourcounterparthasevenvoicedaconcernoragrievance,youmightbetemptedtoretractyourofferortomakefurtherconcessions.

Experiencednegotiatorshavetoldusthat theyusesilencetotheiradvantagein exactly this way. Instead of responding negatively to an offer, they simplywaititout.Veryoften,thepartythathasmadetheofferwillbegintoqualifyit,moderate it, or simply signal a greater willingness to concede. Effectivenegotiators understand not only the power of silence, but also the need to becomfortablewithit.Justremindyourselfthatifyouspeakwhenitistheir turn,

youwillbepayingbytheword.

STRATEGY4:LABELYOURCONCESSIONS

According to the norm of reciprocity, negotiators should reciprocate theconcessions made by others. Because people are hardwired to feel obligatedwhensomeonehasprovided themsomethingofvalue, thisnormisapowerfulmotivatorofbehavior.Yetpeoplearealsomotivatedtoundervalueorignoretheconcessionsofothersinordertoescapefeelingsofobligation.Ourresearchhasshown that it is easy for people not to reciprocate when the other party’sconcessions are not top of mind.6 For this reason, it is critical to label yourconcessions. Instead of simply giving something away or moderating yourdemands, make it clear that your action is costly to you. Because labeledconcessions are hard to ignore, it becomes difficult for recipients to justifynonreciprocity.

STRATEGY5:DEFINEWHATITMEANSTORECIPROCATE

Reciprocity is even more likely if you not only label your concession, butspecify what you expect in return. This strategy eliminates another piece ofambiguity.Eveniftheothersideacknowledgesyourconcession,theymightstillreciprocatewith something of low value unless youmake it clear that such amove does not fulfill their obligation to reciprocate. For example, yourconcession might take the following form: “I understand that we are stillmillionsofdollarsapart.I’mwillingtomoderatemydemands,thoughthiswillbeverycostlytome.I’mmakingaconcessionwiththeunderstandingthatyouwillreciprocatewithconcessionsofsimilarmagnitude.Thisistheonlywaywewillbeabletoreachanagreementwebothcanaccept.”

STRATEGY6:MAKECONTINGENTCONCESSIONS

Contingentconcessionsexplicitly tieyourconcessions tospecificactionsbytheotherparty.Inotherwords,youcanphraseyourconcessionsinaquid-pro-quomannertoclarifythatyouwillonlymakethemiftheotherpartydoestheirpart. For example: “I can pay a higher price if you can promise me earlydelivery.”

While such concessions are among the safest a negotiator can make, thatdoesn’tmean they are always appropriate. Themore conditions you place onyourconcessionsandyourwillingnesstocooperate,themoredifficultitmaybe

to build trust and strengthen the relationship. Thus, contingent concessionsshouldbeusedasneeded,butnotoverused.

STRATEGY7:BEAWAREOFTHEEFFECTSOFDIMINISHINGRATESOFCONCESSIONS

Inmostnegotiations,concessionratesfollowapattern:earlyconcessionsarelarger in size than later concessions. In otherwords, negotiators tend to offerdiminishingratesofconcessionsoverthecourseofthenegotiation.Forexample,atthecardealership,thesalespersonmightstartat$45,000,thengoto$44,000,thento$43,500,thento$43,300.Thismaybeareasonabletrend;asanegotiatorgetsclosertohisreservationvalue,thereislessroomforlargeconcessions.Asaresult,mostnegotiatorsexpectthispatternandtakeitasasignalthattheotherparty’sRV isapproaching.But it’salsopossible that theotherpartycouldusethis expectation strategically. That is, a party that is far from his RV mightsuggest that he is running out of room by offering concessions that quicklydiminishinsize.ItisimportanttoconsiderthispossibilitywhenupdatingyourbeliefsregardingthetruesizeoftheZOPA.

NEGOTIATINGTHERELATIONSHIP

Manypeoplebelievethatyoucaneithergetagreatdealforyourself,oryoucanplayniceandmake theothersidehappy.As it turnsout, this isnot theway itworks.Whether therelationshipisstrengthened,weakened,ordestroyedinthenegotiationdoesdependonhowsatisfiedeachpartyiswiththefinaloutcome—but satisfactionhas less todowithhowwell someoneactually negotiated andmuchmore todowithhowwell they think theynegotiated.With this inmind,negotiationgeniusesnotonlymanagetheirownoutcomes,theyalsomanagetheother side’s satisfaction. Put simply: you are negotiating not just the deal, butalsotherelationship.

Thepeoplewithwhomyounegotiatewillbesatisfiedtothedegreethattheybelieve they got a good deal, the degree towhich they felt respected, and thedegree to which they felt the outcome was equitable. This means that yourreputation as a negotiator hinges on your ability to manage the other party’sperceptions.LestthisadvicebeviewedasMachiavellian,keepinmindthatwearenotrecommendingthatyousurreptitiouslytakeadvantageoftheotherside.Indeed, somenegotiatorswillget abad deal for themselves (bygivingup toomuchvalue)andyetmanage theprocesssopoorly that theyalsodestroy theirrelationshipwiththeotherparty.Whatwewantyoutokeepinmindisthatyoualways have two distinct goals in any negotiation: to get a good deal and to

strengthen your relationship. Ignoring either one can be disastrous. Here aresomeofthewaysthatthisplaysoutatthebargainingtable.

1.Respondingtoanofferthatyoulove—oneapproach. Imagine thatyou have done your homework and carefully evaluated the ZOPA. You havethoughthardaboutyourfirstofferandhavecomeupwithonethatyoubelieveto be aggressive; it falls outside the ZOPA and should serve to anchor thenegotiationeffectively.Youmaketheoffer.Theresponse?Theotherpartygrinsandacceptsyourofferimmediately!Howdoyoufeel?Inalllikelihood,youfeelterrible.ItdawnsonyouthatyouhavemisjudgedtheZOPA,madeapoorfirstoffer,andfailedtocapturemuchofthevaluethatwasupforgrabs.Youblewit!

Now turn the situation around. Imagine that the other side hasmade a firstoffer that you find surprisingly attractive. How should you respond? If youaccepttooquicklyortooenthusiastically,youarelikelytoupsettheotherparty.Toincreasetheirsatisfactionfromthedeal,youmighttakesometimetopondertheoffer.Then,whenyoueventuallyaccept theofferwithoutenthusiasm, theyare likely to feel that they got a great deal. The outcome is the same in bothcases,butthelatterapproachmakestheothersidehappier.

2. Responding to an offer that you love—another approach. If youreallywanttoincreaseyourcounterpart’ssatisfactionfromthedeal,youmightwant todomore thansimplywaitbeforeyourespond. Ifyouaccept their firstoffer,evenbegrudgingly,theyarelikelytofeelsomeregretandwonderwhethertheycouldhavegottenmorefromyou.Thissuggestsadifferentstrategy:makeacounterofferandask foradditionalconcessions.That is, ifyoureallywant theothersidetofeelsatisfiedwiththenegotiation,takemoreoftheirmoney!Eveniftheyhavetomakesomenominalconcessions,theywillbehappierthanifyouaccepted their first offer. This interesting result wonderfully illustrates thedissociation between outcomes and satisfaction in negotiation: satisfaction haseverythingtodowithhowwellyouthinkyoudid,andoftenlittleornothingtodowithhowwellyouactuallydid.

3. Responding to an offer that you love—yet another approach.

Consider the following anecdote from Professor Richard Shell’s bookBargainingforAdvantage.7When,intheearly1930s,theInstituteforAdvancedStudy at Princeton University was recruiting Albert Einstein, the head of theinstitutewrotetoEinsteinaskinghimhowmuchheexpectedtobepaid.Einsteinwroteback:“$3,000(annually),unlessyouthinkIcangetbywithless.”Now,this seems like a surprisingly dim-witted first offer from a man as smart asEinstein. But look at Princeton’s response: “We’ll pay you $15,000 a year.”Einsteinacceptedandthedealwasdone.

Whydidn’tPrincetonacceptEinstein’s lowofferor,betteryet,negotiateanevenlowersalary?Foronething,astheadageproclaims,“Timerevealstruth.”WritingfromAustria,EinsteinmaynothaveknownhowmuchhewasworthtoPrinceton,butthiswouldchangewhenhejoinedthefacultyintheUnitedStates.In other words, Einstein’s perception of the ZOPAmay have been inaccuratewhile negotiationswere underway; eventually, however, hewould update hisassessment.When he did, hemight feel as if Princeton had negotiated in badfaithbyacceptinghisuninformedinitialoffer.Inaddition,byofferingEinsteinfivetimeswhatherequested,Princetonadministratorssentastrongsignalabouttheschool’sintegrity,theirinterestinhiswell-being,andtheirdesiretonegotiatein good faith.By declining to take advantage of his attractive first offer, theymighthavecheaply“purchased”thekindofloyaltyandstrongrelationshipthatishardtocomebyatthebargainingtable.

Moregenerally,thisstorysuggeststhatsometimesthesmartestresponsetoanoffer that you love is to give something back. If you have been given anopportunitytostrengthentherelationshiporenhanceyourreputation,andallyouneed to do is reciprocate in kind to a generous (i.e., not aggressive) openingoffer,itmaybefoolishtodootherwise.

4. Responding to an offer that you love—a caveat! So far we havelookedat this issueunder theassumption that theotherpartyhasmadeapoorfirstofferthatallowsyoutocapturemostofthevalueinthenegotiation.Butthisassumes that your evaluation of the ZOPA is the correct one! As we havediscussedearlier,suchassumptionscanbecostly.Iftheothersidemakesanofferthat appears togiveyoueverythingyoucouldhope for andmore, it is criticalthatyoustopandaskyourself:“WhatdotheyknowthatIdon’t?”

Forexample,iftheothersideofferstobuysomethingfromyouformorethanyoucouldhavedreamed,youshouldaskyourselfwhetheryoumadeamistakein estimating their reservation value.Maybe the item you are selling is morevaluablethanyouthought.Maybetheyaremoredesperatethanyouexpected,orhave a lotmoremoney than you thought. In short, if you are surprised by anoffer, don’t celebrate—think! You might still decide that they have made toogenerousanoffer,butitisbettertopostponeyourcounterofferuntilyouaresureyouknowwherethingsstand.

MANAGINGYOUROWNSATISFACTION

Earlier, we stated that one way to obtain better outcomes is to have highaspirations;thosewhosetaggressivetargetstendtocapturemorevalue.Here’ssomethingwe neglected tomention: thosewho set aggressive targets and getbetter outcomes as a result also tend to be less satisfied with the deals theynegotiate!8Why?Becausewhenthenegotiationisover,theycomparetheirfinaloutcome to their high initial aspirations.Naturally, thosewith high aspirationswillbemorelikelytofallshort,eventhoughtheyachievedbetteroutcomesthanthosewhosetlowaspirations.

Thus, increasing your satisfaction with a deal requires a simple change ofmentalhabits:focusonyourtargetduringthenegotiation;whenitisover,shiftyourfocustoyourreservationvalue.Bydoingso,youwillnegotiateeffectively(thanks to your high aspirations) and still be satisfied with your outcomeafterward (because you are now comparing it with your RV). Because yoursatisfactionwithadealdependsonyourpointofcomparison,orreferencepoint,itpaystopickalowreferencepointwhenthereisnothingmorethatyoucandotochangetheoutcome.

BEYONDCLAIMINGVALUE

Sofar,ourfocushasbeenalmostexclusivelyonclaimingvalueatthebargainingtable.Butclaimingvalue issimply the tipof the iceberg innegotiation. In thenextchapter,webegintofocusonamuchmorecriticaltopic—onethatisalltoooftenignoredbyeventhemostexperiencednegotiators:howtocreatevalueinnegotiation.Negotiatorswhoignorethisvitalaspectofbargainingdosototheirgreatdisappointmentanddisadvantage.

CHAPTER2

CreatingValueinNegotiation

By October 2000, Richard Holbrooke, U.S. ambassador to the UnitedNations, was facing a rapidly deteriorating situation. Members of the U.S.SenatewerecallingforaU.S.withdrawalfromtheUnitedNations.Meanwhile,attheUN,U.S.representativeswerebeingsidelinedincommitteemeetings,andtheUnitedStateswason thevergeof losing itsvote in theGeneralAssembly.Theconflictwasoveralargesumofmoney—morethan$1billion.TheUnitedStatesowed thisamount inarrears to theUN,butwasunwilling topayunlesstheUNagreedtoavarietyofreforms.

Theconflict couldbe tracedback to the foundingof theUnitedNations. In1945,theUnitedStateshadagreedtopay50percentoftheUN’syearlyregularbudget.Theamountowedbyeachcountrywasrecalibratedseveral timesoverthe ensuing years as other nations began to develop economically andwantedmore influence in the UN. The most recent adjustment affecting the UnitedStateshadbeenin1972,whentheU.S.assessmentwasreducedto25percentofthe regularUNbudget.TheU.S.wasalsopayingapproximately30percentofthe peacekeeping budget, which, due to conflicts in Somalia, Rwanda, andBosnia,wasincreasinglyseenasanunpredictableandheftycommitment.Asaresult, by the end of the decade, the United States was demanding anotherrecalibrationofassessments.FeelingthattheUnitedStateswaspayingtoohighashareofthedues,Congressdecidedtoholdthenearly$1billiondebthostage.TheU.S.demand(asmanifested in theHelms-Bidenbill)was this: theUnitedStates would pay what it owed if the UN agreed to a variety of reforms, inparticularareductionoftheU.S.assessmentfrom25percentto22percent.

There were three serious problems with this demand. First, other nationsvieweditasunfair:theUnitedStateswasessentiallyaskingforaconcessioninreturn for something it already owed. Second, this was not a two-partynegotiationinwhichtheUnitedStatessimplyhadtoconvinceaUNdelegation.BecauseUN regulations stipulated that such a change couldonlybe approvedwiththeconsensusofallUNmemberstates,AmbassadorHolbrookewouldhave

to convince all 189 countries to agree to theU.S. demands. Third,Holbrookewasfacingadeadline.TheHelms-Bidenbillhadappropriated$1billiontowardpaymentofarrears,butthismoneywoulddisappearfromthebudgetonJanuary1,2001.

ItbecameclearearlyintheprocessthatnegotiationsbetweentheUNandtheUnitedStateswouldnotbeeasy.Holbrooke’steamhadhopedthatJapanandtheEuropeans would pick up most of the slack created by the reduction in U.S.assessments. The Japanese, however, made it clear that not only were theyunwilling to increase theirdues,but that if theU.S. receiveda reduction, they,too,would demand one. Japanwas the second-highest contributor to theUN,paying a little over 20 percent of the regular budget. The Japanese felt thisamount was too high given that Japan did not even have a seat on the UNSecurityCouncil.TheEuropeansalsoappearedextremelyhesitanttoapproveanincreaseintheirassessments.

In the faceof such resistance, howcouldHolbrooke andhis teamconvinceevenonenationtoincreaseitsassessment?Howcouldtheyavoidanimpasse?

As the year 2000 wore on, Holbrooke and his team decided to start fromscratch.TheydrewupachartofeveryUNmemberstateanddeterminedhowmucheachwascurrentlypaying.Theythenbegantovisitrepresentativesfromevery single country—not to convince them, but simply to understand theirperspective.Theyquickly confirmed that no countrywanted an increase in itsassessment.But thatwasnot thewhole story.Holbrookepushed further inhisdiscussionstodiscoverwhytheycouldnotpaymore.Thereasonsvariedwidely,but one important—and unforeseen—reason soon became salient. One of theproblemsfacedbymanycountries—thatwouldotherwiseagreetoincreasetheircontributions—wasthefactthatfiscalyear2000wascomingtoanend,andtheirfederalbudgetsfor2001werealreadyfixed.Holbrookewasaskingforachangein assessments before January 1, 2001. This deadline was making the dealunworkable.

As the reason underlying the reticence of these UNmember states becameapparent,sodidthesolution.HolbrookeproposedthattheU.S.assessmentsbereduced from 25 percent to 22 percent immediately tomeet theHelms-Bidendeadline,butthatothernationsnotbeaskedtoincreasetheircontributionsuntil2002.“Thatmadeafantasticdifference,”recalledAmbassadorHolbrooke,“thatreallyworked.”1

Onthesurface,thenegotiationwithUNmemberstatesappearedtobeazero-sum negotiation: whatever one party gained resulted in an equivalent loss toanother. As in the Hamilton Real Estate case discussed in Chapter 1, thereappearedtobeonlyonesalientissue—inthiscase,assessments—andthepartiesweremakingincompatibledemands.Holbrooke’sgeniuslayindiscoveringthatthe dispute entailed not one but two issues: the size of assessments and theirtiming. Only when the negotiators stopped haggling over one divisive issue(assessmentsize)andbroadenedtheirfocustoincludetheissueoftimingcouldtheystrikeadeal.

Whilethefinalagreementrequiredcompromisebybothsides,italsoallowedeachsidetogetwhatitwantedmostontheissueitcaredaboutmost:theU.S.got the assessment size it wanted, and other countries got the timing theywanted. You might still wonder how such a deal was possible, given that itwould create a shortfall in dues for the year 2001. As it turns out, thanks toanother successful negotiation by Ambassador Holbrooke, philanthropist TedTurneragreedtocovertheone-yearbudgetshortfallwithapersonaldonationofover$30million,andtheRepublicansinCongress,thoughinitiallyreluctanttopermitadonationfromapoliticallyliberalcontributor,eventuallyacceptedthedeal.

AMULTI-ISSUENEGOTIATION

InChapter1,welookedatarelativelysimple,one-issuenegotiationthatallowedustobegindevelopingournegotiationframeworkandtoanswersomeimportantquestionsregardingnegotiationstrategy.AstheHolbrookenegotiationsuggests,however,dealmakingisoftenmorecomplicatedthanitwasintheHamiltonRealEstate case. Effective negotiators need to prepare to execute complexnegotiations that entail multiple issues, complex analysis, and considerableuncertainty.

The case in this chapter contains many more variables and identifiesadditional tacticsand strategies that shouldbepartofyournegotiation toolkit.Specifically,wewilladdressquestionssuchas these:Howshouldyoupreparefor amulti-issue negotiation?Should younegotiate the easiest issues first, thehardest issues first, or neither? How should you structure your offers? Howshould you handle sharp differences in beliefs or expectations regarding thevalueofthedeal?Whatistheroleofcompromiseinnegotiation?Whatshouldyoudoafternegotiatinganagreement?

The following case, entitled “Moms.com,” concerns the sale of syndicationrights for a television program. As in Hamilton Real Estate, you have beenassignedtheroleofsellerandgivenapacketofbackgroundinformation.Howwouldyouapproachthisnegotiation?

MOMS.COM2

YouareTerrySchiller,thesyndicatedsalesrepresentativeforHollyville,Inc.,amultimedia corporation that specializes in producing television shows andmotionpictures.Yourepresentthecompanyinnegotiatingthesaleofsyndicatedprogramstolocaltelevisionstations.Programsinsyndicationaretypicallysoldtolocalstationsafterhavingrunasregularshowsononeofthemajornetworks.While few shows ever make it into syndication, revenue from the sale ofsyndicationrightscanbeamajorcomponentofaproducer’srevenue.

Yourfirm,Hollyville,hasjustdecidedtoreleaseitsonehundredepisodesofMoms.com,apopularsituationcomedy(“sitcom”),tosyndicationthisyear.TheplotofMoms.comrevolvesaroundthreewomenwhoaretryingtobalancetheirlives as business executives and mothers of teenage children. The show hasreceived strong ratings and appeals primarily to women in the 25–54 agebracket. This makes the show potentially quite valuable, as advertisers arewillingtopayagreatdealtoreachthismarket.

YourcurrentnegotiationisfocusedontheChicagomarket,inwhichtwolocalstationsarepotentialbuyers.WWINhasalreadymadeyouanoffer.However,WCHIisthemoreattractivebuyerbecauseithasastrongeraudiencebaseinthe25–54agebracket.HowmuchapotentialbuyeriswillingtopayforMoms.comdependsonitsexpectedadvertisingrevenuefromtheshow.Expectedrevenue,inturn,will depend on the ratings that the show receives.You estimate that theshow will produce $7 million in net revenue over the life of the five-yearcontract if ratings fall within the 2–3 point range. (Rating points signify thepercentage of all television households that are watching a particular show.)Advertising revenue would likely increase by $1 million with each pointincreaseabovea3-pointrating.

Toevaluatetheshow’sexpectedrevenuetothebuyer,youhaveestimatedthelikelihoodofvariousratingsthatitmightreceive.YouranalysisappearsinTable2.1.

Table2.1

Ratings Likelihood AdRevenueGenerated

2–3 10% $7million

3–4 30% $8million

4–5 30% $9million

5–6 50% $10million

6–7 20% $11million

Youestimatethattheshowwilllikelyreceivearatingof5–6,makingitquiteprofitableforWCHI(evenaftertakingintoaccountthecoststheywillincurtomarket and run the show); thus, the station should be willing to pay youhandsomelyforMoms.com.Thelicensing fee thatyounegotiatewithWCHI isthe primary determinant of howmuch youmake from the sale ofMoms.com.Youarehopingtonegotiatealicensingfeecloseto$7millionforthefive-yearcontract.

While licensing fee is a salient feature of the agreement, for the deal to befinalized,youandthesellermustalsoagreeonanotherimportantissue:runsperepisode. The show’s expected revenues (as calculated above) assume that thebuyerhas theright to runeachof theonehundredepisodessix timesover thetermof the contract. (Six runsper episode is the current industry standard forthisparticularmarket.)However,WCHIhasalreadyalertedyouthatitwantstheright to run each episode eight times. You want to avoid “overexposing” theshowandpreferthatrunsperepisodebelimitedtofour.Ifthesameepisodeoftheshowisairedtoooften,theresidualvalueoftheshowdiminishes.Whenthecontracttermends,andtherightstoMoms.comreturntoHollyville,itwillbeamuch lessvaluableshowifallof theepisodeshavealreadybeenshownmanytimes.

Thefinancialimpactofthisdiminishingresidualvalueissignificant.Table2.2showshowthenumberofrunswillaffectyourexpectedrevenuefromtheshowafterthecontracttermends.Youranalystsprojectthatforeachadditionalrunperepisodeabovesixthatyouallowyouwillloseanestimated$250,000.Ifyoucanlimitthenumberofrunstolessthansix,youcansaveupto$500,000.

Table2.2

RunsperEpisode EffectonYourRevenue

4 Save$500,000

5 Save$250,000

6 Noeffect

7 Lose$250,000

8 Lose$500,000

Whileyourgoal in thisnegotiation is toget thebestdealpossible,youalsowanttomaintainagoodworkingrelationshipwithWCHIbecauseitispossiblethatyou(Hollyville)woulddomorebusinesswiththestationinthenearfuture.Forexample,Hollyvilleisveryinterestedinsellinganewshow,Juniors,fortheupcomingseason.(AnotherChicagostationhasalreadyofferedyou$1millionforJuniors,however,anofferyouareinclinedtoaccept.)

Your assigned task in the current negotiation, then, is to structure anagreement for the sale of Moms.com that maximizes profit, preserves therelationship, and is superior topursuingyourBATNA.YourBATNAis to sellMoms.com toWWIN; the deal you have negotiatedwith that station isworth$3.5million(youhaveagreedtosixrunsperepisodewithWWIN).Ifyouaretofinalize thedealwithWCHI instead,youmustagreeonboth the licensing feeand the number of runs.Hollyvillemanagement has asked you to report backafterthenegotiationwiththeagreed-upontermsonbothoftheseissuesandonanyothertermsofthesignedcontract.YouwillbenegotiatingwithKimTaylor,thegeneralmanagerofWCHI.

Takesometimetothinkabouthowyouwouldapproachthisnegotiation.Howwould you prepare? Which issue would you discuss first? How would youstructureyouroffer?What information, ifany,wouldyouplan toshare?Whatinformation, ifany,wouldyou try toacquire?Howwouldyou incorporate thelessons of Chapter 1 into your negotiation strategy? Once you have thoughtthrough these questions and others that may occur to you, read ahead as wenarratehowyournegotiationmighthaveunfolded.

MAKINGTHEDEAL

YouandKimmetandquicklygotdowntothebusinessathand.Yousuggestedthatwhilethereweremany issues todiscuss, licensing feehad thebiggest financial impactandshouldbediscussed first.YouhadthoughtaheadaboutWCHI’sBATNAandRV,andfeltcomfortablemakinganaggressivefirstoffer. You asked for $9 million and justified this figure using selective precedents involving priorshowsyouhadsold.Kimmadeitclearthathedidnotlikeyourofferatall,buthestayedatthetable.The two of you discussed the licensing fee for the next hour. Kim argued thatMoms.com wouldprobably receive ratings of 3–4 and that advertising revenueswould likely bemuch lower than the

licensing fee you had proposed. You responded that your projections suggested the show wouldreceive higher ratings (5–6). Privately, you were unsure whether Kim was being honest about hisprojections;itwasinhisinteresttoconvinceyouthattheshowwouldearnlowrevenuesinordertojustifypayingyouless.Atonepoint,KimalludedtothepossibilityofpurchasingJuniors fromyou.BecauseheseemedtobementioninghisinterestinpurchasingJuniorsonlyasawayofsofteningyourdemandsforMoms.com,yousuggested that theJuniors discussionbekept separate.The restof thenegotiation focused onMoms.com. Eventually, you reached an agreement of $5.5 million for thelicensingfeeandturnedyourattentiontonumberofruns.Kimopenedaggressivelyonthisissue,butyouconvincedhimthatyousimplycouldnotacceptsevenoreightruns;eventuallyyousettledonsixruns.Inretrospect,anyotheroutcomewouldhaverequiredoneofyoutomakealargercompromisethan theother,whichcouldhave soured the relationship.Having reachedagreementonboth issues,yousubmittedareporttoHollyvillemanagementthatcontainedthefollowingfinancialanalysis:

LicensingfeereceivedfromWCHI: $5,500,000

Revenueadjustmentbasedonsixruns: Noeffect

Netrevenue: $5,500,000

ValueoftheBATNA(selltoWWIN): –$3,500,000

Netvalueofthenegotiatedagreement: $2,000,000

Howwouldyoufeelattheendofthisnegotiation?Whatdoyouthinkyoudidright?What, ifanything,couldyouhavedonebetter?Howcouldyouevaluatewhetheryougotagooddeal,agreatdeal,orabaddeal?

NEGOTIATIONPOSTMORTEM

Thebestwaytoevaluatehowwellyoudidistosystematicallyanalyzehowwellyoucouldhavedone.Wedosobyfocusingoneachissueinthenegotiationfromtheperspectiveofboththebuyerandtheseller.

ISSUE1:LICENSINGFEE

You entered the negotiation hoping to negotiate a licensing fee close to $7million. What you did not know was that Kim’s reservation value was $6.5million. Inotherwords,WCHIwouldhavebeenunwilling topayanyamountgreater than this.Meanwhile, assuming six runs per episode, youwould havebeenunwilling toaccept anyamount less than$3.5million (thevalueofyourBATNA). Thismeans that therewas $3million of value up for grabs on thisissue ($6.5 million—$3.5 million). Because you anchored sufficientlyaggressively (at $9million), you were able to capturemuch of the ZOPA bysecuring a $5.5 million licensing fee. When MBA students and executivesparticipateinthisexercise,weobserveanextremelywiderangeofoutcomesonthisissue;somesellerssuccessfullynegotiatefeesclosetothereservationvalueofthebuyer,whileothersagreetoacceptverylowlicensingfees.Muchofthevariance inoutcomes isexplainedby theaggressivenessofopeningoffersand

counteroffers.Anotherreasonfordifferentoutcomesonthisissue,ofcourse,isthatitisaffectedbyhowtheotherissueishandled.

ISSUE2:RUNSPEREPISODE

The buyer pushed aggressively for seven or eight runs, but youwould losemoneyifyouallowedWCHItoaireachMoms.comepisodemorethansixtimes.Younegotiatedsixrunsandarefairlycertainthatyoucouldnothavepushedthebuyer any lower on this issue. The agreement of six runs entailed a perfectcompromise; you met in the middle of each side’s opening demand. Soundsgood,right?

Well,itisn’t.Tounderstandthecriticalmistakeyoumade,considerTable2.3,which reveals the financial impact of increasing the number of runs onHollyville (whichyouknew)andonWCHI(whichyoudidnotknow).Noticeanything interesting?Clearly, this issue has a significant effect on revenue forbothparties—butithasagreaterimpactonWCHIthanonHollyville.Foreachadditional run granted, WCHI revenue increases by $800,000, but Hollyvillerevenue decreases by only $250,000. In other words, increasing runs helpsWCHImorethanithurtsHollyville.Whataretheimplicationsofthis?

Table2.3

RunsperEpisode EffectonHollyville’sRevenue EffectonWCHI’sRevenue

4 Save$500,000 Lose$1,600,000

5 Save$250,000 Lose$800,000

6 Noeffect Noeffect

7 Lose$250,000 Save$800,000

8 Lose$500,000 Save$1,600,000

CREATINGVALUETHROUGHLOGROLLING

RationalnegotiatorsshouldagreetogranteightrunsperepisodetoWCHI.Byproviding eight runs instead of six, the negotiators can create $1.1million intotal value ($1.6millionbenefit toWCHIminus $500,000 cost toHollyville).WCHIwillobviouslyagreetothis,butwhyshouldHollyville?BecauseitisinHollyville’s best interest as well. Hollyville should agree to eight runs inexchangeforotherthingsthatitvalues,suchasahigherlicensingfee.Let’sseehowthisworksbycomparingyouragreementwithanalternativeagreementthat

youcouldhavenegotiated:

Youroriginalagreement(AgreementO):Licensingfeeof$5.5million,sixrunsperepisode

Alternativeagreement(AgreementX):Licensingfeeof$6.5million,eightrunsperepisode

AgreementXforcesyoutogiveuptwoadditionalrunsbutprovidesyouwitha higher licensing fee. What is the net impact of these changes? You lose$500,000bygivinguptwoadditionalrunsbutgain$1millionfromthehigherlicensing fee. The result: you are better off by $500,000. How would thisalternativeagreementaffectWCHI?WCHIwouldlose$1millionbygivingyoua higher licensing fee, butwould gain $1.6million from additional runs. Theresult:WCHI is better off by $600,000. In other words, Agreement Xmakesbothpartiesbetteroff!

NegotiationssuchasMoms.comdifferfundamentallyfromnegotiationssuchasHamiltonRealEstateinChapter1.One-issuenegotiationssuchasHamiltonRealEstate, inwhich the two sides have directly opposing interests, are zero-sum (when one party gains something, the other side loses an equivalentamount).Negotiationswithmultipleissues,suchasMoms.com,canbenon-zero-sum negotiations: it is often possible for one party to achieve gains withouthurting the other party. In short, negotiating multiple issues allows for valuecreation. In theMoms.com negotiation, negotiatorsmaximize the “size of thepie”(i.e.,thevalueofthedeal)whentheyagreetoeightruns.Table2.4showstheeffectonvaluecreationofrevisingyouragreement.

Table2.4

3Agreement 3ValuetoYou 3ValuetoWCHI 3TotalValueCreated

3Original(O) 3$2,000,000 3$1,000,000 3$3,000,000

3Revised(X) 3$2,500,000 3$1,600,000 3$4,100,000

AsTable2.4suggests,thetotalvalueofthedeal(whenyoureachAgreementX) is $4.1million.By contrast, inyouroriginal deal (AgreementO), the totalvalue is only $3.0million. In otherwords, agreeing to eight runs creates $1.1millioninvalue.Meanwhile,negotiatorswhodonotagreetoselleightrunsend

upwithanoutcomethatburnsmoney;thesedollarscannotberecovered.

Notethattheamounttowhichyouagreeforthelicensingfeedoesnotaffecthowmuchvalueiscreated;itonlydetermineswhocapturesabiggerpieceofthepie.Becausebothpartiesvaluethelicensingfeeequally,anychangeinthefeehelpsonepartytothesamedegreethatithurtstheotherparty.Inotherwords,this negotiation is not just about value creation; claiming value is still animportantelement.However,negotiationgeniusesdonotletthevalue-claimingcomponentderailtheirvalue-creationstrategies.

AstheMoms.comcasesuggests,effectivenegotiatorslookforopportunitiestocreate value bymaking trades acrossmultiple issues—for example, giving upruns inexchange forahigher licensing fee.Theactof tradingacross issues iscalled logrolling. Logrolling requires that you not only know your ownpriorities,butthatyoulearnabouttheprioritiesoftheotherside.Iftheothersidevaluessomethingmorethanyoudo,youshouldgiveittotheminexchangeforreciprocityonissues thatareahigherpriorityforyou.InhisnegotiationswiththeUNmembernations,AmbassadorHolbrookedemonstrated thisknowledgeimplicitly.Once he discovered that the size of assessmentswas relatively lessimportant toothernations than the timingofassessments,he structuredadealthatgavetheUnitedStateswhatitvaluedmost(changeinassessmentamount)and gave other contributing nations what they valued most (delay inimplementation).

Now imagine how negotiationsmight proceed if you intensely dislikeKimTaylor,WCHI’s representative.You think he is selfish and arrogant and caresonlyabouthisownnegotiatedoutcome.Inthiscase,howmanyrunsperepisodeshouldyouprefer?Ifyouansweredfour—orevensix—youmightwanttothinkagain.Innegotiation,youshouldconsidergivingupsomethingthatyouvalue—eventosomeoneyoudonotcareabout—ifthatpersonvaluesitmorethanyoudo. This is not amatter of altruism or kindness, but of value creation. If youcreatevalue,youhavetheopportunitytocaptureaportionofthiscreatedvalueforyourself,ashappenedwhenwemovedfromAgreementOtoAgreementX.

This insight is critical: negotiators should seize every opportunity to createvalue.Iftheotherpartyvaluessomethingmorethanyoudo,letthemhaveit—butdon’tgiveitaway,sellit.Ofcourse,ifyoudocareabouttheotherside,allthemore reason to create value. But remember that creating value is not justwhat a “nice”negotiatordoeswhen shecaresabout theother side. It’swhat a

negotiationgeniuswilldocategorically.

CREATINGVALUEBYADDINGISSUES

Theonly issues youwere required to negotiate in this dealwere licensing feeand runs. However, you had the potential to bring up other issues that couldcreate additional value for both parties. Specifically, you were interested insellingJuniorsatapricehigherthan$1million(theamountofyourotherofferforthisshow).KimsignaledtoyouduringyournegotiationthatWCHImightbewillingtopurchasetheshow,butyousetasidethatdiscussion.WhatwouldhavehappenedifyouhadengagedKiminadiscussionabouttheirinterestinJuniors?YoumayhavediscoveredthatWCHIwaswillingtopayupto$2millionfortheshow!Inthiscase,failuretonegotiatethesaleofJuniorsresultedinanetlossof$1millionforthetwoparties.Putanotherway,theZOPAforJuniorsconsistedof all prices between $1–2 million—yet both parties walked away from thenegotiationwithoutagreeingtoasale.

HowmightthesaleofJuniorshaveimpactedfinaloutcomes?Table2.5buildsonTable2.4byincludinganagreement(AgreementY)inwhichthebuyerandseller agree to sell Juniors for $1.5 million. This agreement provides anadditional $500,000 to each party. (Notice that if the parties had agreed to ahigherpriceforJuniors,you[theseller]wouldhavecapturedmorevalue;ifthepricewaslower,WCHIwouldhavecapturedmoreofthevalue.Ineithercase,thetotalvaluecreatedbyincludingthesaleofJuniorswouldbe$1million.)

Table2.5

Agreement ValuetoYou ValuetoWCHI TotalValueCreated

Original(O) $2,000,000 $1,000,000 $3,000,000

Revised(X) $2,500,000 $1,600,000 $4,100,000

AgreementY $3,000,000 $2,100,000 $5,100,000

The Juniors issue highlights an important difference between a goodnegotiatorandanegotiationgenius.Agoodnegotiatorwilldowhateverittakesto close the deal, while a negotiation genius will do whatever it takes tomaximizevalueinthedeal.Agoodnegotiatorplaysthegamewell;anegotiationgeniuschangesthenatureofthegameitself.Inthiscase,thatmeansidentifyingandpursuingopportunitiesforvaluecreationthatarenotobvious.

Addingissuestoanegotiationisanimportanttacticforvaluecreationbecauseofasimpleformula:moreissues=morecurrency.Themoreissuesyouhavetoplaywith,theeasieritwillbetofindopportunitiesforlogrolling.Imaginethatyouhaveagreedtosevenrunsandalicensingfeeof$6.5million.Youknowthatmovingtoeightrunswillcreateadditionalvalue,butyouareonlywillingtodosoifthebuyergivesyousomethinginreturn.Unfortunately,WCHIhasreachedits limiton the licensingfee issue; itcannotpaymore than$6.5million.Doesthismeanthatyoumustforgotheopportunitytocreatevalue?Yes—ifthereareonlytwoissuesinthenegotiation.Butifyouaddanotherissue—Juniors—youcan engineer the value-creating trade. “It’s costly forme to give up anymoreruns,” youmight tell Kim. “However, depending on the kind of deal we canstructureforJuniors,Imaybeabletogiveyoutheadditionalrunsyouwant.”IfKimagrees to purchaseJuniors for any price between $1.25million and $2.8million,inreturnforaddingtheeighthrun,bothofyouwillbebetteroff!NoticethatKimmaybewilling to pay evenmore forJuniors than it isworth (up to$800,000more),becausedoingsoallowsWCHItogain$800,000inrevenueontheissueofruns.Asthisexamplereveals,thegoalofnegotiationisnottogetthebest possible outcome on any one issue, but to negotiate the best possiblepackagedealbasedonaconsiderationofalloftheissues.

This discussion also highlights an important distinction between logrollingand compromise. Many negotiators, including some seasoned dealmakers,believethatnegotiationisaboutcompromise.Thisisnottrue.Negotiationoftenentails compromise, but it is not about compromise. For example, when ourexecutivestudentsnegotiateMoms.com,theyoftencompromiseacrossallissues.“We started at four runs versus eight runs,” someone might argue, “andcompromisedat six runs,which is awin-winoutcome thatmakesbothpeoplehappy.”Yetbothpartiescouldhavebeenhappieriftheyhadbeensophisticatedenough to realize that logrolling toachieveeight runs isbetter forbothpartiesthancompromisingtoachievesixruns.Ourgoalhereisnotsimplytohelpyoureachagreementsthatbothpartiesconsidertobe“win-win”ourgoalistohelpyoumaximizevalue.Whatdoesthatrequire?

As it turnsout,evenadesire tomake theothersidehappy isnotenough tohelpmaximize value creation. People in close relationships (such as spouses)often negotiate worse outcomes than do people who care less about theircounterpart.3Why?Becausethoseincloserelationshipscompromiseacrosstheboardinordertoavoidbeingperceivedasgreedyoroverlyself-interested.Asaresult, theyoftenignoreopportunitiesfor logrollingand, instead,destroyvalue

ratherthancreateit!Excellentpartners—inpersonalandbusinessrelationshipsalike—master the ability to communicate openly and share information abouttheir real needs and priorities. In doing so, they identify all of the potentiallyrelevant issues and cooperate to create maximum value. And, once you havecreated the conditions for valuemaximization, you can focus on capturing asmuchofthatvalueforyourselfasyoudeemappropriategivenyourrelationshipwiththeotherpartyandyourdesiretobefair.

Adding issues to the negotiation may be most critical when the deal iscentered on one divisive issue and no one is willing to compromise. Forexample,intheUnitedStatesintheearly1800s,whenthenorthernandsouthernstateswereembattledovertheissueofslavery,theyarguedoverwhetherstatesnewlyadmitted to theUnionwouldbe“free”statesor“slave”states. In1819,thecountrywasinbalance(numerically,certainlynotmorally),withelevenfreeandelevenslavestates.ButwhenMissouripetitionedtojointheUnion,amajordispute arose between pro-slavery and anti-slavery forces. Because givingnumericaldominancetoonesideontheissueofslaverywouldupsetthebalanceof power in theU.S. Senate, no deal seemed possible. Eventually, a dealwasstructured—the “Missouri Compromise”—but only after Maine petitioned tojointheUnionin1820.Thetwoissueswerepurposelylinked:bothsidesagreedto allow Maine to enter as a free state and for Missouri to enter withoutrestrictionsontheissueofslavery.

In business negotiations, price is often the divisive issue. Smart negotiatorsrecognizethelimitationsofone-issuedealsandworktobroadenthescope.Hereareafewofthenegotiableissuesthatyoucanintroduceintothediscussionthenexttimetheothersideappearsentirelyfocusedonprice:

•deliverydate

•financing

•quality

•contractlength

•last-lookprovisions

•arbitrationclauses

•exclusivityclauses

•levelofservicesupport

•warranties

•futurebusiness

Themoreissuesthereareavailabletoplaywith,themorelikelyitisthateachparty will obtain what it values most and become willing to compromise onissuesofrelativelylessimportance.

YOURGOALSHOULDBETOMAXIMIZEVALUE

Table 2.5 demonstrates how both parties can be made better off when anadditionalissueisaddedtothenegotiation.Intechnicalterms,sucharevisionofthe agreement is referred to as aPareto improvement: changes to a deal thatmakeatleastonepersonbetteroffwithoutmakinganyoneworseoff.Asyoucansee,Paretoimprovementscreatevalueinnegotiation.OneofyourgoalsineverynegotiationshouldbetolookconstantlyforParetoimprovementsuntilyouhavereached an agreement that isParetoefficient: that is, until there is noway tomakeonepartybetteroffwithouthurtingtheother.AccordingtoTable2.5,theonlyPareto-efficientoutcomesarethosethatcreateatotalvalueof$5.1million.

ThevirtueofParetoefficiencyisthat itensuresthatnomoneyisleftonthetable(i.e.,burned)attheendofthedeal.ButnoticethatParetoefficiencysaysnothingabouthowthecreatedvalueisdividedbetweenparties.ItispossibletohaveanefficientagreementinMoms.comwhereallofthecreatedvaluegoestoone party. An agreement in which you get $1 million and WCHI gets $4.1millionisstillParetoefficientbecause,atthispoint,thereisnowaytomakeoneofyoubetteroffwithouthurtingtheother.Inotherwords,thepartiesmayjointlyagreetoeightrunsandasaleofJuniors,butthepartythatdoesabetterjobofhagglingoverthelicensingfeeandthepriceforJuniorswillcapturethelion’sshareof thevalue.For this reason,Paretoefficiency isseldomyouronlygoal;youwillalsostrivetocaptureasmuchofthevalueforyourselfaspossible.Or,ifyourpriorityistoreacha“fair”dealandbuildastrongrelationship,youmaychoosetogiveupsomeofthecreatedvaluetotheotherside.

How do you know whether you have reached a Pareto-efficient outcome?

Unfortunately,thereisnodefinitiveanswer;bellswillnotsoundandflowerswillnotfallfromthesky.Butonegoodtestistoconsiderhowwellyouunderstandtheconcernsoftheotherside.Ifyouleavethenegotiationtablewithoutknowingverymuchabout their interestsandpriorities,youhaveprobably leftvalueonthetable.

This brings us back to Moms.com. Guess what? You missed anotheropportunitytocreatevalueinthatnegotiation.

CREATINGVALUETHROUGHCONTINGENCYCONTRACTS

In yourMoms.com negotiation, recall your disagreement with Kim regardinghowmuch revenue the show is likely to bring toWCHI.Kimargued that theshowwaslikelytoreceivelowratings(3–4).Yoususpectedhewaslying;yourresearchshowedexpectedratingsof5–6.Whatdidyoudowhenthatdifferenceofopinionsurfaced?Youessentiallyignoredit,decidedto“agreetodisagree”onthe issue,andmovedaheadwithother substantivediscussions. Is that thebestwaytohandlesuchdisagreements?Veryoften,itisnot.Let’sconsiderabetter,more systematic approach for handling disagreements regarding expectationsaboutthefuturesuccess,quality,orperformanceofagoodoraservicethatyoumightbenegotiating.

First,trytofigureoutwhoisrightandwhoiswrong.Forexample,youmightshareyourresearchwitheachotherandworktogethertoanalyzethedata.Youmight agree to conduct additional research together, or you might bring in adisinterested thirdpartywhomyouboth trust todo the research.Anyof theseapproacheswill help you resolve your differences and allow you to negotiatebased on shared assumptions and analyses. You hope, of course, that theadditional researchwill support your contention (in this case, that the show’sratingswillbehigh).Ifbothpartiescanagreethatexpectedratingsandexpectedrevenuearehighratherthanlow,youstandtomakemoremoneyinthesale.

Another solution to the disagreement is for both parties to compromise. Inotherwords,youmightagreetoassumethatbothsidesareprobablysomewhatincorrectandthatanaverage(4–5)isareasonablebestestimateofratings.Thebenefit of this approach is thatyoudonothave towaste extra timeormoneygatheringadditionaldataorhiringathirdparty.Aproblemwiththisapproachisthatifyoutrulybelievethatyournumbersarecorrect—andthattheothersideiseitherincompetentordishonest—youwillnotwanttocompromise.Whywould

youthrowawayyourownnumberssimplybecausetheotherparty(whohasanincentivetolowballtheestimate)istellingyouthatyouarewrong?

Thisbringsustoathirdsolution,onethatavoidsthecostsofgatheringmoredata,avoidsthehassleoftryingtoconvincetheothersidethatyouarecorrect,and avoids capitulating to the desires of a party you do not trust: negotiate acontingency contract. As discussed in Chapter 1, contingency contracts allownegotiators to avoid arguingabout the likelihoodof some future event (in thiscase,theshow’sratings)andinsteadwaittoseewhatactuallytranspires.IntheMoms.comnegotiation,thenegotiatorscouldagreetothefollowingdeal:

AgreementZ:

Licensingfee: $6.5M

Runs: 8

PriceforJuniors: $1.5M

Contingencyclause:

•Iftheratingsnextyeararelessthan4,WCHIreceivesa$1millionrebate.

•Iftheratingsnextyeararegreaterthan5,WCHIpaysa$1millionsurchargetoHollyville.

Inotherwords,iftheshowdoesverywell(asyoususpectitwill),WCHIwillowe Hollyville an additional sum of money. But if WCHI’s projections arecorrect, Hollyville will refund some of the money paid in the licensing fee.Would both parties agree to such a clause? If they truly believe their ownprojections,theyshould!

Table2.6

Ratings LikelihoodBasedonHollyville’sProjection LikelihoodBasedonWCHI’sProjection

2–3 10% 20%

3–4 10% 50%

4–5 10% 10%

5–6 50% 10%

6–7 20% 10%

Let’sexamine this issue inmoredetail.Table2.6displaysratingprojectionsfor each party. (Going into the negotiation, you only knew Hollyville’sprojections.)Asthetablereveals,thebuyerandsellerhadagenuinedifferenceof opinion regarding the show’s likely success. Given these different beliefs,howwouldeachpartyhaveevaluatedthecontingencyclausedescribedabove?Hollyvillebelievesithasa70percentchanceofbeingcorrectand“winningthebet”becauseratingswillbegreaterthan5,a20percentchanceofbeingwrongand“losingthebet”becauseratingswillbelessthan4,anda10percentchancethatnomoneywillchangehandsbecauseratingswillbe4.Meanwhile,WCHIalso believes that it has a 70 percent chance ofwinning the bet, a 20 percentchanceoflosingthebet,anda10percentchanceofbeingunaffected.Basedontheseprojections,theexpectedvalueofthecontingencyclausetoeachpartycanbecalculatedasfollows:

Rating>5Rating=4Rating<4

Hollyville(.70x$1M)+(.10x$0)+(.20x-$1M)=$500,000

WCHI(.20x-$1M)+(.10x$0)+(.70x$1M)=$500,000

In other words, both parties expect to receive an additional $500,000 as aresultofthisclause,andbothshouldbewillingtoagreetoit.Table2.7comparesthevaluecreatedbyAgreementZ(whichincludesthecontingencyclause)withthevaluecreatedintheotheragreementswehaveconsidered.

Table2.7

Agreement ValuetoYou ValuetoWCHI TotalValueCreated

Original(O) $2,000,000 $1,000,000 $3,000,000

Revised(X) $2,500,000 $1,600,000 $4,100,000

AgreementY $3,000,000 $2,100,000 $5,100,000

AgreementZ $3,500,000 $2,600,000 $6,100,000

InChapter1,weshowedyouhowcontingencycontractscanprotectyoufromdishonestnegotiators.That samebenefit existshereaswell. IfKimwasbeingdishonest about WCHI’s projections and knew that the show would receive

higher ratings, he would never accept the contingency contract. Hisunwillingnessto“puthismoneywherehismouthis”couldalertyoutopossibledeception.

TheMoms.comcontingencycontractrevealsanotherbenefitofsuchcontracts:they can create value by allowing negotiators to stop arguing about theirdifferent beliefs and instead leverage their differences through bets that bothsidesexpecttowin.Inthiscase,bothpartiesarebetteroff(intermsofexpectedrevenue)whenthecontingencycontractissignedbecausebothareconfidentintheirprojections.Technically,thiscontingencyclausedoesnotactually“create”valuein thewaythat logrollingoraddingissuescreatesvalue.This isbecausewhentheratingsarerevealednextyear,thecontractwillsimplyforceonepartytotransfer$1milliontotheotherparty.Althoughessentiallyazero-sumtransfer,thecontingencycontractdoescreateexpectedvalue.Atthetimeofthedeal,bothpartiesaremadebetteroffintermsofexpectedrevenuefromthedeal—aParetoimprovement.

Suchclausesareofevengreatervalueandconsequencewhen thebeliefsofeachpartyareextremelydifferentandnodeal ispossibleunlessthesedifferentexpectationsaremanaged.Forexample,ifaclientdoubtsherlawyer’sabilitytowinincourt,shemaychoosetohirethelawyerbasedonacontingencycontract:thelawyerwillbepaidalargesumiftheclientwinsandnotatallifsheloses.Similarly, book publishers typically pay the author a sum ofmoney up front,followed by a fixed percentage of sales revenue. If the publisher is skepticalabout the author’s ability towrite abest seller, it shouldbewilling topay theauthor a higher percentage of sales revenue (or offer a bonus if the bookbecomes a best seller) in exchange for less money up front. If the author isconfident,hewillagree.

As a final example of the ability of contingency contracts to salvage deals,considerthe1997negotiationsbetweenbasketballstarDennisRodmanandtheChicagoBulls.Rodmanwasknownforhissuperiorabilitytoreboundandplaydefense;hewasalsoknownforhisunpredictability,hisdisdainforprofessionalnorms,andhispropensity tomissgames. In thepreviousseasonalone,hehadmissedtwenty-sevenofeighty-twogames.Asaresultofhisguaranteedcontract,the Bulls paid Rodman close to $3 million for games he did not even play!Determined not to repeat the mistake, the team negotiated an unprecedentedcontingency-ladencontractwithRodman.Hewouldhave theability toearnasmuchas$10.5million,buthewouldbeguaranteedonly$4.5million.Therestof

the salary was tied to various clauses, including $1million for playing in allplayoffgames,$500,000forwinninganotherreboundingtitle,and$185,000foreach game he played above fifty-nine.Whatwas the result?Rodmanwon hisseventhconsecutivereboundingtitleandplayedineightyoftheseason’seighty-two games (he missed two games due to injury), and the Bulls won anotherchampionship.

While contingency contracts are powerful tools for creating value andmotivatingperformance,theyarenotalwaysdesirable.Herearesomecaveatstokeepinmind:

•Contingencycontractsaredangerousiftheotherpartyismoreknowledgeablethanyou.Forexample,ifWCHIhasaccesstobetterratingsdatathanHollyville,andWCHIisofferingtobetonthebasisofratings,Hollyvilleshouldbewary.

•Contingencycontractsareusefulonlyifuncertaintywillberesolvedinwaysthatcanbemeasuredobjectively.Ifyouhireanemployeeandoffertopromoteher“ifsheperformswell,”makesurethatbothpartiesunderstandwhat“performswell”means.Willyoubaseperformanceonrevenuegenerated?Hoursworked?Projectscompleted?Agoodworkethic?Notallofthesestandardsareeasytomeasureobjectively.Aruleofthumb:ifyou’regoingtoargueaboutwhowonthebet,it’snotworthbettinginthefirstplace.IntheMoms.comnegotiation,partiescouldagreetobasethecontingencyclauseonratingsreportedfromaspecificsource(e.g.,NielsenMediaResearch).

•Makesureyouunderstandtheeffectofcontingencycontractsontheincentivesoftheotherparty.ImaginethatyourcontingencyclauseinMoms.comwasnotfor$1millionbut$20million.Ifyouweretocalculateyourexpectedvaluefortheclause,youwoulddiscoverthatyourexpectedrevenueis$10million.Soundsgreat!Butthere’sabigproblem.Youhavejustbetalotonthepossibilitythattheshowwillreceivehighratings—butwhonowhastheincentive,andtheability,tomakesuretheshowreceivesextremelypoorratings?WCHI.Theycanchoosenottoadvertisetheshow,toairitonanunpopularday,ortoairitinthemiddleofthenight.Whilethiswouldhurttheirrevenues(worthapproximately$7million),itwouldhelpthemreceive$10millionfromyoubasedonthecontingencyclause.Forthisreason,makesureyourcontingencycontractsareincentivecompatible.Thatis,theclauseyounegotiateshouldprovideincentivesfortheotherpartytobehaveinwaysthatarecompatiblewiththespiritofyouragreement.

PREPARATIONSTRATEGIESFORVALUECREATION

Nowthatwehaveconsideredthelogicofvaluecreationandhighlightedsomekeymethodsfordoingso,let’sstepbackandconsiderhownegotiatorswhoareinterested in creating value and achieving efficient agreements should preparefornegotiation.Inthepreviouschapter,wediscussedthenecessityofassessingyourBATNA,calculatingyourreservationvalue,andevaluatingtheZOPApriortoeverynegotiation.Inthissection,weaddtothislistofpreparationtasks.

STRATEGY1:IDENTIFYYOURMULTIPLEINTERESTS

Mostnegotiatorstakethedomainofnegotiationasgiven.Forexample, theyentertalksthinking,“Todaywe’regoingtobehagglingoversalary,”or“We’remeetingwiththeclienttonegotiateanextensionofthecontractlength,”or“Thisnegotiation is about the sale of our company.”Amore effective strategy is tothinkaboutallof the things thatyouvalue that theotherpartymighthave theability toprovide.Forexample, inaddition tonegotiatingyour salary,perhapsyou should also negotiate your start date, vacation days, signing bonus, jobdescription,promotionschedule,andstockoptions.

Thegoalisnottooverwhelmtheotherpartywithdemands,buttogivethemalot of different ways to compensate you andmake you happy. If they cannotincrease your salary but they can make you equally happy with somecombinationof signingbonus, change in jobdescription, andmore aggressivepromotion opportunities, both of you stand to gain. They get to hire theirpreferred candidate (you) without paying a high salary, and you get acompensationpackage thatmakesyouhappy.Similarly,whenapproaching thesale of your company, it is critical that you think about everything that youvalue.For example, youmight care about the preservationof your company’slegacy,maintainingaseatontheboard,havingaminoritystakeinthecompany,orsafeguardingthecontinuedemploymentofyourworkers.Itmaybethatyouare unwilling to accept the price offered when it is the only issue beingnegotiated,butthepricebecomesacceptableifyoucanretainsomeshares,aregiven a seat on the board, and have the ability to protect your workers.Unfortunately, some such issues never see the light of day because the sellerassumes that “they will never agree to give me a seat on the board” or that“they’vealreadydecidedwhethertheywillkeeporlayoffmyemployees.”

STRATEGY2:CREATEASCORINGSYSTEM

Identifying issues is only the first step.Next, you need to think about yourrelativeprioritiesoverthemanyissues.Forexample,howmuchareyouwillingto give up on price to getmore favorable financing terms or a better deliverydate? How do you trade off salary against stock options, starting date, orpromotiontrack?Howmuchwouldyoubewillingtogiveupinsalarytoworkinaspecificdivisionofthefirm?

Ascoringsystemoffersawaytoorganizeyourinterestsandprioritiessothatyoucananswerthesequestionsefficiently.Tocreateascoringsystem,listeach

issue and weight it according to its importance using a computer spreadsheetprogram.Youwillneedtothinkofacommonmetricforevaluatingeachissue.Forexample,youmightstartwithahundredpointsanddistribute thesepointsacrosstheissues(andacrosspotentialoutcomesforeachissue)inproportiontotheir relative importance. Another easymetric involves converting everythingintodollarvalues (e.g.,eachadditionaldayofvacationequals$600 insalary).Having a commonmetric across all issueswill help you evaluate the packageofferstheotherpartymakesandalsohelpyoustructureyourcounteroffersmorecarefullyandstrategically.

STRATEGY3:CALCULATEAPACKAGERESERVATIONVALUE

Insteadofhavingareservationvalueforeachissue(“ThelowestsalaryIwillaccept is $X, the lowest signing bonus is $Y, and the lowest number of stockoptions is Z”), you should use your scoring system to calculate an overallreservation value. For example, if your BATNA is to accept an offer fromCompany A, entering the specifics of the offer from Company A into yourscoring systemwill giveyou the total value (inpoints ordollar terms)of thatoffer. This is your package reservation value (PRV). Now, in your currentnegotiation,youknownot toacceptanyoffer thatgivesyoua totalvalue lessthanyourPRV.

The problemwith having a separate reservation value for each issue is thatyouroptionsbecomelimited.Youmaynotwantasalarybelow$X,butareyousure youwouldnot bewilling to accept a lower salary if the other sidemadesignificant concessions on many or all of the other issues you value? Often,negotiatorssetarbitrarylimitsonindividualissues(suchassalary,bonus,stockoptions,deliverydates,closingdates,up-frontpayment,etcetera)becausetheythinkthatanythingbeyondthatlimitwouldbe“unfair”or“unreasonable.”Butdoing so only limits the negotiator’s flexibility. If the other party cannot staywithinyourlimitonthatoneissue,butcanmorethanmakeupforitwithotherconcessionsandguarantees,youbothmaystandtolosebecauseofthelimityouhaveset.

Forexample,aconsultantorcontractormaynotbeable to lower theirpriceenough tobeatallotheroffers,but if thatconsultantorcontractorcanprovidemuch better service, give more comprehensive guarantees, and throw inadditionalworkforfree,youmightwanttoreconsiderthereservationvalueyouplaced on the issue of price.Unfortunately, far toomany firms, organizations,

and governments will make purchases or hire contractors and consultantsentirely based on the service provider’s ability to compete on only one issue(price).Thispracticecanbehighlyinefficient.

STRATEGY4:IDENTIFYTHEOTHERPARTY’SMULTIPLEINTERESTS

Innegotiation,thereoftenwillbeissuesthatyoudonotcareabout—butthattheothersidecaresaboutverymuch! It iscritical to identify these issues.Forexample,youmaybeindifferentbetweenwhetheryoustartyournewjobinJuneorJuly.Butifyourpotentialemployerstronglyprefersthatyoustartassoonaspossible, that’s a valuable piece of information.Now you are in a position togive them something that theyvalue (at no cost to you) andget somethingofvalueinreturn.Forexample,youmightstartamonthearlierandreceivealargersigningbonusfordoingso.Similarly,whenDeepakwaspurchasinghishome,hediscovered that thesellerwasvery interested inclosing thedealas soonaspossible.Withfarfewerconstraintsonhisabilitytoclosethedealearlyorlate,Deepakwasmore thanwilling tooblige.Heagreed tocloseonemonthearlierthanoriginallyoffered,andtheselleragreedtoalowerprice.

EXECUTIONSTRATEGIESFORVALUECREATION

Once talks begin, it is common for negotiators to focus primarily on value-claiming strategies and to forgo opportunities for value creation. This is notsurprising.Most people view negotiation as a battle inwhich the object is tooutwit, out-think, and out-negotiate the other side. Thismentality leads to thedangerous belief that they lose = you win. As we saw in the Moms.comnegotiation,thisissimplynotthecase.Infact,almostallnegotiationsentailthepossibilityof at least some—andoften a lot of—value creation. InPart II,wewilllookmorecloselyatthepsychologicalbiasesthatcanleadtoatheylose=youwinmentalityanddiscusswaysinwhichtoovercomethesebiases.Fornow,wefocuson thecorrectapproach forexecutingnegotiationsso thatyoucreatevalueandreachefficientagreements,whilestillcapturingmuchofthatvalueforyourself.

STRATEGY1:NEGOTIATEMULTIPLEISSUESSIMULTANEOUSLY

We often ask seasoned negotiators the following question: when you areinvolvedinacomplex,multi-issuedeal,whichissuesdoyounegotiatefirst,theeasiestor the toughest?Mostnegotiatorsrespondthat it’sbest tostartwith theeasyissues.Accordingtothislogic,startingwitheasyissuesallowsnegotiators

to build trust and gathermomentum toward an agreement; if you startwith adifficultissue,youmightderailthenegotiationfromthestart.Anotherbenefitofstartingwithaneasy issue is that itallowsyou tomakea low-costconcessionearlyandset thestage for theother side to reciprocate lateron issuesofmorevaluetoyou.Whilethisstrategyseemsreasonable,somenegotiatorstellusthatit is abetter idea to startwith the tough issues first.Theypointout that someissues are “make or break” if you can’t reach agreement on them, there’s nopoint inwasting timeon other, less important issues. Finally, a third group ofnegotiatorsrespondswiththeseeminglyfail-safeanswer“Itdepends.”

As it turns out, we disagree with all three responses. While negotiatorstypicallyfinditmorenatural(andeasier)tonegotiateoneissueatatime,amuchbetter strategy is to negotiate multiple issues simultaneously. Why? Becausenegotiating one issue at a time eliminates the possibility of logrolling. Forexample, in theMoms.comnegotiation, ifyouhavealready reachedagreementon the licensing fee and are now negotiating the number of runs, it will beextremely difficult to agree to eight runs. The onlywayHollyvillewill alloweightrunsisifWCHIconcedesonadifferentissue—butifyouhavealreadyputaside the other issues, this is not possible. Notice that, when consideredseparately, both issues in theMoms.com negotiation are effectively zero-sum;the buyer and seller have diametrically opposed interests on each issue. Onlywhentheynegotiatetheseissuessimultaneouslycantheycreateanon-zero-sumnegotiationthatallowsforvaluecreation.Inotherwords,althoughthebuyerandsellerwillbeinconflictoneachissue,theyarenotequallypassionateabouteachissue.Therelativeimportanceofeachissuetoeachpartyonlybecomesapparentwhentheissuesarediscussedsimultaneously.

STRATEGY2:MAKEPACKAGEOFFERS

Negotiating multiple issues simultaneously does not mean that you mustliterally talkabout every issueat the same time. Itdoesmean that you shouldavoid reaching final agreement on any one issue until you have had theopportunity to discuss every issue. Especially when there are many complexissuestodiscuss,aparticularlyproductiveapproachistobeginwithadiscussionofeachside’sperspectiveandpreferredoutcomeoneachissue.Onceyouhaveshared preliminary information, you can begin comparing relative preferencesacrossissues.Finally,whenit is timetoexchangeoffers,makepackageoffers.That is, instead ofmaking an offer or demand on one issue (such as price orsalary), propose a package deal that communicates to the other side your

preferred outcome across all of the issues. This helps the other party isolateaspectsof theoffer thatareparticularlyproblematicandproposecounteroffersthat do not simply ask for more on each issue. Instead, your counterpart cansignalflexibilityonsomeissueswhilemakingdemandsonothers.

Consider thefollowingtwoapproachesfornegotiatingthepriceofaserviceagreementbetweenyourfirmandapotentialclient.Whichapproachislikelytocreatemorevalueintheend?

A.“ThankyouforprovidingmewithadetailedlistoftheservicesthatyourfirmrequiresandforexplainingthatyouwouldliketobegintheserviceperiodinJuly.Wecanprovidetheseservicesatacostof$650,000.”

B.“ThankyouforprovidingmewithadetailedlistoftheservicesthatyourfirmrequiresandforexplainingthatyouwouldliketobegintheserviceperiodinJuly.Thankyoualsoforsignalingthatyouhavesomeflexibilityonwhentheserviceperiodbeginsandforyourinterestinexploringthe‘premium’serviceoptionthatIdescribed.Thisgivesusanumberofdifferentwaystopricetheservicesyouvalue.Herearetwooptions:

“Option1:IftheserviceperiodbeginsinJuly,andwithoutthepremiumservice,wecanprovidetheseservicesatacostof$650,000.Ifyouwouldliketoaddthepremiumservice,thatwillcomeatacostof$50,000,foratotalpriceof$700,000.

“Option2:Iftheserviceperiodbeginsearlier,inMarch,andwithoutthepremiumservice,wecanlowerthepriceto$635,000.Ifyouwouldliketoaddthepremiumservice,thatwillcomeatacostof$45,000,foratotalpriceof$680,000.”

Approach B helps your potential client understand what trade-offs arepossible, and makes it much more likely that the two of you will reach anefficientagreement.

STRATEGY3:LEVERAGEDIFFERENCESOFALLTYPESTOCREATEVALUE

Because people are different, conflict is natural. We have differentperspectives,interests,needs,constraints,careers,educationalbackgrounds,andexperiences. But while differences often lead to conflict, they also provide ameansofresolvingconflict.Thereasonlogrollingcreatesvalue,forinstance,isthatpartieshavedifferentpriorities.Iftheirprioritieswereidentical,therewouldbenowayforonepersontoconcedeonIssueAinreturnformoreofIssueB.Similarly, consider the essence of contingency contracts: they create valuebecause the two parties have different expectations about the future. If their

expectationswereidentical,theywouldhavenoopportunitytointroduceclausesthatincreasebothparties’expectedvalue.

Negotiation geniuses understand this crucial insight: you can leveragedifferencesofalltypestocreatevalue.Forexample,considerdifferencesinriskpreferences.Ifyouareriskaverseandsomeoneelseisriskneutral,youareinapositiontopaythatpersontotakeonyourrisk.Soundsfunny,right?Butthatisexactlywhatan insurancecompanydoes.Youpayyourhealth,automobile,orhomeinsurancecompanyapremiumtocoveryourlossesincasesomethinggoeswrong.Onaverage,youwilllosemoneywhenyoubuyinsurance.Butbecauseyouareriskaverse,youarewillingtolosesomemoneyinexchangeforpayingtherisk-neutralcompanytotakeawayyourrisk.Thismakesbothofyoubetteroffandnooneworseoff—whichmeansvaluehasbeencreated!

Asanotherexample, considerdifferences in timepreferences. Ifyouarenotcurrentlyusingsomethingyouown,butanotherpartyneeds it rightaway,youcangivethemwhatyouhaveinreturnforapayment.Ifthissoundsfamiliar,it’sbecausethisiswhathappenswhenyoudepositsomeofyourmoneywithabank.You give your money to the bank because you do not need to spend itimmediately.Inreturn,thebankgivesyourmoneytoitsborrowersandpaysyoufortheuseofyourmoneyintheformofinterest.Thisexchangemakesbothofyoubetteroff.

Whennegotiating, rather than trying to ignore, reconcile, or overcomeyourdifferenceswiththeotherparty,youshouldtrytoseekoutdifferences,andthenfindwaystoleveragethemtocreatevalue.Forexample,thenexttimesomeonestrenuouslyobjectstoaparticularaspectofyourproposal,donotbedismayed.Instead,trytodiscoverhowmuchtheothersidevaluesgettingtheirwayonthisaspectofthedeal.Iftheyvalueitsufficiently,theymaybeinapositiontomakethe deal even sweeter for you bymaking other concessions in return for yourflexibility.

POST-NEGOTIATIONSTRATEGIESFORVALUECREATION

Negotiation geniuses do not stop after having created value during thenegotiation;theycontinuetoseekoutParetoimprovementsevenafterthedealissigned. A powerful tool for value creation is the use of post-settlementsettlements (PSS), settlements that are reached after the initial agreement issigned.4Imaginethefollowing:

Afterweeksofnegotiation,youhave just signeda complexdealwith theCEOofFirmX.Youaresatisfied with the deal and so is the other party. You want nothing more than to go home, take ashower, and pop open some champagne. But you reconsider, deciding to try something a littledifferent. You ask the CEO of Firm X whether she would be willing to take another look at theagreementandseeifitcanbeimproved.Sheissurprisedbythesuggestionandasksifyou’rehavingsecondthoughtsaboutthedeal.

Often,thelastthingyouwanttodoafteralongnegotiationistoopenupacanofwormsandpotentiallyderailtheagreement.Youdonotwanttoappeartoberenegingonthedealyoujustsigned,nordoyouwanttosuggestthatyouheldbackinyourabilitytomakeconcessionsearlier.Youarealsounwillingtogiveawayanymoregroundtotheotherparty.

Why, then,might you propose a post-settlement settlement? Because, for avariety of reasons, a PSS can lead to Pareto improvements. First, the already-signedagreementconfirms theparties’ability towork together to reachvalue-creatingdealsandcreatesanenvironmentofoptimism.Second,oncea signedagreement exists, parties feel less anxious and are oftenmorewilling to shareinformation. Third, if presented correctly, both sideswill understand that theywillonlyacceptaPSSifitimprovesbothoftheiroutcomes.Inotherwords,therecentlysignedagreementbecomesthenewBATNAforbothparties.

This isacrucialpoint:youdon’twant theotherside toperceive thePSSasyourattempt torenegeorsqueeze last-minuteconcessionsoutof them.Onthecontrary,youshouldpresenttheideaofaPSSasanopportunityforbothpartiestobenefit. Indeed,state thisgroundruleexplicitlyat theoutset:eitherwebothbenefit,orwestickwithwhatwehaveagreedtoalready.

Consider the following story, recounted by one of our former executivestudents,theCEOofasmallfirminthepharmaceuticalindustry:

“Ihadagreed…toselltherightstoeightdifferentdrugsIhaveindevelopment…Ihadnegotiatedforfivestraightdaysonthisdealanditclosed…beforetheHarvardcourse.AfteryourclassesIcallupthepharmaceutical company that is buying the rights and said that I neededmoremoneyup-front.Thecompanywastakenabackbymycall.However…IusedthisopportunitytoexplainexactlywhyIwanteddifferentterms.Oncetheyheard

myrationale—thatIwantedthemoneytostartmoreprojects,thatIwantedthemoneytohelpmewithcashflow,and that Iwanted themoney tobeable togo tosomeangel investors to raiseevenmoremoney—theyunderstood.AlltheywantedinreturnwasarightoffirstrefusalonanyfutureprojectsIdevelopwiththeadditionalcashflowinthenexttwoyears.

Nowinsteadofusingalineofcredittosupportallthesedevelopmentprograms,IhavethreeorfourmoreprojectsthatIwillstartthissummerversusendof’04.Andbothsideshaveabettervalueundertheseterms…”

As the story suggests, the pharmaceutical company was initially surprised(andnotparticularlythrilled)bytheexecutive’srequesttoreopennegotiations.This was largely due to the perception that the executivewas simply comingbackformoremoneywithoutconcernfortheotherside’sinterests.Thesituationimprovedoncetheexecutivesharedmoreinformationregardinghisinterestsandcommunicatedawillingness togive thepharmaceuticalcompanysomething inreturn.PSSsnotonlyfacilitatelogrolling,theycanalsohelptoidentifyandaddissuesthatwerenotevenpartoftheinitialnegotiation;intheaboveexample,thepartieshadneverdiscussedarightoffirstrefusalintheformalnegotiationsthatprecededthePSS.

It is easy to see how a PSS might have improved the outcome in theMoms.com negotiation. Had the parties continued to negotiate and shareinformationafter the initialagreementwassigned, theymighthavediscoveredthevalueofshiftingtoeightruns,makingadealonJuniors,and/orincludingacontingencyclausethatleverageddifferentratingsexpectations.

Despite these potential benefits, post-settlement settlements are a severelyunderutilizedtool.ManypeoplehaveneverheardofPSS,othersarewaryoftherisks associated with renegotiating, others doubt that a PSS can really be ofbenefit,andstillothersdonotknowhowtoproposeaPSS.Wehaveaddressedthefirstthreeissues.Nowlet’sconsiderhowyoumightproposeaPSS:

Step1:Startbyacknowledgingtheprogressthatwasalreadymadeinreachingtheinitialagreement.

Step2:Suggestthatthereareaspectsofthedealthatyouwishcouldbeimproved;acknowledgethattheyprobablyfeelsimilarly.

Step3:Suggestthatyoumayhavealreadyconcededeverythingthatyoucanafford,butthatyouarewillingtotrytothink“outsidethebox”ifthatwillhelptheotherparty.

Step 4: State that it is important for both of you to realize that you are not looking for a newagreement,butforanimprovedagreementthatbothpartiesprefertothecurrentagreement.

Asanexample,youmightsaythefollowing:

“Congratulations!I thinkthatourhardworkhasreallypaidoffinagreatdeal.We’reprobablybothready tocall itaday. I’mwondering, though,whetheryoumightbeopen toan idea.Thoughwe’rebothsatisfiedwiththeagreement,thereareinevitablyaspectsofthedealthatIwishcouldhavebeenbetterforme,andyouprobablyfeelthesamewayaboutotheraspects.Whatifwespentafewmoreminutes talking about potential improvements to the deal that would make both of us better off?Maybewe’vealreadyexhaustedthosepossibilities—butitmightbeagoodideatoseeifthereareanystonesleftunturned.Ofcourse,ifwecan’tfindwaystomakebothpartieshappier,we’llbeevenmoreconfident thatour signedagreement is the rightone for everyone. If you’reup for it, let’sgive it atry…”

Keep in mind that it is not necessary for you to have this conversationimmediately upon signing the initial deal.Youmightwant to sleepon it.Youmightevenwaitaweekoramonthbeforerevisitingthedeal.Thekey,however,is to realize that your negotiation should not endwhen the deal is signed—itshouldendwhenyoufeelthatyouhaveexhaustedalloptionsforvaluecreation.

THEGENIUSOFVALUECREATION

As the ideas, strategies, and tactics we’ve presented in this chapter suggest,gettingagooddealinnegotiationisnotsimplyaboutclaimingasmuchvalueasyoucan.Often,amuchmoreimportant(anddifficult)taskistocreatevalueandincrease thesizeof thepie.Unfortunately, toomanynegotiators focusmostoftheirenergyonclaimingvalue.Indoingso,theyleavemoneyonthetableandwalk away confident, satisfied—and also poor. As you finish this chapter,consider the followingquestion:would you rather claim70 percent of a $100pie,or70percentofa$200pie?Thatisthetypeofchoiceyouwillfaceinmostofyour real-worldnegotiations.Even ifyougetaslightlysmallerportionofalargepie(say,50–60percent),thistrade-offmaybeveryprofitableforyou.

Itisimportanttorealizethatwearenotpreachingthegospelofaltruismandbenevolence,butratherteachingtheartandscienceofvaluecreation.Eventhemostself-interestednegotiatorsmustrelyonotherstosatisfytheirowninterests.Remember: to takewhat is there, youmustworkwith the other side tomakewhatisthere.Andifyoucareaboutyourreputationandyourrelationshipwiththeotherparty,allthemorereasontoexercisethegeniusofvaluecreation.

CHAPTER3

InvestigativeNegotiation

OneofusworkscloselywithaFortune500executivenamedChriswho iswidely regardedwithinhis firmasanegotiationgenius.Chris’s reputationhasbeenbuiltonahostof stories like thisone:Someyearsago,Chris’s firmwasnegotiatingtobuyanewhealth-careproductingredientfromasmallEuropeancompany. The parties had agreed to a price of $18 per pound for a millionpoundsofproductperyear,butaconflictdevelopedoverexclusivityterms.TheEuropeansupplierwouldnotagreetoselltheingredientexclusivelytotheU.S.firm,andtheU.S.firmwouldnotinvestinmanufacturinganewproductbasedonaningredienttowhichcompetitorswouldhaveaccess.Thisissueappearedtobeadealbreaker.

The U.S. firm’s negotiators were frustrated and surprised by the smallEuropeanfirm’sreticenceontheissueofexclusivity.Afterall,therewasnowaythesuppliercouldhopetosellevenclosetoonemillionpoundsoftheproductelsewhere. Eventually, though with understandable hesitation, the U.S. firm’snegotiatorsdecidedtosweetenthedealwithguaranteedminimumordersandawillingness topaymoreperpound.Theywereshockedwhen thesupplier stillrefused toprovideexclusivity!Asa last resort, theU.S. teamcalledChrisandaskedhimtoflytoEuropetojointhem.

WhenChrisarrivedandtookaseatatthebargainingtable,theargumentoverexclusivitycontinued.Afterlisteningbrieflytothetwosides,heinterjectedonesimplewordthatchangedtheoutcomeofthenegotiation.Withit,hewasabletostructureadealthatbothfirmsfoundagreeable.Thewordwas“why.”

Chris simply asked the supplierwhy he would not provide exclusivity to amajorcorporationthatwasofferingtobuyasmuchoftheingredientashecouldproduce.Thesupplier’sanswerwasunexpected:exclusivitywouldrequirehimtoviolateanagreementwithhiscousin,whocurrentlypurchased250poundsoftheingredienteachyeartomakealocallysoldproduct.Withthisinformationinhand,Chris proposed a solution that helped the two firmsquicklywrapup anagreement: the supplierwouldprovideexclusivitywith theexceptionofa few

hundredpoundsannuallyforthesupplier’scousin.Chriswasonthenextplanehome.

Chris’scolleaguesstilltellthestoryofhowChris(thegenius)savedthedealthroughhisamazingdetectiveworkandcreativity.WhatdoesChrissay?“AllIdidwasaskthemwhytheydidn’twanttoprovideexclusivity.”Whydidn’ttheotherU.S. negotiators ask this simple question?Because, based on their priorbusiness experience, they assumed they already knew the answer: either thesupplier was holding out formoremoney, or hewasworried that exclusivitywould eliminate the possibility of more profitable future business deals.Anchoredtotheseassumptions,theU.S.negotiatorstriedto“sweeten”thedealatapotentiallyhighcosttotheirownfirm.Ofcourse,thedealwasnevergoingto be sweet enough because their assumptions were wrong. Chris succeededwherehisteamhadfailedbecausehewaswillingtochallengeassumptionsandgather as much information as possible about the other side’s perspective. Inshort, Chris employed the first principle of a method we call investigativenegotiation.

THESEVENPRINCIPLESOFINVESTIGATIVENEGOTIATION

Investigative negotiation is both a mind-set and a methodology. Investigativenegotiators approach negotiations the sameway a detectivemight approach acrimescene:thegoalistolearnasmuchaspossibleaboutthesituationandthepeopleinvolved.Herearethekeyprinciplesfornegotiators:

PRINCIPLE1:DON’TJUSTASKWHAT—ASKWHY

Manyexperiencednegotiatorsbelievethatthepurposeoflisteningtotheothersideistofindoutwhattheywant.Thissoundsreasonable.Afterall,unlessyouknowwhattheothersidewants,howcanyoustructureadealthattheywillbewilling to accept? Similarly, negotiators tend to spend most of their ownspeakingtimetellingotherswhattheythemselveswantorneed.Unfortunately,this approach—finding out what each side wants—often derails negotiations.Thereason: toomuchfocusonwhatpeoplewantdistractsyourattentionfromdiscoveringwhytheywantit.

Inhisnegotiationwith thesupplier,Chrisunderstoodthat forprogress tobemadebothsideshadtostoptalkingaboutwhattheywanted(exclusivityversusnoexclusivity)andbegintalkingaboutwhytheywantedit.Whiletherewasnoroomforcompromiseonwhat theywanted,aclearsolutionemergedwhenthe

focus shifted to why. Once the supplier explained that he was resistingexclusivitybecause itwould forcehim to renegeonhispromise tohiscousin,Chrishadtheinformationheneededtostructureavalue-creatingdeal.

AmbassadorHolbrookeemployedthesameapproachinhisnegotiationswithUNmemberstates(seeChapter2).Rather thanacceptingtheirstateddemands(“Wedon’twantanincreaseinourassessments”),Holbrookeprobedfurtherbyaskingwhytheydidnotwantanincrease.Whensomestatesexplainedthattheywereconstrainedbytheirannualbudgetingprocess,butwereotherwisewillingtoincreasetheircontributions,theoutlinesofadealbecamevisible.

The same tactic—asking why—can do wonders even in mundanenegotiations. For example, Shikha, Deepak’swife, recently found herself in apredicament.IndowntownBostononanextremelycoldwinterday,sheneededtohailacab.Butitwasrushhour,andasliterallydozensofoccupiedcabsdroveby,shebegantoconsiderthepossibilitythatshemightgetfrostbite.Finally,shespottedanemptycabwaitingataredlight.Buttherewasaproblem:thecab’s“forhire”lightwasoff.Sheaskedforarideanyway.Asexpected,thecabdriverrefusedher requestwithadismissivewaveof thehand.Undeterred,sheaskedthedriverwhy hewouldnot takeher.Thedriver explained thathewasnot inservicebecauseheneededtogethome.“Well,maybewe’regoinginthesamedirection.Wouldyoudropmeoffifwe’regoingtothesamearea?”sheasked.As it turned out, their destinations were mere blocks from each other. Shejumpedintothewarmcabandmadeithomequickly,andthedrivermadeafewextradollarswithouthavingtochangehisplans.

PRINCIPLE2:SEEKTORECONCILEINTERESTS,NOTDEMANDS

Oneofthebiggestmistakesanegotiatorcanmakeistofocusexclusivelyontrying to reconcile the demands of each party. Investigative negotiators movebeyonddemandsandinsteadfocusoneachside’sunderlyinginterests.InChris’scase, the buyer and the supplier were making irreconcilable demands: onewanted exclusivity; the other did not.OnlywhenChris shifted attention awayfrom stated demands (exclusivity versus no exclusivity) toward each side’sunderlying interest (protection from competitors versus a promise made to acousin)wasadealpossible.Thedemandsofthetwopartieswereincompatible,but their interests were entirely reconcilable. Moreover, neither party had tomakeasubstantiveconcessionorcompromisetomakethedealhappen.

Thekeyinsight:negotiationgeniusesarenotdiscouragedwhenthedemands

of each party seem incompatible. Instead, they probe deeper to find out eachside’srealunderlyinginterests.Thisstrategyallowsthemtothinkmorebroadlyandcreativelyaboutagreementsthatmightsatisfytheinterestsofbothsides.

Thisisexactlyhowsomepoliticalactivistsrespondedtoanimpendingcrisisin the 2000U.S. presidential elections.Democratic candidateAlGorewas inclosecompetitionwithRepublicancandidateGeorgeW.Bush.UnfortunatelyforGore,whatwouldnormallyhavebeenatwo-partybattleforvotes(withGoreonthe political left andBush on the political right) became a three-party contestwhenGreenPartycandidateRalphNaderenteredtheraceandgeneratedinterestfromvoters on thepolitical far left.Having twocontenders on the left clearlybenefitedtheRepublicans;everyvoteforNaderwouldbea lossforGore,andBush faced no serious competition on the far right.Not surprisingly, relationsbetweenGoreandNadersupportersquicklysoured.GoresupportersberatedtheNader campaign for organizingwhat they viewed as a suicidemission.Naderwaspollingat lessthan4percentinmostofthecountryandhadnochanceofwinningtheelection,buthisabilitytosiphonvotesfromGorecouldhelpelectBush,theNaderandGorecampaigns’commonenemy.

In themidst of this heated campaign, a small group of supporters from theNaderandGorecampaignshadabrilliantidea.TheydevisedaplanthatmightsimultaneouslybenefitbothNaderandGoreattheexpenseofBush.Theydidsobyexaminingeachcandidate’sunderlyinginterests.

Clearly, both Gore and Nader wanted as many votes as possible, but theywantedvotesfordifferentreasons.Gorewashopingtowintheelectionin2000.To do so, he did not need towin largemajorities of the popular vote in eachstate; he simply neededmajority support in enough states so that his electoralvotes exceeded Bush’s electoral votes. (Inmost states, the candidate with thehighest number of popular votes receives that state’s entire share of electoralvotes.)

Meanwhile,Naderhadnohopeofwinningthepresidencyin2000.However,heknew that if he couldobtain5percentof thepopular votenationwide (notstatewide), his party would qualify for federal matching funds in the nextpresidential campaign. Knowing that his only chance (albeit slim) of beingelectedpresident in the futurehingedon receivingmatching funds,Naderwascampaigninghardin2000.

Onthesurface,theconflictbetweenGoreandNaderwasirreconcilable—theywere competing for votes from the same group of supporters. A closer look,however, revealed that theywere actually trying to satisfyverydifferent—andperhaps compatible—interests: Gore wanted electoral votes, whereas Naderwanted popular votes. IfGore supporterswho lived in stateswhereGorewascertaintogetalargemajorityofpopularvotescould“trade”someoftheirvoteswithNadersupportersin“battlegroundstates”(i.e., thosestateswheretheracebetween Bush and Gore was extremely tight), both Gore and Nader couldbenefit. For example, if a Gore supporter in California (where Gore wasexpectedtowin)votedforNader,andifaNadersupporterinFlorida(wheretheBush-Gore competition was fierce) voted for Gore, then Nader would stillreceive the popular vote he needed, and Gore would increase his chances ofobtaining the additional electoral votes he needed. To facilitate such trades, anumberofwebsitesemerged topairGoreandNader supporters fromdifferentstates.Eachvoterinthepairwouldcommittovotefortheother’scandidate.Theentiretransactionwouldbegovernedbythehonorsystem.

ThegeniusofthisstrategyisperhapsmostevidentintheresponseitgarneredfromBushsupporters,someofwhombegantoarguethatvote-tradingisillegalin theUnited States. The ensuing threat of prosecution from election officialsforcedsomeoperators toshutdownthevote-tradingwebsites.BothNaderandGoresubsequentlyfailedtoaccomplishtheirgoals.AlthoughGorewonthemostpopularvotesnationwide,hedidnot receiveenoughelectoralvotes towin thepresidency, and Nader fell short of the 5 percent popular vote he needed toreceivematchingfundsin2004.

Consider a more commonplace example of the same principle: A jobcandidatedemandsahighsalary fromhispotentialemployer,only to find thattheemployerisconstrainedbybudgetrestrictions.Ifthetwopartiesfocusonlyonthedemandsinvolved,fewoptionsremain;thecandidatecanacceptthejobas is,orhecan look foradifferent job.Butwhathappenswhen theemployerfocuses onwhy the candidate is demanding a higher salary? Presumably, it isbecausehewantsamorecomfortablelifestyle,greaterpurchasingpower,morefreedomandflexibility,higherstatus,andbetterhealth.Oncetheybegintofocusontheseunderlyinginterests,theemployerandthecandidatemaydiscoverthatthey havemore options. Instead of an increase in salary, the employer mightoffermorevacationdays,abetterjobtitle,achoiceofworklocations,improvedhealthbenefits,and/orasigningbonus.

PRINCIPLE3:CREATECOMMONGROUNDWITHUNCOMMONALLIES

ItistemptingtobelievethatGoreandNadersupporterswereabletonegotiateanagreementin2000becausetheysharedanoverarchinggoal:defeatingBush.What happened four years later, however, suggests otherwise. In the 2004presidentialcampaign,DemocraticcandidateJohnKerrychallengedRepublicanPresident George Bush. Again Nader entered the fray. Knowing that Nader’scandidacyhadlikelycostthemthe2000election,Democratswereinanuproar.ManywhohadsupportedNaderin2000beggedhimnottorun.Naderrefusedtoabandonhiscampaign,despitepollsshowinghehadthesupportof less than2percentofvoters.

Inthesummerof2004,itwasrevealedthatNaderhadbeguntoreceive—andtoaccept—anumberoflargedonations.Butthesedonationsdidnotcomefromhis supporters on the far left—they came from Republicans! Clearly,Republicanswere supportingNader’s candidacy to takevotes away from theirmoredangerouscompetitor,Kerry.Asin2000,thebargainwasconsummatedinthemidstofaseeminglyzero-sumgamebetweencompetitors.Thistime,itwasan implicit pact between Nader supporters (who benefited by receivingadditional money with which to attract votes) and Bush supporters (whobenefitedbydiminishingthevotesavailabletotheirprimaryopponent,Kerry).Despite theclear-as-daynatureof this transaction,Nader’srunningmate,PeterCamejo,defendedtheacceptanceofRepublicandonationsbysaying,“Wehavenowaytoknowwhattheintentofthemoneyis.”1

Asthesetwostoriesfromthe2000and2004electionssuggest,value-creatingopportunitiescanemergeevenbetweencompetitorswhoabhoreachother.Thisfact speaks to thepowerof understanding and leveragingunderlying interests.Professors Adam Brandenburger and Barry Nalebuff coined the term co-opetition to describe themixedmotiveswe often do (and should) have whenengaging with those whom we view as our competitors.2 According to theprincipleofco-opetition,itispossibletosimultaneouslycooperateandcompetewithothers.YousawthisprincipleatworkinChapter2,wherewedevelopedaframeworkforsimultaneouslycreatingandclaimingvalue innegotiation.Herethe power of co-opetition becomes even clearer: those who view theirrelationshipwith theother side asone-dimensional (“He ismyenemy”) forgoopportunities for value creation, whereas those who appreciate complexrelationshipsandexploremutualinterestsareabletocreatecommonground.

Itisworthconsideringwhatmighthaveoccurredif,between2000and2004,Democrats had made an effort to build common ground with Nader and hissupporters. For example, Democrats might have promised to work with theNadercandidacyonsharedissuesandinstatesthatwerenothotlycontested.Inreturn, Nader supporters could have committed not to campaign as hard inbattleground states. If this had happened, it is imaginable that Nader and hissupporterswould have aimed their fiery rhetoricmore at Bush than at Kerry.Instead,aBush-Nadercoalitionemergedin2004.

PRINCIPLE4:INTERPRETDEMANDSASOPPORTUNITIES

Anexecutivestudent,theCEOofasuccessfulconstructioncompany,relatedthe following story in one of our classes. TheCEOwas negotiating a deal inwhich a buyer would contract with his company to build midsize officebuildings.Aftermonths of negotiations finally concluded—but just before thecontractwassigned—thebuyerapproached theexecutivewithanentirelynewand potentially costly demand: a clause in the contract thatwould require thebuilder topay largepenalties if theproject’s completionwasdelayedbymorethan onemonth. The builderwas initially outraged by this sudden demand; itseemedasthoughthebuyerwastryingtosqueezesomelast-minuteconcessionsfromhim.

Thebuilderweighedhisoptions:hecouldacceptthebuyer’sdemandandsealthedeal;hecouldrejectthebuyer’sdemandandhopethiswouldnotdestroythedeal; or he could try to negotiate to reduce the proposed penalties. Then hethoughtmoredeeplyabout thesituation.Whatdid thebuyer’sdemandreveal?Attheveryleast,itrevealedthatthebuyerwasconcernedaboutdelaysandthathevaluedtimely(andperhapsearly)projectcompletion.Withthisinmind,theexecutiveapproachedthebuyerwiththefollowingproposal:hewouldpayevenhigherpenaltiesthanthebuyerhaddemandediftheprojectwasdelayed,butthebuyerwouldgivetheconstructioncompanyabonusiftheprojectwascompletedearlierthanscheduled.Afterworkingoutthedetails,bothpartiesagreedtothisclause,andbothwerehappierwith thedeal.Thebuilderwasconfident thathewouldfinishontimeandreceivethebonus,andthebuyerwasabletominimizehisdownsiderisk.

The genius of the CEO’s approach lay in his ability to focus on the otherparty’sneedsandinterestsratherthanonhisownpredicament.Typically,whenfacing demands from the other party, negotiators adopt a defensive posture:

“How can I avoid accepting this demand?” Investigative negotiators confrontdemandsthesamewaytheyconfrontanyotherstatementfromtheotherparty:“WhatcanIlearnfromthisdemand?Whatdoesittellmeabouttheotherparty’sneeds and interests? How can I use this information to create and capturevalue?”

PRINCIPLE5:DON’TDISMISSANYTHINGAS“THEIRPROBLEM”

Whileourownconstraintsarehighlyvisibletous,it’seasytooverlookthoseoftheotherparty.Infact,negotiatorsoftenadopttheattitude“It’stheirproblem,notmine.” Unfortunately, in negotiation, their problem quickly becomes yourproblem. For example, if one party faces a deadline, the amount of timeavailable to negotiate diminishes for both parties. Similarly, if one party isunable to fulfillher responsibilities, shemaybe legally liable,butbothpartiesmaystandtoloseprofit.

A former student’s experience inspired this example: The CEO of“HomeStuff,” a well-established and profitable producer of householdappliances,wasnegotiatingthepurchaseanddeliveryofmechanicalpartsfrom“Kogs,”anewsupplier.Thepartiesdiscussedtwokeyissues:priceanddeliverydate.HomeStuffwantedtopayalowpriceandalsowantedimmediatedelivery.Notsurprisingly,Kogswantedahighpriceandmoretimetodeliverthegoods.

Basedonprevailingmarketrates,thepartiesagreedtoapriceof$17millionand a three-month delivery date. The supplier, however, voiced some anxietyaboutthedeliverytimeframe:“Thiswillbecostly,”hesaid,“butI’llmanage.”

TheCEO ofHomeStuff, aware that delaying delivery beyond threemonthswouldcostHomeStuffcloseto$1million,offeredtoacceptdelayeddeliveryifKogswouldagreetocutthepriceby$1million.

“I appreciate the offer,” the supplier responded, “but I can’t accept such alargepricecut.”

Normally,negotiationswouldendat thispoint.TheCEOhad tried tomakeboth sides better off through logrolling and found this was not possible.Nonetheless,theCEOdecidedtopursuethematterfurther.“I’msurprisedthatathree-monthdeadlinefordeliveryiscreatingsuchaproblemforyou,”shesaidto the supplier. “I would have thought that you could easily manufacture theparts in a short amount of time.Would youmind tellingmemore about your

productionprocesssothatIcanbetterunderstandyourconstraints?”

“Actually,manufacturingisnottheproblematall,”thesuppliersaid.“It’stheshippingcosts thatarekillingus.Thefreightrates thatwehavetopayatsuchshortnoticeareextremelyhigh.”

WhentheCEOheardthis,hereyeslitup.Hadtheproblembeenwhatshehadassumed(nocheapwaytomanufactureintime),therewaslittletobedone.Butthisproblem(nocheapwaytotransportintime)wasonethatHomeStuffcouldsolveforKogs.HomeStuffhadbeeninvolvedinhigh-volumeshippingforyearsand often had to ship products at short notice. As a result, the firm hadnegotiated very favorable terms for this kind of a delivery. Indeed, the CEOcouldhavethepartsshippedfromthesupplierinlessthanthreemonthsatacostofonly$500,000. Incomparison, the supplierwouldhavepaidmore than twotimesthatmuch($1.2million).

TheCEOmadethefollowingoffer,whichwasimmediatelyaccepted:

•HomeStuffwouldhavethepartsdeliveredviaitsownshippersin2.5months.

•Thesupplierwouldpaythecostofshipping($500,000).

•Thesupplierwouldlowerthepricefrom$17millionto$16.5million,allowingbothpartiestoshareinthecostsavings.

Anothergreatresultofthisarrangement?Thesuppliernowhadarelationshipwiththelow-costshipperandcouldtakeadvantageoftheshipper’sefficiencyinthefuture.

AstheHomeStuffstoryillustrates,whentheotherparty’sconstraintdestroysvalue, it isnaive toview theseconstraintsas“theirproblem.” In thiscase, thesupplierwasconstrainedbythehighcostsofshipping,andthiswasdestroying$700,000 in value for both parties. The HomeStuff CEO’s genius lay in herdesiretounderstand—andsolve—theotherside’sproblems;theCEOleveragedHomeStuff’scostadvantagetofixthetransportationdilemma.Similarly,intheUNnegotiations,AmbassadorHolbrookewas able to leveragehis relationshipwithTedTurner(whoagreedtodonateover$30milliontooffset theone-year

shortfall in UN dues) to solve the budget constraints faced by other memberstates.Inbothcases,aproblemwassolvednotoutofbenevolenceoraltruism,butbecausethenegotiatorsunderstoodthatanunconstrained“opponent”wouldhavemoretoofferthanwouldsomeonewhosehandsweretied.

PRINCIPLE6:DON’TLETNEGOTIATIONSENDWITHAREJECTIONOFYOUROFFER

Howmanytimeshaveyoutriedtomakeasale,ortriedtocloseadeal,onlytohaveyour finaloffer rejected?Whatdoyoudowhen thishappens? Ifyouarelikemost people, once the other side has said no to the best offer you couldconceive, you feel there is little left for you to do. Often, you are correct.Sometimes,however,youareverywrong.

A fewyearsago,Linda, theCEOofacompany thatmanufactures specialtygiftitemsformanyFortune500clients,foundherselfatthereceivingendofarejection. A very big potential client, whom she had courted formonths, haddecided that they would purchase from her competitor. The final heartbreakcameafterbothmanufacturershadsubmittedtheirfinaloffersandtheclienthadpickedLinda’scompetitor.Lindawassurprised,butacceptedthelossasapartoflife.Soshehadnoillusionsofwinningthedealwhenshedecidedtomakeonelast call to the client.When the VP of purchasing came on the phone, Lindaaskedwhetherhewouldbewillingtotellherwhyherfinalofferhadnotbeensufficienttowinthedeal.“Thisinformationcouldhelpmeimprovemyproductandserviceofferingsinthefuture,”sheexplained.

Linda was quite surprised when the VP explained why the competitor hadbeatenheroffer.Asitturnedout,Lindahadbeenunderthefalseassumptionthattheclientcaredmostlyaboutprice.Inherfinaloffer,Lindahaddoneeverythingpossibletoreducethecosttotheclient;indoingso,shehadeliminatedfeaturesof theproduct that theclientvaluedsignificantly.Hercompetitor,on theotherhand,waschargingamuchhigherprice,butincludedthekeyproductfeatures.After listening intently to the VP’s explanation, Linda thanked him for hiscandor. She then explained that she had misunderstood the client’s position.“Knowing what I know now,” she said, “I’m confident that I can beat theiroffer.”She then asked theVPwhether hewas still in a position to entertain arevisedofferfromherfirm.TheVPsaidthathewas.Oneweeklater,Lindahadwontheclientover—andsignedthedeal.

The key lesson of this story, one that Linda has applied ever since, is thatnegotiationsshouldneverendwitha“no.”Instead,theyshouldeitherendwitha

“yes”orwithanexplanationas to“whynot.”Youmaydiscoverthat theothersidehasneedsthatyousimplycannotmeet,orthatyourcompetitorcreatesvaluein ways that you cannot. If so, you can confidently walk away from thenegotiationknowingthatnodealwaspossible.Butyoumight insteaddiscoverthat therewere options you overlooked, needs you did not consider, or issuesyoudidnotexplorecarefully.Theveryleastthataninvestigativenegotiatorwilldoafterbeingrejected is toask:“Whatwould ithave takenforus toreachanagreement?”Eveniftheanswerconfirmsthatyoucannotwinthedeal,youmaylearn important information thatwillhelpyou inyour futurenegotiationswiththisorotherpotentialcustomers.

In short, there is nothingwrongwith “no deal” orwith a rejection of youroffer—aslongasthereasonforthe“nodeal”isthatthereisnoZOPA(i.e.,nomutuallyagreeableoutcome).Ifyouarenotthepartnerwhohelpstheothersidecreatethemostvalue,thenyoudonotdeservethedeal.Butifyoucancreatethemostvalue,andthereisnodealbecauseyouwereout-negotiated,thenthatisatragic,value-destroyingoutcome.Investigativenegotiatorsdonotfearrejection,but they also don’t let things end there; they investigate further to find out iftherereallyisnoscopeforadeal.Investigativenegotiatorsunderstandthat“whynot” is often as important a question as “why.” And above all, investigativenegotiators never stop learning—not evenwhen thedeal is lost and theyhavebeenaskedtoleavetheroom.

PRINCIPLE7:UNDERSTANDTHEDIFFERENCEBETWEEN“SELLING”AND“NEGOTIATING”

Imagine you’re watching a salesperson at work. What do you see? Whatapproachisthesalespersontaking?Whatstrategiesisheemploying?Whatdoesthesalespersonfocuson?

Whenaskedtoimagineasalespersoninaction,mostpeopleenvisionsomeonemaking a “pitch”—arguing the merits of his case and trying to convince apotentialtargetthattheyshouldbuywhathehastooffer.

Nowimagineyou’rewatchinganegotiatoratwork.Whatdoyousee?Whatapproachisthenegotiatortaking?Whatstrategiesisheemploying?Whatdoesthenegotiatorfocuson?

Ifyouagainenvisionsomeonemakingapitch,youarefailingtodiscernthecrucialdistinctionbetween“selling”and“negotiating.”Selling involves telling

peopleaboutthevirtuesoftheproductorserviceyouhavetooffer,focusingonthe strengths of your case, and trying to induce agreement or compliance.Effective negotiating requires this kind of active selling, but it also entailsfocusing on the other side’s interests, needs, priorities, constraints, andperspective. Negotiation geniuses—and all great salespeople—understand thisdifference. They also understand that their ability to structure a deal thatmaximizesvalueoftenhingesnotontheirabilitytopersuade,butontheirabilitytolisten.

Itisworthnotingthatmostofthenegotiatedagreementswehaveconsideredinthischapterhavenotonlysatisfiedeachparty’sinterests,buthavealsodonesowithoutrequiringeitherpartytomakeasubstantiveconcession.Inthe2000presidential elections, the agreement betweenGore andNader supporters wasdesigned for Gore to gain electoral votes and Nader to gain popular voteswithouteitherpartyhavingtogiveawayanythingofvalue.Similarly,inChris’snegotiation with the European supplier, Chris obtained protection againstcompetitors,thesupplierretainedhisrighttoselltohiscousin,andneitherpartyhad to make a substantive concession. In the cab ride negotiation, the drivermademoney, Shikha got a ride home, and no onemade a concession. Thesenegotiated agreements suggest that if you negotiate with an investigativeapproach,youmaynothaveto“givealittletogetalittle,”asthesayinggoes.Rather, youmay be able to get everything you want by giving up nothing—except, perhaps, yourmistaken assumption that one of youhas to lose for theothertowin.

FIVESTRATEGIESFORELICITINGINFORMATIONFROMRETICENTNEGOTIATORS

Bynow,youmayhavenoticedthatalloftheprincipleswehaveoutlinedinthischapter,aswellasallofthestrategiesforvaluecreationpresentedinChapter2,assumethat it ispossible todiscover theinterests,priorities,andconstraintsoftheothernegotiator.Forlogrollingtooccur,partiesmustunderstandwhovaluesanissuemore.Similarly,toreconcileeachparty’sinterests,bothpartiesmustbewilling to share private information. Unfortunately, negotiators often do notsharesuchinformation.Typically,theykeeptheircardsclosetothevestforfearthatiftheothersideknowswhattheyvaluehighly—orwhytheywantorneedsomething—theywillbeexploited.

How, then, can you elicit the information necessary to create value, resolve

conflicts, and reach efficient agreements? Here are five strategies for dealingwith reticent negotiators. The strategies build on each other; if the first onedoesn’twork,continuedownthelist.Ofcourse,thebetteryourrelationshipwiththeotherside, themorelikelyit is thatoneof theearlierstrategieswilldothetrick.

STRATEGY1:BUILDTRUSTANDSHAREINFORMATION

Negotiators are more willing to openly share information regarding theirinterests,constraints,andprioritieswhentheytrustoneanother.Thisfactisnotsurprising. What does surprise us is how rarely negotiators invest in trustbuilding prior to, during, and after their negotiations.Negotiation geniuses donotsimplyleveragetrustwhenitispresent;theybuildtrustwhenitisabsent.

Howcanyoubuildtrust?First,understandthatnegotiationcausesanxietyforeveryone—even for that tough,poker-facednegotiatorwhomyouhate tohaveacrossthetablefromyou.Thisanxietyisrootedinthefearthattheotherpartywillexploityouifgiventheopportunity.Ifyoucanalleviatethisfear,bothsideswillfeellessanxiousandwillbeabletoshareinformationmoreeasily.Herearethreepowerfulwaystoalleviatefearandbuildtrust:

Understandandspeaktheirlanguage.Thisadviceisnotonlyrelevantincross-cultural negotiations; executives from different firms and industries alsospeakdifferentlanguages.Inonecasethatweknowof,aconsultingfirmlostitsbid for a multimillion-dollar project because the firm’s representative did notunderstandjustone specificwordof technical jargon that theclientwasusing.Thatonebriefmomentoflinguisticignorancecostthefirmmillionsinrevenue.Howcould this have been avoided?The consulting firm could have taken thetime tomore thoroughlystudy theclient’s industryorcouldhavepickedas itsrepresentativesomeonewithexperienceintheclient’sindustry.Whenyouspeaktheotherside’slanguage,younotonlybuildasenseofkinship;youalsosignalthat you care about their needs and are interested in building a long-termrelationship.

Increase the ties that bind. If yours is a purely business or politicalrelationship,theothersidehaseveryreasontobelievethatyouwillexploitthem

when it is in your economic or political interest to do so. Learning about theotherside’sfamilyandtheirlife,spendingtimewiththemininformalsettings,sharing common friends, and living or working in the same community willfacilitate trust. Even increasing your economic or political ties with the othersidecanfacilitatetrust.Imagineafirmthatsellsoneservicetoaclientunderaone-yearcontract.Now imaginea firm that sellsmultiple services to thesameclient,withlong-termcontractsthatexpireatdifferenttimes.Bothofthesefirmswillwant to renewa contractwhen it expires.Butwhichof these firmshas agreater opportunity to cultivate the trust that is necessary for securing futurebusinesswiththeclient?

Build trust when you’re not negotiating. Your greatest opportunity tobuildtrustcomeswhenyourcooperative,benevolent,orethicalbehaviorcannotbeinterpretedasself-serving.Anyonecanbenicewhentheyaretryingtogetthedeal; smart negotiatorsmaintain and strengthen relationshipswith others evenwhenthere isnoobviouseconomicorpolitical reason todoso.Bykeeping intouchwith exclients, delivering a better product than promised, passing alongunanticipated cost savings, and behaving ethically across the board, you canincrease the likelihood that your next negotiation will be with someone whotrustsyou.Thishighlightsanotherimportantpoint:thebestwaytobuildtrustistoactuallybetrustworthy.Negotiatorswhostrategize,economize,orcutcornerswhenitcomestoethicalbehavioraretypicallynotinapositiontobuildthetrustnecessaryforinformationexchangeandvaluecreation.

STRATEGY2:ASKQUESTIONS—ESPECIALLYIFYOUARESURPRISEDORSKEPTICAL

Negotiators often do not bother to ask questions because they assume theotherpartywillnotanswer them.This isacolossalmistake.While there isnoguarantee that someonewill answer your questions, one thing is certain: yourquestionsaremorelikelytobeansweredifyouaskthemthanifyoudon’t.Butaskingtheimportantquestionsisnotenough;therealtrickisinknowinghowtoaskthem.

For example, if you want to know the other side’s reservation value, it isusually futile to ask them for their bottom-line figures; they are unlikely toanswer. But you can ask other questions that theywill answer—and thatwillgive you essentially the same information. Consider these less-threateningqueries:

•“Whatdoyouplantodowiththeproductsyou’repurchasingfromus?”

•“Tellmeaboutyourcustomers.”

•“Whatdoyouplantodoifwecan’tprovideyouwiththeservicesyouneed?”

•“Howdoesthisdealfitintoyouroverallbusinessstrategy?”

•“Tellmemoreaboutyourorganization.”

Unfortunately,many negotiators do not ask such indirect questions becausetheyaretoobusyarguingthemeritsoftheircase.

As we’ve said previously, asking questions is especially important anytimeyouare surprisedor skeptical.Thenegotiators inChris’s firmshouldnothaveneeded him to fly to Europe and askwhy the supplierwas reluctant to allowexclusivity.Thesupplier’srefusal—evenaftersignificantpriceconcessionsandminimum-purchaseguaranteeswereoffered—shouldhavebeenacall toaction—that is, a call to questioning. Similarly, in the Moms.com negotiation inChapter 2, when Kim stated that the show’s projected ratings were low, youshouldhavetakenthisopportunitytoaskaseriesofimportantquestions:“Whatdothoseprojectionsassume?Howconfidentareyouofthoseprojections?Whatwouldhappeniftheprojectionswereincorrect?”Thislineofquestioningcouldleadtothestructuringofacontingencycontract.

STRATEGY3:GIVEAWAYSOMEINFORMATION

Youhavetriedtobuildtrustandshareinformation.Youhaveexhaustedyourlistofquestions.Yettheotherpartyisstillunwillingtogiveyoutheinformationyouneed.Nowwhat?

Leverage the norm of reciprocity and be the first to give away someinformation.Forexample,youmightsay:“Iknowwehavealottotalkabout.Ifyou’dlike,Icanstartbydiscussingsomeoftheissuesthataremostimportanttome. Then you can do the same.” This tactic helps reduce the other party’sanxiety; if both parties are sharing information, both aremutually vulnerable.Thekey,then,istoshareinformationincrementally,backandforth.Inthiswayyoucanminimizeyourownrisks: if theotherparty isstill reluctant todiscuss

matters,youcandecidetoholdbackasneeded.

When using this strategy, it is critical for you to know what kinds ofinformation to share and withhold. First, you should rarely give away yourreservationvalue—andcertainlynotearlyinthenegotiation.Ifyoutelltheotherpartythatthelowestyoucanacceptis$15,000,guesswhattheywillofferyou?On the other hand, it is generally safe to share information regarding yourprioritiesacrossdifferentissues.Thisadviceoftensurprisespeoplebecausetheyreasonasfollows:“IfItellthemwhatIdon’tvalue,Iwon’tbeabletodemandlargeconcessionsinreturnforgivingittothem.”Thekeyistoshareinformationaboutyourrelativeprioritieswithoutminimizingtheabsoluteimportanceofanyoneissue.Comparethesetwoapproaches:

Whatnottosay:“Ofthefiveissuesweareheretodiscuss,IonlycareaboutIssues2and4.Idon’treallycarewhatwedecideabouttheotheritems.”

How to say it: “The five issueswe are here to discuss are all critical because each has a significantimpactonmybottomline.Itmaybedifficultformetoofferconcessionsonanyoftheissues.ButifIhadtochoose,IwouldsaythatIssues2and4maybethemostcritical—thesearetheissuesonwhichIamleastflexible.”

Givingawaysuchinformationprovidestwoimportantbenefits.First,ifyourcounterpartisaskillednegotiator,shewillstartidentifyingtradesthatwillallowyoutologrollandcreatevalue.Forexample,shemightsuggestthatshecangiveyou what you need on Issue 2 in exchange for what she needs on Issue 1.Second,evenifyourcounterpartisnotanegotiationgenius,sheisstillhuman—andhumanstendtoreciprocatebehavior.Whenyoulietopeople,theyoftenliein return.Whenyouapologize, theyoftenexpress contritionor regret aswell.Andwhenyougivethemusefulandcredibleinformation,theyoftenrespondbysharinginformationwithyou.

STRATEGY4:NEGOTIATEMULTIPLEISSUESSIMULTANEOUSLY

AswenotedinChapter2,logrollingrequiresthatyouputalloftheissuesonthetableatthesametimeand,insteadofdiscussingthemonebyone,jumpbackandforthamongthem.Negotiatingmultipleissuessimultaneouslyisalsoagreatway to get information regarding the other party’s relative preferences andpriorities.Ifyoudiscussoneissueatatime,theotherpartyislikelytotreateach

issueas themost importantone in thenegotiation.Togetaclear readon theirtruepriorities,openupthediscussiontoincludemultipleissuesandputthemina position where they must make an implicit choice about which issue ordemandtoemphasize.Todeterminewhichissuesaremostimportanttotheotherparty,lookforthefollowingsigns:

•Whichissuedoeshewanttoreturntoconstantly?

•Whichissuesmakehimthemostemotionalortense?

•Whilediscussingwhichissuesisshemostlikelytotalkratherthantolisten?

•Whichissuesisshemostobstinateaboutwhenyouaskforacompromise?

STRATEGY5:MAKEMULTIPLEOFFERSSIMULTANEOUSLY

Imagine thatyouhave triedallof thestrategiesaboveand theotherparty isstillreluctanttoprovidetheinformationyouneed.Whatyouneednowisatacticthatelicitsinformationwithouthimevenknowingthatheisgivingit.Trythis:Nexttimeyouarepreparingtomakeanoffer,don’tjustmakeone.Instead,maketwoofferssimultaneously.Specifically,maketwooffersthatareofequalvaluetoyou,butthatdifferslightlyfromeachother.

Consider the followingnegotiationwitha real-estateagentyouarehiring tosell your house. The two primary components of the agent’s contract arecommission (the percentage of the sale price that the agent will receive) andcontract length (the length of time that the agent has exclusivity to sell thehouse).Theagentwantsahighcommission(6percent)andalongcontract(sixmonths).Youwanttogivetheagentalowercommissionandkeepthecontractlengthtoaminimum.Howcanyoufindoutwhichissuetheagentvaluesmore?First, calculate how these two issues trade off for you by creating a scoringsystem (see Chapter 2). Let’s say that you discover that it would be equallyvaluabletoyoutoreducethecommissionby1percentortoreducethecontractlengthbyonemonth.So,youmakethefollowingtwoofferstotheagent:

OfferX:2.5percentcommission,three-monthcontractOfferY:3.5percentcommission,two-monthcontract

Theagentrespondsthat,whileneitherofferisentirelyacceptabletoher,sheprefersOfferXtoOfferY.Thisgivesyouimportantinformation!Becausetheseoffersareequalinvaluetoyou,herchoicerevealsthat(relativetocommissionrate) the agent values additional time (i.e., contract length)more than youdo.Thus,ifyoutrytostructureadealwitharelativelylowcommissioninexchangeforalongercontract,youarelikelytomakebothpartiesbetteroff.Theagent’sstatedpreferencemightalsotellyousomethingelse—somethingthatshouldbeofconcern.Whydoestheagentvalueadditionaltimesomuch?Issheverybusythese days? Is she not a good salesperson? These are issues you can nowinvestigate.This informationmayhavebeenhard toobtainwithout theuseofmultiplesimultaneousoffers.

Keepinmindthattheotherpartydoesnothavetoaccepteitherofyourtwooffers to signal her relativepriorities. Indeed, the agent could respond to youroffersbysayingthatbothareentirelyunacceptablebecauseyouhaveanchoredtooaggressively.Thisisnotaproblem.Youcanthenask:“Whichofferisclosertosomethingyoucouldaccept?”or“Whichoneiscompletelyoffthemark?”or“IfIweretoconsidermakingsomechanges,whichoffershouldIstartworkingon?”Answerstoanyofthesequestionswillgiveyoutheinformationyouneedtostartlogrolling.

Makingmultiple offers simultaneously is a great tactic for other reasons aswell.Notonlydoesitallowyoutodiscovertheinterestsofreticentnegotiators,butitalsoallowsyoutoanchormorestrongly(withtwooffersratherthanone)and tosimultaneouslycomeacrossas flexible.The fact thatyouareprovidingoptionssignals thatyouarewilling tobeaccommodatingandare interested inunderstandingtheotherparty’spreferencesandneeds.

THEINFORMATIONGAME

Negotiationisaninformationgame.Thosewhoknowhowtoobtaininformationperformbetterthanthosewhostickwithwhattheyknow.Inalloftheexamplespresented in Part I of the book, we’ve seen that the decision to challengeassumptions and probe below the surface helped negotiators improve theiroptions and structure more efficient deals. More generally, the investigativenegotiationapproachcanhelpyoutransformcompetitive,zero-sumnegotiationsinto ones that entail the possibility of cooperation, value creation, andmutualsatisfaction.

It is not enough, however, to be equipped with a systematic approach formaximizingvaluecreationandvalueclaiming.InPartIIofthebook,wedelveintothemindofthenegotiatorandexposesomeofthepsychologicaltrapsthatcanderailthestrategyofeventhesavviestofnegotiators.Negotiationgeniusesunderstand theworkings—and the shortcomings—of thehumanmind, and areadept not only at overcoming their own psychological biases, but alsoconfronting(and,whenneeded,leveraging)thebiasesofothers.

CHAPTER4

WhenRationalityFails:BiasesoftheMind

On September 15, 2004, in the midst of a contentious labor dispute, theNationalHockeyLeague locked out its players. Fivemonths and hundreds ofcanceled games later, theNHL officially called off the season. In doing so, itbecamethefirstmajor-leaguesportinU.S.historytoloseanentireseasontoalabordispute.

Whatwentwrong?1UndertheleadershipofCommissionerGaryBettman,theNHLexpandedambitiouslythroughoutthe1990s,addingninenewU.S.teams,buildingnewarenas,generatingpublicity,andincreasingtelevisiontimeforthesport. But in its quest to ramp up its visibility and profits, NHLmanagementallowedplayersalariestoreachunsustainableheights.By2003,accordingtotheleague,salarieswere75percentofNHLrevenues—a34percent increasefromthe 1990–91 season.2 By comparison, the National Football League paid itsplayers 64 percent of revenues; the National Basketball Association paid 57percent.

By 2004, the NHL could no longer ignore its growing financial dilemma.Nineteenofthirtyfranchiseslostmoneyduringthe2003–04season;theleagueclaimed to have lost $225million in this same period. The sale of televisionrightswasalsodisappointing.3Asaresult,NHLmanagementdecidedtotakeahard line at the start of the2004–05 season.The league sought a reduction inaverage player salary from $1.8million to $1.3million. In addition to salaryrollbacks, Commissioner Bettman demanded “cost certainty,” a salary caplimitingpayrollstoamaximumof55percentofteamrevenues.

OnDecember9,2004,theNHLPlayers’Association(NHLPA)agreedtoa24percent rollback of existing salaries but refused to link payroll to revenue.Bettman set amid-February deadline for reaching agreement or canceling theseason.OnFebruary14,2005,NHLownersproposedasalarycapthatdidnottie payroll to revenue. After further negotiation, the owners’ salary cap offerstoodat$42.5millionperteam.TheNHLPAcamedownfromdemandinga$52-

million-per-teamcapto$49million,withcertainexceptions.

“To be this close, they have to make a deal,” Mighty Ducks player MikeLeclerctoldtheLosAngelesTimesasBettman’sdeadlineapproached.“Itwouldbe disgraceful to cancel the season.”4 Yet the deadline passed withoutagreement,andBettmanofficiallyannouncedthattheseasonhadendedbeforeiteven began. Almost 400 of theNHL’s 700-plus players defected to Europeanteamsfortheseason;olderplayersfoundtheircareerssuddenlycutshort.Manyfelt betrayedbyboth their union and their teamowners.Public sentimentwasdivided early on but quickly turned against the players, who were viewed asunrealisticandgreedy.

OnJuly21,2005,theNHLandtheNHLPAfinallyendedthe310-daylockoutand set the 2005–06 hockey season in motion by ratifying a collective-bargaining agreement. Backed by nearly 90 percent of NHL players, theagreementcalledfora$39-million-per-teamsalarycap—a$10milliondecreaseintheNHLPA’spreviousdemands—andlowerthanwhattheleaguehadofferedfivemonthsearlier.Other cost-certaintymeasureswerealso included:payrollswouldnotexceed54percentofteamrevenues,allcurrentplayercontractswererolledbackby24percent,andthearbitrationclausewaschangedtomakeitlessadvantageoustotheplayers.5Theplayersreceivedonlynominalconcessionsinreturn (e.g., a guaranteed salary minimum per team).Major league hockey, a“gate-driven”sportthatearnsaboutthree-fifthsofitsrevenuefromticketsales,was now facedwith the uphill challenge of luring fans back into stadiums insignificantnumbers.6

Whywould the players’ union reject an offer for $42.5million in Februaryonly toaccept$39million inJuly?Whydid theysacrificeaseason’sworthofrevenuesandgoodwilltoholdoutforless?Bymostaccounts,thedealthatwaseventually signed was achievable before the lockout.Why, then, did the twosides fail toavoid the lossofa season?Were thedispute, the lockout, and thecancellation of the 2004–05 season necessary and inevitable events? It is ourview that thewhims of fate are not to blame; rather, the negotiation failed inlargepartduetopreventablenegotiationmistakes.

WHENREASONFAILSUS

DanielKahnemanreceivedthe2002NobelPrizeinEconomicsforhisworkwithAmos Tversky on the systematic ways that the human mind deviates from

rationality.Thisprofoundworkhasledtoscientificrevolutionsinmanyfields,including economics, psychology, finance, law,medicine, andmarketing. Thisworkhasalsotransformedthefieldofnegotiation.Priortotheinfluenceofwhatis known as behavioral decision research, negotiators were simply urged toapproachproblemsfromarationalperspective—inotherwords,theyweretoldto take certain logical frameworks (e.g., very early versions ofwhatwe havedevelopedinChapters1–3)andto“goberational.”

By contrast, behavioral decision research emphasizes that while advisingnegotiatorstoberationalisnecessary,itisfarfromsufficient.Negotiatorsalsoneedtobemadeawareofthementalhabitsandbiasesthatmightpreventthemfromfollowing rationaladvice.Behavioraldecision researchershave learnedagreatdealaboutthenatureofthemistakesthatwemakeinnegotiations,howwecan avoid suchmistakes in our own thinking, and howwe can anticipate andleveragetheminthebehaviorofothers.Inthischapterandthenext,wewillhelpyou develop the self-awareness and rationality that is often missing whennegotiatorsareunprepared,caughtoffguard,orshootfromthehip.Wewillalsoassistyouinanticipatingthethoughtsandmovesofyournegotiationopponentsandpartners.

Of course, it’s not news that people are irrational and sometimes makemistakes. What is news is that, in the context of decision-making andnegotiation,manyof themistakespeoplemakearesystematic andpredictable.In fact, even the brightest of executives fall victim to four critical, systematicerrors on a regular basis: the fixed-pie bias, the vividness bias, nonrationalescalationofcommitment,andsusceptibilitytoframing.

THEFIXED-PIEBIAS

Recall our story from Chapter 3, in which Chris was called in to break animpasseoverexclusivitytermsbetweenhiscompany’steamofnegotiatorsandtheEuropeansupplier.TheU.S.negotiationteamassumedthatonlyoneofthetwo companies could get what it wanted on the issue of exclusivity: eitherexclusivitywouldbeawardedoritwouldnotbeawarded.Luckily,Chris’sverysimple question about why the European firm would not allow exclusivityrevealed that the supplier only wanted to retain the right to provide smallamountsoftheproducttohiscousin.Meanwhile,theU.S.firmdidnotmindifthesuppliersolda fewhundredpounds toa local firm,as longas thesuppliercould guarantee exclusivity otherwise. Thus, what appeared to be one issue

(exclusivity) was, in fact, two separate issues: exclusivity over the first fewhundredpoundsofproductandexclusivityoverthebulkofthesupply.Despiteappearances,onepartydidnothavetolosefortheothertowin.

Sometimesnegotiationisaboutonlyoneissue.AsintheHamiltonRealEstatecaseinChapter1,suchnegotiationsaretypicallyzero-suminnature:onepartycangainonlyattheexpenseoftheother(assumingtheyreachagreement).Suchnegotiationsaresaidtohavea“fixedpie”ofvalueorresources:theonlythingnegotiatorscandoissliceupthepieandtrytogetabigpieceofit.

Incontrast,mostnegotiationsinvolvemorethanoneissue,includingdelivery,service, financing,bonuses, timing, and relationships. InChapters2and3,weexplainedthatthepresenceofmultipleissuesallowsnegotiatorstocreatevaluebymakingwise trade-offs;wealsoofferedconcretestrategiesforfindingsuchtrade-offs.Here,weadd thewarning thatnegotiatorsoften fail to createvaluebecause theyassume there is a fixedpie of valueor resources evenwhen it ispossible to increase the sizeof thepie. InChris’s story,as inmanysuccessfulnegotiationstories,successrequiredovercomingthefixed-piebiasandmovingtowardamutuallybeneficialtrade.

Thefixed-piebiasaffectseventhemostseasonednegotiators,causingthemtofocus exclusively on capturing value for themselves and to ignore approachesthat could create value. Congressman Floyd Spence (R-South Carolina) onceanalyzed a proposed agreement over nuclear disarmament between theUnitedStatesandtheSovietUnionandconcluded,“Ihavehadaphilosophyforsometime in regard to SALT [the proposed agreement], and it goes like this: theRussianswill not accept aSALT treaty that is not in their best interest, and itseems tome that if it is in theirbest interest, it can’tbe inourbest interest.”7Spence’sfixed-piemind-setriskedexposingtheworldtoahigherprobabilityofnuclear annihilation; he overlooked the possibility that both nations mightbenefitfromdisarmamentactivities.

One of Max’s previous books, written with Jonathan Baron and KatherineShonk,documentedamultitudeofwaysinwhichthefixed-pieassumptionleadstoconflictbetweenperceivedopponents—andtovaluedestructionforsociety.8ConsiderthestoryofBenjaminCone,Jr.,aforesterwhoinherited7,200acresofland inNorthCarolina in1982.Conehad tended toandpreservedhis landbyplantingfodder,conductingcontrolledburns,andkeepingtheirtimbersaleslow.Notsurprisingly,songbirds,wildturkey,quail,anddeerthrivedontheproperty.

In1991,abiologisthiredbyConeinformedhimthatapproximatelytwenty-ninered-cockadedwoodpeckers,membersofanendangeredspecies,werelivinginhiswoods.Respondingtothe1973EndangeredSpeciesAct(ESA),theU.S.FishandWildlifeServicetookcontrolofthewoodpeckers’habitat—whichwas1,560acres,orabout15percentofCone’sproperty.Following the lossof thisproperty,Conedrasticallyalteredthewayheforestedtheremaining85percentof his land.Tokeep thewoodpeckers from takingover his entire property, heswitched from the sustainable practices he had learned from his family andbeganclear-cutting(i.e.,eliminatingalltreesandvegetation)500acresofforestevery year. As he had hoped, clear-cutting prevented the woodpeckers fromexpanding their habitat—but this was a Pyrrhic victory. Cone had destroyedsignificanteconomicandenvironmentalvalueinorderto“win”thefightagainstwoodpeckersandtheESA.

Cone’sresponsewasclearlynotwhattheauthorsoftheEndangeredSpeciesActhadinmindwhentheywrotethelegislation.ButConedecidedtoclear-cuthis forest because he felt he had to choose between destroying his trees anddonatingthemtothewoodpeckers.Didthisdisputebetweeneconomicconcerns(forCone)andenvironmentalconcerns(forsociety)havetoturnoutsobadlyforbothsides?Infact,Conehadalternativestoclear-cutting.Atthetime,theESAallowed landowners tocreateaHabitatConservationPlan (HCP),whichgivesprivate landowners permission to violate aspects of the ESA, as long as thelandownersalsotakecertainstepstopreservetheendangeredspecies.TheHCPprovided an opportunity to overcome the fixed-pie assumption by allowinglandowners to seekoutcreativealternatives that serve the interestsofboth theendangeredspeciesandthelandowners.Unfortunately,ConerejectedtheideaofadoptinganHCP;heassumedthatiftheplanwasdesirabletoenvironmentalists,itmustbebadforhisbusiness.Hisfixed-piebiasledhimtowardtheadoptionofaradicallydefensive,andultimatelyself-defeating,strategy.

In another striking example of the power of the fixed-pie bias, researcherLeigh Thompson has shown that even when two sides want the exact sameoutcome, negotiators often settle for a different outcome because they assumethat they must compromise to reach agreement. She developed a negotiationsimulation that included two issues that were compatible; the parties had theexact same preference. From an objective standpoint, there was nothing tonegotiate on these issues, as no real conflict existed. Yet 39 percent ofnegotiatorsdidnotagreeon themutuallypreferredoutcomeonat leastoneofthetwocompatibleissues!Thosewhodidreachanoptimalagreementoftendid

not realize that the other party had also benefited from the arrangement; theybelievedtheyhad“out-negotiated”theothersideonthatissue.9

Thefixed-piebiasnotonlymakesvaluecreationdifficult,itcanalsoleadtoreactive devaluation: the tendency of negotiators to denigrate and devalueanother party’s concessions simply because these are being offered by anadversary.AstudyofhowU.S.citizensrespondedtoanarms-reductionproposalshowed this tendency in action.10 Researchers divided 137 study participantsinto twogroups and thenaskedhow favorable theproposalwas to theUnitedStates andhow favorable itwas to the (now former)U.S.S.R.Onegroupwascorrectly informed that the proposal was made by then–Communist Partysecretary Gorbachev. The other group was falsely told that the proposal wasmade by then-president Reagan. Among those who believed the proposaloriginated with Gorbachev, 56 percent thought that the proposal favored theU.S.S.R.andonly16percentfeltthatitfavoredtheUnitedStates.Theother28percent thought that it favoredbothsidesequally.Whenparticipantswere toldthattheproposalcamefromPresidentReagan,however,only27percentthoughtthat it favored theU.S.S.R., another 27 percent thought it favored theUnitedStates,and45percentthoughtthatitbenefitedbothsidesequally.

Asthisstudydemonstrates,eventermsthatappearmutuallybeneficialwhenyouadvancethemmayseemdisadvantageouswhenproposedbytheotherparty.Likewise,whentheotherpartyconcedesonanissue,anegotiatormaydevaluetheissue’sworth:“Ifshe’swillingtomakethatconcession,thisissuemustnotbeimportant.”Or,whentheotherpartyseemshappy,anegotiatormayassumehegotabaddeal:“Ifsheishappy,wemusthavelost.”Thesetendenciesareallrootedinthefixed-piebias,whichmistakenlyleadsustobelievethat“whateverisgoodforthemisbadforus.”TheeffectofthisbiasisalsovisibleintheNHLdispute.Bothpartiesfocusedondivisiveissuesrelatedtosalary,butignoredpie-enlarging issues suchas salvaging the season, increasing revenues,andsimplyplaying hockey. Moreover, the players eventually accepted an offer that wasremarkablysimilarto—andperhapsworsethan—whattheycouldhavereceivedpriortothelockout.Unfortunately,becausetheoffercamefromtheowners,theplayersimmediatelydevaluedit.

Chapters 2 and 3 outlined a number of strategies for value creation (e.g.,negotiating multiple issues simultaneously, making multiple offerssimultaneously,usingcontingencycontracts,etcetera).Evenbeforeyouattemptthesestrategies,however,itisimportanttobeawarethatyourinitial,automatic

responseinnegotiationmaybeguidedbyafixed-piementalityandthatyoumayneedtoadjustyourthinkingaccordingly.

Bottom line:whenapproachingany importantnegotiation, enter theprocesswiththegoaloflookingforareasinwhichyoucancreatevalue.It isbetter toassumethatyoucanenlargethepieandlaterfindoutthatyouwerewrongthantoassumethepieisfixedandneverfindoutyouwerewrong.

THEVIVIDNESSBIAS

Top MBA students from prestigious universities are in a strong position tonegotiatewiththeiremployersfortheissuescriticaltotheircareerandpersonalhappiness.Thesestudentsaresmart,welltrained,andhighlyvaluedbythefinestfirms in theworld.Thus, negotiating the right jobpackage shouldbe easy forthisgroup.Ifthisisthecase,thenwhydosomanyMBAstudentschangejobsverysoonafteracceptingtheirfirstposition?Oneimportantreasonisthattheyareaffectedby thevividnessbias.Specifically, theypay toomuchattention tovividfeaturesof theiroffersandoverlooklessvividfeatures thatcouldhaveagreater impact on their satisfaction. This is a potential trap even for seasonednegotiators.

At the Harvard Business School, MBA students spend a lot of time in astudent center called Spangler. As recruiting season arrives, themost populartopic of conversation at Spangler revolves around interviews and job offers.Consider the statements that students might make in Spangler about differentjobs:

•Themedicalbenefitsareverygood.

•ThecompanyislocatedwithintenmilesofwhereIgrewup.

•Peopleseemedveryhappyduringmyvisittocorporateheadquarters.

•IwouldgettotraveltoEuropeonaregularbasis.

•Thestartingsalaryis$140,000.

•Employeeshavesignificantcontrolovertheirworkassignments.

•Theofficespaceisverynice.

•TheofferisfromMcKinsey.

•Iwillnothavetotravelmuch.

Ofthesestatements,whichonesstandout?WhichwilltravelfastestthroughtheMBAstudentgrapevine?Whichstatementsconveythehighestprestige?Webelievethattheanswerstoallofthesequestionsarethehighsalary ($140,000)and theoffer fromMcKinsey (a top consulting firm). These two items are notonly the easiest to communicate quickly, but also the easiest for others toevaluate.Studentswhoreceivetheseofferswillnoticetheimpressedreactionsoftheirpeerswhensuch information is shared,and these reactionswillmake theinformationmore prominent in theirmind.As conversation after conversationfocusesonthesetwofactors,otheraspectsoftheofferwillbeovershadowedorentirelysidelined.Oneresult:studentsaccept—andsoonquit—high-payingjobswithprestigiousfirmsbecausetheyoverweightedvividorprestigiousattributesof their offers and under-weighted other issues that would affect theirprofessional andpersonal satisfaction, such as office location, collegiality, andtravel. (Notably, some research suggests that this error affectsmenmore thanwomen.)11

Moregenerally,vividinformationhasagreatereffectonnegotiatorsthandoesdull (but equally valuable) information. Imagine a group of executivesdiscussingwheretoallocateR&Ddollarswithintheircompany.TheCEOaskseachexecutiveintheroomforhisorheropinion,andeachprovidesargumentsthatwouldchannelmorefundstohisorherowndivision.Why?Inpart,itmaybethattheexecutivesareself-interestedandseekingtomaximizetheirpersonalbenefits.Butonalessconsciouslevel,eachexecutivecanvividlyimaginehowhe or she would use the funds in his or her own unit. They will ignorepossibilities that are less vivid (but no less valuable), such as howotherswillutilize the funds.Similarly, theCEOherself is likely tobemost influencedbytheoptionthatisbestonvividfeatures(e.g.,projectedsales,costestimates,andreturn on investment) and to underweight other important considerations (e.g.,timetocompletion,complexityofimplementation,andopportunitycosts).

TheNHLplayersandteamownersmayhavealsofallenpreytothevividnessbias.Certainvividfigureswereclearlymotivatingthehardlineapproachofbothparties—salariesasapercentageofrevenuesandsalarycapchiefamongthem.Otherimportantconsiderations,suchasdailylossofrevenues,reputationeffects,

and changes to the game’s rules that could increase the size of the pie, wereovershadowed and seemingly under-weighted. The willingness of players tofinallyaccepttermsthatweresignificantlylowerthantheirearlierdemandsonthese vivid issues seems to suggest that other (nonvivid) issues did eventuallysurfaceandhelpedthedisputantstoreachagreement.Bythistime,ofcourse,aseasonhadbeenlost.

Whatcanyoudotoavoidoverweightingvividinformationinnegotiations?Inadditiontoanticipatingthevividnessbias,herearetwostrategiesthatwillhelpyouovercomeit:

Createascoringsystem.InChapter2,wedescribedtheprocessofcreatingascoringsystemandexplainedhowtouseonetoevaluateoffersandstructureappropriate counteroffers. A scoring system can also help defend against thevividnessbiasbykeepingyoufocusedonyourtrueinterests.Ifyoucross-checkyourreactionsandstrategyagainstthecontentofyourscoringsystem,youwillavoidoverweightingvividissuesinyourdecisions.

A colleague of ours, who now teaches negotiation at Carnegie MellonUniversity,tookthisadvicetoheartwhenhewaslookingforafacultypositionsomeyearsago.Hebeganto listallof theaspectsofanoffer thatwouldhavesomevaluetohim.Heendedupwithascoringsystemthathadweightsassignedtoalmostfortyseparateattributes,rangingfrom“whatmywifelikes”(weightedat50percent)tothedistancetotheclosestnationalparkandaveragerainfall.Webelieve that our friend went a little overboard. On the other hand, an MBAstudentwhodoesnothaveatleastfivetotenissuesrankedandweightedinherscoring system is probably not thinking rationally enough about all of theimportant issues in her job negotiations. Our colleague may have wasted anafternoonofhistime;theMBAstudentmayendupwastingayearofherlife.

Separate information from influence. In Chapter 1, we introduced theimportance of separating information from influence; we revisit this principlehere,asitcanhelpyouovercomethevividnessbias.Considerthefactthatthesame salespersonwho convinces you of a car’s reliability by showing you itsrating in Car and Driver can also convince you to purchase an expensive

extendedwarranty for the same car by vividly describing the horrors of highrepair costs that were once incurred by someone just like you. Thoughcontradictory, these twopieces of information canboth influenceyou inwaysthat benefit the salesperson. Given that nearly 50 percent of new-car buyerspurchase these (typically overpriced) extendedwarranties, it seems thatmanypeople do not try to reconcile the contradiction; instead, they fall prey to thepower of vividness. When faced with a tough decision, negotiation geniusesremember to ask themselves these critical questions: Is this informationvaluable?HaveIlearnedsomethingnew?AmIjustbeinginfluencedtoactinacertainwaybecauseofhowthisinformationwaspresented?

NONRATIONALESCALATIONOFCOMMITMENT

Imaginethatyouareattendinganexecutiveclassonnegotiationwithmanyotherexperienced managers. The professor takes a $100 bill out of his pocket andannouncesthefollowing:

Iamabouttoauctionoffthis$100bill.Youarefreetoparticipateorjustwatchthebiddingofothers.Biddingwillstartat$5,andpeoplewillbeinvitedtocalloutbidsinmultiplesof$5untilnofurtherbiddingoccurs,atwhichpointthehighestbidderwillpaytheamountbidandwinthe$100.Theonlyfeaturethatdistinguishesthisauctionfromtraditionalauctionsisarulethatthesecond-highestbiddermustalsopaytheamountthatheorshebids,althoughheorshewillobviouslynotwinthe$100.Forexample,ifMariabids$15andJamaalbids$20,andthebiddingstops,Jamaalwillget$80(the$100hewinsminusthe$20hebid)andMaria,thesecond-highestbidder,willpayme$15(theamountshebid).

Now,whatwouldbeyourstrategy?Wouldyoubidintheauction?

Max has run this auction dozens of times, and previously ran similar $20auctionshundredsoftimes.Thetypicaloutcome:Maxwinslotsofmoney.

Here’showithappens.Thebiddingstartsoutenthusiastically.Ataround$60–$80,everyoneexcept the twohighestbiddersusuallydropsoutof theauction.Thetwobiddersthenbegintofeelthetension.Supposethatonebidderhasbid$70 and the other has bid $75. The $70 bidder must either bid $80 or stopbiddingandsufferasurelossof$70(whichhemustpayasthesecond-highestbidder).Theuncertainty associatedwith bidding further seemsmore attractivethanthecertainloss,sothe$70bidderbids$80,andthebidscontinueuntiltheyreach$95andthen$100.Theroomgrowsquietastheclassfocusesonthe$95bidder,whomustdecidewhether toaccepta$95lossorcontinuebiddingpast

$100 in hopes that the other partywill quit first. The class laughs as the $95bidder inevitablybids $105.Bidding in this auction typically ends somewherebetween$100and$1,000.

Why do people start bidding in this auction?Clearly, it is because they areattracted by the possibility of winning and making money. But why do theycontinue to bid past $100? Because they are trapped—strategically andpsychologically. Strategically, once an individual has entered the $100 auctionandisamongthefinaltwobidders,ittakesonlyasmalladditionalbidtostayinthe auction rather than quit—and it seems reasonable to do so. After all, onemorebidmaybeallthatisneededtogettheotherpartytoquitfirst.Butifbothbidders pursue this seemingly rational strategy, the bidding can increase toextremelyhighlevels,withdisastrousresultsforbothparties.

Strategyisnottheonlypitfallinthe$100auction—norinthecountlessothernegotiations, disputes, and conflicts where individuals, firms, and nationsescalate their commitment to a failing course of action. Research on thenonrational escalation of commitment reveals that negotiators have a strongpsychologicalneedtojustify(tothemselvesandtoothers)theirpriordecisionsand behaviors. It is often difficult for negotiators to admit that their initialstrategy was ill conceived or that they may have made a mistake; to avoidacknowledgingthesefacts,theywillescalatetheircommitmentevenwhenitisextremely costly, and perhaps disastrous, to do so.Deepak and his colleagueshavedemonstratedthatemotioncancompoundtheescalationproblem.12Theirresearchoncompetitivearousalrevealsthatinteractionsthatheightenfeelingsofrivalrycancreateinnegotiatorsthedesireto“winatanycost.”Ofcourse,asinthe$100auction,“winning”and“makingmoney”maynotbethesamething;ifbiddingcontinuespast$100,eventhe“winner”loses!

Nonrational escalation of commitment occurs across awide variety of real-world situations. Custody battles, labor strikes, joint-venture dissolutions,biddingwars,lawsuits,pricewars,ethnicconflicts,andcountlessotherdisputesall have the potential of spiraling out of control. When all of the escalationforces—thehopeofvictory,theneedtojustifyinitialstrategy,andthedesiretobeat the other side—come together, simple common sense often flies out thewindow.Ifdisputantsareunabletoreinintheirdesiretoescalatecommitment,whatmayhaveseemedlikeasmartstrategyinitially(makingabid,threateninglitigation, competing on price, et cetera) may lead to disastrous results.Escalation is all the more likely if negotiators believe they have “too much

invested to quit now,” if they have already incurred significant losses, if theydislike the other party andwant to “win” at any cost, or if they havemade apublic commitment to their position. Think back to the NHL dispute. In thatexample,allofthesefactorswereinplay!

ImaginethatyouareaplayerintheNHL.Thelockoutwasinstitutedalmostfivemonthsago,and theentireseason isnowin jeopardy.Youdonotwant toseeanymoreoftheseason(anditsrevenues)squandered;thenagain,youdonotwant to relinquishyourdemands,either.Willyoubeable toadmit toyourselfthatyourinitialstrategyhasnotworked?Thatyouwerewrongtohaveheldoutfor a better deal for so long? That you now should agree to an offer that formonths you have been saying is unfair? Will you be able to overcome youranimosity toward the team owners and make the concessions they demand?Sounds difficult. Is there any way to avoid falling prey to the nonrationalescalationofcommitment?

In response to similar disputes in major league sports, Harvard BusinessSchoolprofessors JamesSebenius andMichaelWheelerdevisedaveryusefulstrategy:13Theyadvisedisputantstoendthestrikeorlockoutandtoresumetheseasonimmediately—but,important,theystipulatethattheteamownersshouldbeprohibitedfromreceivinganyoftherevenueandthattheplayersshouldnotreceive any pay. Instead, the revenues and forgone pay are to be placed in anescrowaccountuntilaresolutiontotheconflictisreached.Acriticalprovisionofthisarrangementisthatasizableportionoftheescrowfundwouldbegiventocharity if the parties failed to reach agreement in a timely fashion. In otherwords, either you dowhatever it takes to reach a deal, or the size of the pieshrinks! Sebenius and Wheeler argue that watching the funds pile up—andfearing that they could disappear—should provoke both sides to agree on acontract.

Ifthepossibilityofreachingsuchanagreementinthemidstofintenseconflictseemsunrealistic,considerthe2005disputeinvolvingfaultybrakesinthefast-speedACELAtrainsontheEastCoastoftheUnitedStates.Itbecameclearthatthetrainshadunacceptablecracksintheirbrakesandthatthebrakeswouldneedto be replaced. It was less clearwhowas responsible for the cracks andwhoshould cover the costs incurred from closing down the ACELA for months.Threecompanieswerepotentiallyresponsible:Amtrak,whichhadpurchasedthetrains; Bombardier, the company that had made the trains; and Knorr, theGerman company that sold the brakes to Bombardier. Not surprisingly, the

parties disagreed about who was to blame. Surprisingly, however, the threeparties quickly agreed that they would first solve the brake problem and getACELA running again as soon as possible; only then would they turn to thequestionofwhowouldpayforthelossesincurredbythefailureandforthecostofrepairs.Thecompaniessavedtensofmillionsofdollarsbyagreeingtofocusfirstoncommoninterests—andtoavoidanescalationoftheconflict.

Intheirnegotiationsduringthe2004–05season,whydidn’ttheNHLandtheNHLPA pursue a wise strategy such as the one outlined by Sebenius andWheeler,or theone implementedbyAmtrak,Bombardier,andKnorr?Largelybecausebothparties—andperhapsespeciallytheplayers—hadfallenpreytothenonrational escalation of commitment: they became so locked in to pursuingtheir initial course of action that they ignored blatant signals that suggested achangeinstrategywasnecessary.

Howcanyou avoid escalating in the heat of battle?Here are three ideas toconsider.

Start your negotiation with a preplanned exit strategy. In the $100auction,sinceneitherpartyknowswhentheotherpartywillquit,itisdifficulttoconcludethatbidding“justoncemore”isclearlyabaddecision.Unfortunately,this is a slippery slope—whether forbiddersparticipating in the$100auction,disputantspursuinglitigation,ornationswhosepresidentshavecommittedthemtowar.Thisiswhyitisimportanttodecideinadvance thepointatwhichyouwillcutyourlossesandstopbidding,litigating,orfighting,shouldthesituationspiraloutofcontrol.Ofcourse,thislimitshouldbeadjustedaseventsunfoldifyouobtainnewinformationrelevanttoyourstrategy(e.g.,ifyoulearnthattheothersidehasrunoutofmoney).

Assignandrewarda“devil’sadvocate”whose job it is tocriticizeyourdecisionsandfindfaultsinyourlogic.Whomshouldyoupickforthis task? The person should have the following three characteristics: theyshouldbetrustworthy,theyshouldnothaveinvestedinorhelpedtodesigntheinitial strategy, and they shouldhavenoconflictof interest regarding the finaloutcome. In negotiation, it is tempting to surround yourselfwith like-minded,

supportive people who will be easy to deal with and who will boost yourconfidence.However,when it comes to dealingwith the dangerous effects ofescalation, youdonotneed confidence, but rather clarityof thought andgoodjudgment. Since it is not always possible to keep yourwits about you, it is agoodideatohavesomeonecloseathandwhoseunbiasedjudgmentyoutrust.

Anticipate and prepare for the escalation forces you are likely toencounter.For example, if you are concernedabout theneed to justifyyourinitialdecisionstoconstituents,youmightrefrainfromcommittingpubliclytoaspecificcourseofaction.Orifyouthinkthatpersonalanimosityislikelytofuelyour desire to escalate conflict, itmay be better to let others in your team ororganization (who are less personally invested) take over substantivenegotiationswhenemotionsarerunninghigh.

In the context of escalation, then, negotiation genius means a number ofthings: learning to identify competitive traps, understanding the causes andconsequences of escalation, and preparing in advance to “de-escalate” or cutyour losses as necessary. By understanding how escalation of commitmentworks, youwill not only avoid expensivemistakes, but be better equipped toanticipatethepotentiallyirrationalbehaviorofyouropponents.

SUSCEPTIBILITYTOFRAMING

Consider thechoicespresentedinthe“AsianDiseaseProblem,”firstdiscussedbyAmosTverskyandDanielKahneman:14

Imagine that the United States is preparing for the outbreak of an unusual Asian disease that isexpected to kill six hundred people. Two alternative programs to combat the disease have beenproposed. Assume that the exact scientific estimates of the consequences of the programs are asfollows.Whichofthetwoprogramswouldyoufavor?

ProgramA:IfProgramAisadopted,twohundredpeoplewillbesaved.

ProgramB:IfProgramBisadopted, thereisaone-thirdprobability thatsixhundredpeoplewillbesavedandatwo-thirdsprobabilitythatnopeoplewillbesaved.

Before reading further, choose whether you would prefer to implementProgramAorB.Now,forthesameproblem,decidewhichofthefollowingtwooptionsyouwouldfavor:

ProgramC:IfProgramCisadopted,fourhundredpeoplewilldie.

ProgramD:IfProgramDisadopted,thereisaone-thirdprobabilitythatnoonewilldieandatwo-thirdsprobabilitythatsixhundredpeoplewilldie.

If you read carefully, youwill discover that ProgramA and ProgramC areidentical: both result in two hundred lives saved and four hundred lives lost.ProgramBandProgramDarealsoidentical:bothleadtoaone-thirdprobabilityof saving everyone and a two-thirds probability of losing everyone. In otherwords, if people prefer Program A to Program B, then they should also(obviously) prefer Program C to ProgramD. As it turns out, this is not howpeople respond. When different groups are given these two sets of options,ProgramAisfavoredoverProgramB(by72percentofrespondentsinTverskyandKahneman’sinitialresearch),butProgramDisfavoredoverProgramC(by78percentofrespondents).Whyarepeoplesoinconsistentintheirpreferences?

Itturnsoutthatthecriticalfactorishowtheoptionsareframed.Thetwosetsofoptionsareidentical,butchangingthedescriptionfrom“livessaved”to“liveslost”makes people think very differently. Evenwhen the expected values aresimilar,we tend toberiskaversewhen thinkingaboutpotentialgainsandriskseekingwhenthinkingaboutpotentiallosses.Inotherwords,wewantthe“surething”whenwehavesomethingtogain,butwant“allornothing”whenwehavesomethingtolose.Thisiswhypeoplechoosethelessriskyprogram(savingtwohundred peoplewith certainty)when thinking about lives saved and themorerisky program (saving six hundred people butwith only one-third probability)whenthinkingaboutliveslost.Thisproblemillustratesthepowerofframing.

Researchonframingeffects reveals thatmostofuswill treat risks involvingperceivedgains (e.g., profits) differently from risks involvingperceived losses(e.g.,losingacourtsettlement).Thiswayofthinkingcanpowerfullyaffectournegotiation behavior. For example, we are much more likely to makeconcessionsandtrytocompromisewhenwearenegotiatingoverhowtoallocategains (profits, rewards, bonuses, windfalls, et cetera), but more likely to be

inflexible and risk reaching an impassewhenwe are negotiating over how toallocate losses (costs, penalties, and so on). We are also more likely to quitnegotiating in favor of the risky path of litigationwhen involved in a disputeoverwhoisresponsibleforassumingcosts,losses,andliabilitiesthanwhenthedisputeconcernstheshareofprofitthateachsideisentitledtoreceive.

Nowimaginethefollowingscenario.Youhavejustarrivedatacasinoandaresittingdown toplayblackjack.How likely are you tomake a $100bet?Nowimaginethatyouhavebeenplayingblackjackforanhourandarealreadydown$600.Howlikelyareyoutomakea$100bet?Itturnsoutthatpeoplearemorewilling to takea risk (gambling$100)when theyarealready in thedomainoflosses(down$600).Losingyourfirst$100ismuchmorepainfulthanlosingtheseventh or even the second $100. Once you are a “loser,” you won’t minddiggingyourself into a bigger hole (i.e., losing evenmore) as long as there issomepossibilityofdiggingyourselfoutentirely.

Nowimaginethatyouhavealreadylost$600—butnotatthecasino.Instead,the stock market took a slight hit earlier in the week and your investmentportfolio lost $600 in value.Howwill you behave that night at the blackjacktable? It turnsoutyouwillnotwant to take thesamerisks thatyou tookafterlosing$600atthecasino.Inotherwords,thequestionisnotwhetherornotyouare a loser, but whether or not you feel like a loser in the current situation.Whether or not you feel like a loser depends on your reference point—thecomparisonsyoumake tootherpotentialoutcomes. Ifyouarecomparingyourcurrentsituationtohowmuchmoneyyouhadinyourpocketwhenyouwalkedintothecasino,youwillbehavedifferentlythanifyourreferencepoint isyouroverallwealthlevel.

Thisfindingsuggestssomeadviceforgamblers:Youwilltakelessdangerousrisks if you acquire the mental habit of constantly readjusting your referencepoint.Whenyou’rethinkingaboutwhentoleavethecasinoandgohome,recallyour previously set gambling limit for the night. However, when you aredecidinghowmuchtostakeonanygivenbet,thinkofyourcurrentbetasyourfirstbetofthenight;remindyourselfthatthemoneyyoulostearlierinthenightwillnot(hopefully!)affectyouroverallwealth—soit’ssillytothinkofyourselfasbeing“inthehole.”

The effect of reference points is even more critical for negotiators tounderstand. In a negotiation, you are not the only one who can manipulate

referencepoints—theothersidecan,too.Ifyouenteredanegotiationimaginingthatyouwouldextractmillionsofdollars fromthedeal,butnowit looksas iftheZOPAismuchsmaller(andyoustandtogainonlythousands),youmayfindyourself adopting a loss frame thatmakesyou risk seeking!Youmaybecomemore aggressive,more likely to issue anultimatum, andmorewilling towalkawayfromthedeal.If, instead,youcameinexpectingtomakeverylittle,youwill be pleasantly surprised and will adopt a gain frame that makes you riskaverse. You will probably become more conciliatory, make less aggressivedemands,andbelesswillingtoriskanimpasse.Clearly,thetwoframesleadtoverydifferentbehaviors—butshouldthey?Thevalueofthedealhasn’tchangedacrossthesesituations.Yourstrategyshouldn’t,either.

Understanding the effects of framing and reference points can help youanticipatetheirpowerfulconsequencesandstrategizeaccordingly.Inparticular,werecommendthefollowingsteps:

1.Considerthevariousreferencepointsthatyoucouldbeusingtoevaluatethesituation—includingthestatusquo,youraspirations,yourexpectations,yourfearedoutcome,andsoon—andthenpicktheonethatseemsmostappropriate.

2.Evaluatewhetheryourstrategywouldstillmakesenseifyouweretouseadifferentreferencepoint.

3.Anytimeyouareconsideringtheuseofariskystrategy(suchasmakinganultimatumorpursuinglitigation),thinkaboutwhetherthisstrategystillmakessenseifyouchangetheframe.

Forexample,notethatintheNHLdispute,theownerswereaskingtheplayerstoacceptlossesintheformofreductionsintheirpaylevel.Ineffect,thismadetheirprevious salary the referencepoint for theplayers,putting them ina lossframe. But what if, instead, their reference point had been the percentage ofrevenuethatNHLplayersreceivecomparedwithplayersinothersportsleagues(suchastheNBAortheNFL)?Thinkingabouthowtheywouldfarerelativetoplayersinotherleagues,orhowtheywouldfareiftheypursuedtheirBATNA,mighthaveresultedinagainframeforNHLplayers,whichinturnmighthavemitigatedtheirwillingnesstorisklosingtheentireseason.

BIASESOFTHEMIND,BIASESOFTHEHEART

As the behavioral decision research summarized in this chapter reveals,

negotiatorsmust contend not onlywith the tactics of the other party, but alsowiththepredictablementaltrapsthatcancloudtheirownjudgment.Inthenextchapter, we reveal that cognitive biases are only half of the story; negotiatorthoughtandbehaviorisalsopowerfullyinfluencedbymotivationalbiases—themistakesinjudgmentthatwemakebecauseofourstrongdesiretoseeourselvesand theworld in a particular way. Fortunately, would-be negotiation geniusescanlearntoappreciateandcompensatefornotonlythepeculiarworkingsofthemind,butalsothepowerfulinfluencesoftheheart.

CHAPTER5

WhenRationalityFails:BiasesoftheHeart

AfewyearsagoinManhattan,adisputearosebetweenresidentsofoneco-opapartmentunitandthebuilding’sco-opboard.Thedisputewasover$909.Thisis the amount that the unit’s residents had spent to install window bars tochildproof their apartment. The problem? It was unclear who should beresponsibleforfootingthebill.Theresidentsoftheunitarguedthatthebuildingasawholeshouldpayforthewindowbarsbecausethiswasasafetyandliabilityissue.The co-opboard argued that, because the unit’s residentswere the onlyones who wanted the window bars, they should cover the costs. The disputeescalatedandeventuallyendedupincourt.

One year later, the two sides’ combined legal bills exceeded $1,000. Thismighthavebeenagoodtimeforthemtoendlitigationandtonegotiateinstead.Yettheparties,bothconvincedthattheywouldwin,continuedtolitigate.

Anotheryearpassed.Nowtheircombinedlegalbillsexceeded$10,000—butthedisputantswere still unwilling to settle out of court.Their conflictwasnolongeraboutthemoney;itwasaboutthejusticethateachsidefeltitdeserved.

Finally,theco-opboardwonthecourtbattle.Theresidentshadtopayforthe$909windowbars.Normally, thiswould be cause for the triumphant party tocelebrate. Unfortunately, the ruling came after the litigants had spent close to$20,000incombinedlegalcosts.

That’sbad.Butitgetsworse.

Theunit’sresidentsdecidedtoappealtheruling.Thetwosidesthenspentanadditional$30,000onlitigation.Ultimately,theappellatecourtupheldtheinitialruling.Nowcloseto$50,000hadbeenspentonadisputeover$909.

That’sreallybad.Butitgetsworseyet.

Theco-opboardthensuedtheunit’sresidentstoforcethemtopaytheco-op

board’s legal fees. The ensuing litigation cost the two parties an additional$50,000. Finally, a judge threw the litigants out of court; the unit’s residentswereforcedtopaysome(butnotmost)oftheco-opboard’slegalfees.

The final tally: the window bars dispute, which started with a $909 claim,lastedsixyearsandcostmorethan$100,000toresolve.

Notallnegotiationerrorsresultfromthecognitivebiaseswediscussedintheprevious chapter. Emotions can be just as powerful in derailing agreements.Compoundingtheproblem,wehumanbeingsaremotivatedtoseeourselvesasfairer,kinder,morecompetent,moregenerous,moredeserving,andmorelikelytosucceedthanothers.Theresultofthesemotivationalbiases?Wetendtomakejudgments and decisions that are not optimal. In this chapter, we explore anumber of motivational biases and their effects on negotiation strategy andoutcomes:theproblemofconflictingmotivations,egocentrism,overconfidence,irrational optimism, the illusion of superiority, self-serving attributions, andregretaversion.

THEPROBLEMOFCONFLICTINGMOTIVATIONS

InTheOdyssey,Homer’sepicpoem,thehero,Ulysses,facedadifficultproblemduringhislongseavoyage.HeknewhewouldsoonsailpasttheSirens,female“enchanters”whousedtheirbeautifulandirresistiblesingingtolurementotheirisland—andtotheirsubsequentdeaths.Nomanhadbeenabletolistento—andstill resist—the Sirens, whose beach was “piled with boneheaps of men nowrotted away.”1 To protect his crewmen,Ulysses had all of them putwax intotheirearstoblockoutthetemptingvoicesoftheSirens.But,desperatetohearthe Sirens, Ulysses was unwilling to do this to himself. Then again, he alsowantedtolive.Whattodo?Tosolvethisdilemma,Ulyssestoldhismentobindhimtotheshipwithropesandorderedthemnottoreleasehimuntilaftertheyhad sailed safely past the Sirens, no matter how much he might beg. Thecrewmen complied and Ulysses was able to enjoy the Sirens’ song withoutlosinghislife.

What is yourSirens’ song? If you are angrywith a negotiating counterpart,youmaywanttodoorsaysomethingthatyouknowwillharmyouinthelongrun.Your statements or actionsmight end the business relationship, destroy apersonalfriendship,orgetyouintotroublewithyourbossorevenwiththelaw.Still,intheheatofthemoment,itcanbedifficulttoresisttheurgetolashoutor

retaliate.Similarly,iftheothersidemakesyouanattractiveoffer,youmaybesoexcitedthatyouaretemptedtoacceptrightaway,thoughyouknowitwouldbesmarttotrytonegotiateabetterdealorfindabetterdealelsewhere.Notethatyouwouldnotadviseafriendtoactrashlyineitherofthesetwosituations—yet,atthetime,youmightfindithardtodootherwise.

Economist Thomas Schelling argued that each individual behaves like twopeople: “one who wants clear lungs and long life and another who adorestobacco,oronewhowantsaleanbodyandanotherwhowantsdessert.”2Peopleoftenfaceinternalnegotiationsbetweendoingwhattheywanttodoversusdoingwhat they think they should do.3 Usually the type of creative solution thatUlyssesdevelopedisunavailable,andnegotiatorsmustmakeadifficultchoice.Too often, the want-self dominates the should-self in important real-worldnegotiations,leadingtobehaviorandoutcomesthatyoulaterregret.Whatcanbedone?

Many negotiation teachers, executives, and other professionals believe thatyouneedtocontrolyourwant-selfinordertomaximizeyourlong-termbenefits.According to thisview, the should-self ismore trustworthy than thewant-self,andisbetteratgaugingwhatisbestforyou.

Thereisacontraryview.BehavioraldecisionresearcherGeorgeLoewensteinargues thatgut-level impulsive responses—the responsesof thewant-self—areignoredatourperil.“Hungersignalstheneedfornutritionalinput,”Loewensteinwrites, “pain indicates the impingement of some type of potentially harmfulenvironmental factors, andemotions servea rangeof interrupting,prioritizing,andenergizingfunctions.”4Loewensteinargues thatvisceral reactionsmakeusawareofissuesthatwecareagreatdealabout,butthatwetendtosuppressthesereactionsbecauseof thedesire toberesponsible, tobemature,or tootherwiseconformtosociety.

Thesedivergentperspectivessimplyhighlightourdilemma:Peoplewhonevercontrol their want-selves engage in shortsighted behavior that often createsenormous long-term problems. Conversely, those who always listen to theirshould-selves ignore the potentially important signals being sent from theirwant-selves.

Ouradvice: it iscritical fornegotiators toanticipateandresolve theconflictbetweenwhattheywanttodoversuswhattheythinktheyshoulddoinadvance

ofanactualnegotiation.Youwillfindthatyourshould-selfandyourwant-selfareinagreementbothbeforeandafterthenegotiation.Theproblemonlyarisesduring the negotiation; in the heat of themoment, you face strong emotionaldesires to satisfy your want-self in ways that are inconsistent with what youbelieveyoushoulddo.5Luckily,youcanoftenpredicttheimpulsivedemandsofyourwant-selfandplanaccordingly.Forexample,youmightanticipatethattheother side will make you angry, that you will want to say yes to an offerimmediately, or that youwill be tempted to behave shortsightedly. The betterprepared you are for a negotiation, the less likely is it that you will act onemotional impulses inawaythatscuttlesyourreal interests.Thus,onceagain,weseethatpreparationisthekeytonegotiationsuccess.

Think back to the co-op building’s window-bars dispute. What could thedisputants have done to resolve the conflict between their desire to “win”through litigation and their desire tominimize economic loss?One smart ideawouldhavebeenforeachdisputanttodecide,inadvance,howmuchmoneyandtimeeachwaswillingtospendtotrytowinthecase.Iftheyreachedthepresetlimit, they would end litigation and simply pay for the window bars on theirown. It is unlikely that either sidewould have beenwilling to budget tens ofthousandsofdollarsonthisdisputebeforetheconflictbegantoescalate.Thus,the pre-negotiation agreement between each side’s want-self and should-selfwouldhavelikelysavedthousandsofdollars.

The parties could have also agreed to a one-day arbitration sessionwithoutattorneys (and to the provision that both sides would give up their rights toappealthedecision).Thisway,eachsidecouldbeheard,andeachcouldreceivea decision from a neutral party—but without the costs and complexity of thecourts.

Yet anotherway to copewith conflicting internal preferenceswould be foreachpartytohandovercontrolofthenegotiationprocesstosomeonewhoislessemotionally involved. For example, the co-op residents might have asked arelative to make key decisions regarding whether to hire lawyers, whether toappeal thedecision,howmuchtospendonlitigation,andsoon.Similarly, theresidentsof thebuildingwouldhavebeenbetterserved ifnon–boardmembers(orboardmemberswhowerenot involvedintheinitialdispute)wereaskedtotakecontrolofthesituationonceithadspiraledoutofcontrol.ThisstrategyisakintothatusedbyUlysses:bygivingupyourabilitytopursuewhatyouwant,you can ensure that you will do what you should. (This also explains why

keepinglittleornojunkfoodinthehousemaybeagoodideaforsomepeoplewhoare trying to loseweight.Often,whentemptationstrikes, theonlywaytokeepyourselffromeatingwhatyouwantistomakeitunavailable.)

EGOCENTRISM

ConsidertheseresultsofasurveyconductedbyU.S.News&WorldReport:6

•Question:“Ifsomeonesuesyouandyouwinthecase,shouldhepayyourlegalcosts?”

Percentageofrespondentswhoansweredyes:85percent

•Question:“Ifyousuesomeoneandlosethecase,shouldyoupayhiscosts?”

Percentageofrespondentswhoansweredyes:44percent

Whatisgoingonhere?

It is hard for any of us to escape egocentrism, or the tendency for ourperceptionsandexpectationstobebiasedinourfavor.Typically,negotiatorsfirstdecideonacertaininterpretation,belief,oroutcomethatwouldbenefitthem—ormakethemfeelgood—andthenlookforwaystojustifythispreferenceonthebasisoffairness.7Thus,whenfacedwiththepossibilityofhavingsomeoneelsepay for their court costs, people are likely to argue that this would be fairbecause suchapolicydiscourages frivolous lawsuits andensures thatonly theguilty party suffers. When the tables are turned, however, and people areconfrontedwiththepossibilityofhavingtopayforsomeoneelse’scourtcosts,they are likely to argue that the ruling could have gone either way, that it isunfair for one party to bear all the costs, and that such a policy discourageslegitimate justice seeking. And there is every reason to believe that actualdisputantswouldbeevenmorebiasedthanthesurveyrespondents.

Egocentrism not only afflicts disputants, it aboundswithin organizations aswell. Max once collaborated in the creation of a negotiation simulation thatinvolved two departments of the same corporation.8 The departments haddifferent strengths: one had higher revenue, and the other had higherprofitability. Participants in the simulationwere asked to represent one of thedepartmentsandthenweregiveneitherhighorlowresourcesfromthoseintop

management.Whatwastheresponse?Participantsviewedunequalallocationstobe much fairer when their own department received the greater amount,regardlessofwhethertheirdivisionwasstrongeronsalesorprofits.

Astheseexamplessuggest,therearemanydifferentwaystothinkaboutwhatisrightandwrong(orfairandunfair),andpeopleareresourcefulenoughtofindthejustificationthatbestsuitstheirpurpose.Asweallstruggletoviewourselvesin the best possible light, we downplay certain factors that should affect ourjudgmentsandheightentheimportanceofotherfactors;asaresult,wecanbeginto see the exact samephenomenon quite differently fromothers.Consider theperceptions of Frederick Banting and John Macleod, cowinners of the 1923Nobel Prize for the discovery of insulin. Both had a bit of an egocentrismproblem. Banting contended that his partner, Macleod, had been more of ahindrance than an asset in their research. Meanwhile, in multiple speeches,Macleodforgottomentionthatheevenhadaresearchpartner.9

Ifyouthinkthisproblemwouldgoawayifwelikedandcaredabouttheotherside,considerthis:Ifyouaskahusbandandwifetoestimatethepercentageofhouseholdworkthattheydo,andthenaddupthetwopercentages,youwillgetanumber that issignificantlyhigher than100percent.Bothare likely tobelievethattheydomorethanisactuallythecase.10

Ofcourse,negativeemotionstendtoexacerbatetheegocentrismbias.Caseinpoint: divorcing coupleswhoaredividingup their shared assets.Even if eachspouseclaimstowantonlywhatis“fair,”itisquitelikelythatonewillaskfor55 percent, while the other tries to claim 65 percent. Egocentrism causes allparties to believe that they deserve more of a shared resource than a neutraladviser would judge as fair; this discrepancy can easily start a conflict thatescalatesoutofcontrol.Whensomeonedemandsmorethanyoubelieveisfair,your reactionprobablywill notbe “Gee,wemusthavedifferentperceptions.”Morelikely,youwilldecidethattheotherpersonisunethicalandtryingtocheatyou.

Egocentrismisnotonlycommon,butalsorobustandresilient.Itcanalsobeextremelycostly.Wepersonallyknowoftwocompaniesthathavebeenfightingover a series of legal issues for more than a decade. While both are highlyrespectedinthemarketandinsociety,eachviewstheotherfirmastruly“evil.”Theirlegalbattleshavealreadycostliterallyhundredsofmillionsofdollars.Atthecenterofthedisputeisapoorlywrittencontractthatwasdraftedmanyyears

ago. Our assessment is that this ongoing dispute began with an ambiguouscontractandescalatedasaresultofegocentricinterpretationsofitsambiguousclauses.

Whilemany of us want to be fair, even well-intentioned people can act inseemingly unethical ways when we are motivated to claim more than wedeserve. This doesn’t make us bad, but merely human—and humans makebiasedjudgments.Byunderstandingtheegocentrismbiasandtryingtocorrectitinourownbehavior,wecanmovefromwantingtobefairtoactuallybeingfair,andindoingso,makeitlesslikelythatwewillinitiateorescalatedisputesanddisagreements.

How might we overcome our egocentrism? Negotiation geniuses do so byfollowingtheadviceofthephilosopherJohnRawls,whorecommendsthatwhenyou are trying to assess what is fair (regarding allocations, contributions,claimingvalue,etcetera),trydoingsounderthe“veilofignorance.”Thatis,trytoimaginewhatyouwouldbelievetobefairifyoudidnotknowyourroleinagivennegotiationordispute.11Inotherwords,whatwouldyoubelieveordecideto be fair if you did not yet knowwhom you represented in the dispute? Byovercomingourownegocentrisminthisway,weeliminateasourceofconflictin our negotiations. And by understanding the potential for this bias in thebehaviorofothers,wecanmakemoresympatheticandaccurateattributionsoftheirintentions.

OVERCONFIDENCE,IRRATIONALOPTIMISM,ANDTHEILLUSIONOFSUPERIORITY

In her research, psychologist Shelley Taylor of UCLA has demonstrated thatstudentshaveunrealisticexpectationsabouttheirlikelihoodofgraduatingatthetopoftheclass,gettingagoodjob,obtainingahighsalary,enjoyingtheirfirstjob,gettingwrittenupinthenewspaper,andgivingbirthtoagiftedchild.Theyalsoassumethattheyarelesslikelythantheirclassmatestobecomealcoholics,befired,divorce,becomedepressed,orsufferphysicalproblems.12Confidencein our negotiation ability tends to be similarly inflated: Rod Kramer of theStanford Business School found that 68 percent of the MBA students in hisnegotiationclasspredictedthattheirbargainingoutcomeswouldfallintheupper25 percent of the class.13 These MBA students also had positive, distortedexpectationsregardingtheirabilitytolearnmorethantheirpeersandaddmoreto the class experience. More generally, overconfidence in our abilities and

irrationaloptimismregardingourfateleadmostofustobelievethatourfutureswillbebetterandbrighterthanthoseofotherpeople.

Whyisthisaproblem?Whenafootballteamisrunningaplay,ithelpsifthequarterbackhasasmuchconfidenceaspossible.Similarly,whenasalespersonisselling a product, it helps if she believes that the product is fantastic. Indeed,manysocialpsychologistsviewpositiveillusionsregardingourabilitiesandourfuture as evolutionarily adaptive.14 According to this view, these illusionscontribute toourpsychologicalandmaterialwell-beingbyprotectingour self-esteem and helping us persevere when faced with difficult tasks. In addition,overconfidence and irrational optimism can help us cope with negative lifeevents. Undoubtedly, they also help to motivate the kind of risk-taking thatcreates entrepreneurs. Psychologist Martin Seligman goes as far as torecommend that firms base their selection of salespeople on themagnitude oftheirpositiveillusions—whathecallslearnedoptimism.15

However, we take a contrarian position when it comes to negotiation.Overconfidence may help the quarterback execute a practiced play and thesalesperson deliver a rehearsed pitch, but when you are making decisions,including decisions about your negotiation strategy, you need to take off therose-tintedglasses.Unrealisticoptimismcanleadyoutoturndownthebestjobofferthatyouarelikelytoreceive,rejectanofferonyourhousewhennobetterofferisforthcoming,andtoholdoutforcontracttermsthatyourcounterpartisunlikely to accept. Overoptimistic negotiators are also likely to enter intonegotiations with only one strategy for reaching agreement or resolving thedispute;theyassumethattheirnegotiationplanwillwork,andtheydevotealloftheir energy to developing and executing this one strategy. A more realisticnegotiator realizes that an initial strategy may not work and is ready with acontingencyplan.

Wecanalso see the effectsofoverconfidenceand irrationaloptimismawayfrom the negotiating table. Too many people invest their life savings in newbusinessesthathavelittlechanceofsuccess.Toomanyemployeesassumethattheyareindispensabletotheirorganization,andarecaughtoffguardwhentheyarelaidofforfired.Othersapplyfortoofewjobsbecausetheybelievefalsely—and contrary to all available objective evidence—that they are great potentialhires.Andfartoomanypeopletaketheirdisputestocourt,believingfalselythattheyhaveanairtightcase—oratleasta“verystrong”case—abeliefthatmanylawyersaremorethanhappytohelpyoumaintain.Wouldthelitigantsintheco-

op dispute overwindow bars have been sowilling to go to court if they hadaccurate, objective assessments of their likelihood of prevailing, of the costsassociatedwithlitigation,andofthetimeitwouldtaketocompletetheprocess?Notlikely.

Why, then, are positive illusions useful for quarterbacks and salespeople?Because,unlikenegotiators,theyarenotmakingdecisionssomuchastheyareimplementing decisions that have already been made. Overconfidence andirrationaloptimismmaywellprovide themwith themotivationand inspirationthey need to improve their performance—at relatively low cost. But suchillusions are extremely costly for negotiators, who must make decisionsconstantly—before,during,andafterthenegotiation.

Negotiatorsnotonlyseetheirfutureprospectsasbetterthantheyactuallyare,theyalsoseethemselvesasbetterthanarealisticassessmentwouldsuggest.Thisillusion of superiority leads people to view themselves as more flexible,competent, rational, honest, fair, and cooperative than their opponents.16 Oneunfortunate result of this illusion of superiority is that far toomanymediocrenegotiatorsdonotrecognizetheneedtoimprovetheirinferiornegotiationskills.

Interestingly, the illusion of superiority not only affects our self-judgments,but also our judgments regarding the groups towhichwe belong.We tend toviewmembersofourgroup—whetherourcountry,ourfirm,ourdepartment,orour family—asmorehonest, cooperative, trustworthy,diligent, and industriousthanmembersofothergroups.17 Ifwebelieve thatour fellowgroupmembersare above average, then how do we view our adversaries and opponents? Inindependent studies, management researchers Kristina Diekmann and AnnTenbrunsel found thatwhileMBAstudents rate themselvesabove themeanoftheir class on a variety of positive attributes, they rate their negotiationopponentsbelowthemean.18

The tendency to denigrate our opponents and adversaries can be quitedetrimentaltonegotiationsuccess.Ifyouviewyouropponentasuncooperative,unfair,oruntrustworthy,youarelesslikelytoshareinformationwiththem—andhence less likely to create value. In addition, negotiators who think they aresmarter,betterprepared,ormorehonestthanothersoftendevalueorignoretheideasandproposalsof theircounterparts.Doingsocandecrease the likelihoodofreachingefficientagreementsandincreasethelikelihoodofconflict.

SELF-SERVINGATTRIBUTIONS

Egocentrism,overconfidence,irrationaloptimism,andtheillusionofsuperiorityexistbecausewearemotivatedtoseetheworldandourselvesinapositivelight.Butwhydosuchbiasespersist?Whydon’twe learn fromourexperienceandadjust our beliefs about our contributions, our abilities, and our likelihood ofsuccess?Theanswer is that, evenaswe try to learn fromourexperiences,wetend to evaluate the past in self-protectiveways: the storieswe tell ourselves,and theattributions thatwemakeaboutourselvesandothers,are thekind thatwillkeepusfeelinggoodaboutourselves.

JohnF.Kennedyoncesaid,“Victoryhasathousandfathers,butdefeat isanorphan.”19This is certainly trueofnegotiators:wearequick to takecredit forsuccess and deny responsibility for failures. When negotiators are asked toexplaintheirsuccessfulresults,theyusuallygivepersonalizedinternalreasons—e.g.,theskill,perseverance,orcreativitywithwhichtheyhandledthesituation.Incontrast,whenaskedabouta failure,mostnegotiatorsciteexternal reasons:the difficult context in which they were negotiating, the incompetence of theother side,orplainbad luck.20One seriousproblemwith this tendency is thatexternalattributionsforfailureinhibitlearningfromexperience.

Negotiators are even more likely to distort their beliefs regarding theirshortcomings when their adversaries are more successful than they are.21 Forexample, business school students who perform less well in negotiationsimulations and exercises are more likely to attribute the success of otherstudents to uncooperative and unethical bargaining tactics and to rate them asexcessively competitive and self-interested.22 What happens when we viewsuccessfulothersasunethicalorhypercompetitive?First,wewillnottrytolearnfrom them.Also, to the extent possible,wewill avoid negotiatingwith them.Finally,whenwehavenochoicebuttonegotiatewiththem,wewillfinditeasytojustifyourownunethicalbehavior.

Thisself-servingattitudecanalsobetriggeredwhenour“in-group”negotiateswithan“out-group.”Forexample,whentwofirmsmeettonegotiatethetermsofadeal,bothsideswill inevitablyneed tomakeconcessions.Whenour firm(the in-group) makes a concession, it is because we are being generous orbecausewe are smart enough to understand theneed for logrolling.When theotherside(theout-group)makesaconcession,it isbecausetheyhaveseenthewisdomofourargumentorbecausetheyhavenootherchoice!

Whyisthisproblematic?Becausewhenweattributethecooperationofotherstotheconstraintsofthesituation(e.g.,theirlegalobligationsorthemandatesofacontract),ratherthantotheirgoodwillorintegrity,itbecomesdifficulttobuildtrust.23Tobuildtrust,negotiatorsneedtoseethecooperativeactionsofothersasbehaviors that theyhavechosen,notbehaviors that theywereunable toavoid.And,intheabsenceoftrust,negotiatorsbecomereluctanttomakeconcessions,share information, or take the risks inherent in building mutually rewardingrelationships.

Negotiation geniuses understand the value of building trust with theirnegotiation partners, even in competitive or adversarial environments, and soseek toaccuratelygauge thereasonsforothers’behavior.Negotiationgeniusesunderstand thatmistakingakindgesture forweakness isnomorehelpful thanmistakingmiscommunicationformalice.Andsotheytakethetimenecessarytounderstandthebehaviorofothersbeforetheyreact.

REGRETAVERSION

ImaginethatyouareanOlympicathlete.Whichwouldyouratherwin:asilvermedalorabronzemedal?Fewpeople(ifany)wouldpreferabronze.

Now,whichmedalmakesactualOlympicathleteshappier, silverorbronze?As it turns out,Olympians are happierwhen theywin bronze thanwhen theywin silver! Three clever psychologists, VickiMedvec, ScottMadey, and TomGilovichdemonstratedthisphenomenonbyhavingviewerswatchvideofootageofvariousOlympicathletesas they received theirmedals.24Theviewerswerethen asked to rate the facial expressions of the athletes. Because sound waseliminatedfromthefootageandthemedalswerenotshown,viewerscouldnotknow which medal had been presented. The result? Bronze-medal winnersappearedmuchhappiertotheviewersthandidsilver-medalwinners.Whymightthisbe?

Once again, we see the power of reference points, or the comparisons wemaketootherpotentialoutcomesthataresalienttous.Andwhatcouldbemoresalient than the “what-might-have-been” scenario? It seems that bronze-medalwinners—whowereclosetowinningnomedalatall—arethrilledsimplytobemedalwinners.Meanwhile, silver-medalwinners—whowere close towinningthe gold—are disappointed not to have come in first. Objectively, they haveachievedmore,buttheyexperiencegreaterregret.

Because regret is such a painful psychological state, people try to avoidsituationsthatmightcauseit.IfyougotaB+inclassandyoucouldnotchangeyour grade through negotiation, would you really want to know how manypointsyouwereshyofreceivinganA?Ifyouwereonagameshowandfailedtowin the grandprize,would you reallywant to knowwhat that prizewouldhavebeen? Ifyouwerebidding ina sealed-bidauction,wouldyou rather findoutthatyouwerethesecond-highestbidder(andalmostwon)orthatyouwerethefifth-highestbidder(andwerenotclose towinning)?Innegotiation,wouldyouwanttoacceptanofferthatyoumightlaterfindoutwasnotthebestoneyoucouldhavereceived?Infact,researchshowsthatnegotiatorsoftencontorttheirdecisions to avoid facing any clear evidence that would cause regret.25Furthermore,we tend to feelgreater regretaboutactsofcommission (whatwediddo)thanaboutactsofomission(whatwedidnotdo).26

This desire to avoid regretful decisions can induce negotiators to hold outlonger—and for more—than they reasonably should. Again, consider thelitigants in the co-op dispute. After having spent thousands of dollars, theywould almost certainly view the decision to end litigation (and pay for thewindowbars)withahighdegreeof regret. “Whatmighthavehappened if I’dpersevered justa little longer?” theyare likely towonder. If“whatmighthavebeen”will actuallybe revealed in the future,ourdecisionsoftenbecomeevenmore geared toward avoiding regret. For example, the seller of a house mayrejectreasonableoffersinthebeliefthatpricesintheareacouldgoupafterthesale.Likewise,aninvestormayholdontoaseeminglyweakstocktoolongoutoffearthatthestockpricewillgoupshortlyafterheplaceshis“sell”order.

Toomanynegotiatorsplacetoomuchemphasisonwhatmighthavebeen.Thefactis,uncertaintyisafactoflife;inhindsight,wewilloftenseeresultsthatwecouldnothavepredicted in advance.While suchhindsight candriveus crazy,the solution is not to ignore it. The way to leverage hindsight—withoutoveremphasizingit—istofocusonwhatcanbelearnedfromthepastabouthowtomakebetternegotiationdecisionsinthefuture.Ifthinkingabout“whatmighthave been” helps us improve our future negotiation behaviors, we shouldanalyze the past carefully. If our regrets could only have been avoidedwith acrystal ball, thenwe should remind ourselves that ifwemake good decisionsmostofthetime,ournetoutcomesinlifewillbegoodaswell.

TOWARDDE-BIASING

As you’ve probably recognized, this chapter is as much about the humanconditionasitisaboutnegotiation.It’simportanttorememberthatevenhighlyeducated, intelligent people who have a desire to be fair and objective aresusceptible to psychological biases.We are biasedbecausewe are human, notbecausewearemeanor stupid.Thismeans thatweneed tobevigilant inourefforts to overcome our biases. It also means that we should be moreunderstandingofthebiasesexhibitedbyothers—andthatwemayevenwanttohelpothersovercomethem.Thefollowingchaptershowsyouhow.

CHAPTER6

NegotiatingRationallyinanIrrationalWorld

Biasesoftheheartandmindaffecteventhebestandbrightest.Youmayhavesuperbpeopleskillsandgreatinstinctsforwhentopushandwhentoholdback,but your intuition will not protect you from the kind of systematic andpredictable errors we have been documenting. Neither, surprisingly, willextensive experience.While experience can be valuable, experiencewithout aclearunderstandingofpotentialnegotiationpitfallscanbedangerous.

Ourownexperienceteachingtensofthousandsofexecutivestudentssuggeststhat people trust their intuition and their experience. But learning fromexperiencealonecanbeadisastrousmistakeforexecutives.1Theproblemisthatpeople who are extraordinarily successful—or lucky—tend to conclude fromtheir “experience” that they are invulnerable. This belief leads them toinsufficientlymonitororcorrect theirownbehaviorandtoovergeneralizetheirexperiencefromonecontexttoanother.Butconsiderthefactthatmanypeopleareverygoodatnegotiatinginonedomainbutnotinothers.Someonemaybegreat at negotiating sales contracts, but suffer from constant conflict in hispersonal life. A person may know how to negotiate mergers and strategicalliancesbutbelousyatnegotiatinghercompensationpackage.Why?Becauseanegotiator can have significant experience in one domain, yet lack a thoroughunderstanding of what she does well. As a result, she cannot generalize herexperience—andsuccess—toanothercontext.

Ourskepticalviewofthevalueofexperiencegrowsoutofextensiveevidencethat psychological biases afflict even highly trained and experiencedprofessionals of all kinds, including investors, analysts, real-estate agents,medical doctors, politicians, and so on. Margaret Neale and Greg Northcraft,whoareleadingscholarsoforganizationalbehavior,arguethatsuchbiasescanbe overcome—not through the development of experience, but through thedevelopmentofexpertise.2AccordingtoNealeandNorthcraft,individualsgainexperience when they conduct a similar type of negotiation many times; bycontrast,theydevelopexpertisewhentheyforma“strategicconceptualization”

of what constitutes effective negotiation. This view of expertise is closelyaligned with our view of negotiation genius. To overcome bias and negotiateeffectively, you need a framework for thinking about, preparing for, andexecutingnegotiationssystematicallyandstrategically.Whenitcomestobiases,negotiation geniuses are aware of their limitations—and those of others—andworkvigilantlytoaddressthem.

Thischapteroffersyouthetoolsandframeworkyouneedtoovercomeyourown biases and to effectively confront the biases of your negotiationcounterparts.It isnotenoughtoanticipateyourowndecisionbiases;youmustalsosetupsystemsandprocessesthatwillhelpyouovercomethem.Similarly,you cannot always benefit from the mistakes your counterpart makes;sometimes, to improve your own outcomes, you need to help them overcometheirownirrationality.

CONFRONTINGYOUROWNBIASES

Threepowerfulstrategiescanhelpyouconfrontandmanageyourownbiasesinnegotiation: using “System 2” thinking, applying analogical reasoning, andadoptingthe“outsider”lens.

STRATEGY1:USE“SYSTEM2”THINKING

Whataccountsforthedifferencebetweenthetimeswhenwearesusceptibleto cognitive andmotivational biases and the timeswhenwe think and behaverationally?Oneimportantanswerliesinthedistinctionbetween“System1”and“System 2” thinking, as proposed by researchers Keith Stanovich and R. F.West.3 System 1, which corresponds to intuition, is typically fast, automatic,effortless,implicit,andemotional;wemakemostdecisionsinlifeusingSystem1 thinking. The biases described in Chapters 4 and 5 are also much morecommonwhenwe are using System 1. By contrast, System 2 corresponds toreasonedthoughtandisslower,conscious,effortful,explicit,andlogical.4Whenwearefacingtimepressures,wearemorelikelytouseSystem1.Inotherwords,busyprofessionalsarelikelytorelyonSystem1thinkingmostofthetime—andmoreoftenthantheyshould.5

This does not mean that a full System 2 process is necessary for everydecision that you make. If you are buying groceries in the supermarket,responding tounimportant e-mails, or driving towork,System1will suit you

fine.Ideally,however,System2thinkingshouldinfluenceyourmostimportantdecisions and negotiations. (Of course, in the early stages of practicing tobecome a negotiation genius, itmight be useful to stay in System 2 for evenmore mundane negotiations.) As a negotiator, you need to learn to identifysituationsinwhichyoushouldmovefromtheintuitivelycompellingSystem1tothemorelogicalSystem2.Howcanyoudothis?

ThefollowingnegotiationtechniquescanhelpfacilitateSystem2thinkinginanotherwiseSystem1world:

MakeaSystem2list.Atthebeginningofeachmonthoryear,makealistofall of theupcomingnegotiations thatyou think shouldbe subject toSystem2thinking.Thesemightbenegotiationsinwhichyouaredealingwithhighstakes,complex issues, multiple parties, high-priority clients, or high degrees ofuncertainty.Havingplannedinadvancetobemorepreparedforandengagedinthesenegotiationswillhelpyoutoallocateyourtimemoreappropriately.Itwillalso help you think more carefully about when you should schedule thesenegotiations andwill remind you to actively participate in the pre-negotiationdiscussionsthatwillsettheagendaforsubstantivenegotiations;thereisnothingworsethanhavinganegotiationthrustuponyouwhenyouarenotreadyforit.

Avoid negotiating under time pressure. System 1 thinking takes overwhenwehavelittletimeandarefeelingrushed.Smartnegotiatorsanticipatethisproblemandavoidnegotiatingunder timepressure,orat least recognizewhenthepressureisrealversuswhenitisartificiallycreatedasanegotiationtactic.Toavoidtimepressure,insteadofnegotiatingduringaone-hourlunch,setasideanentireafternoon.Ifsomeoneinitiatessubstantivediscussionswithanunexpectedphone call or visit, and you are unprepared, politely ask to reschedule theconversation for a later time or date. Some negotiators are extremely fond offorcing others to negotiate, make commitments, or respond to requests underimmense time pressure. Unfortunately, many people fall prey to this tacticbecausetheyareworriedaboutlosingthedealoroffendingtheotherparty.Howshouldyourespondtosuchtactics?In thevastmajorityofcases, there is littlereasonnot topostponeyournegotiationordecision—at least fora littlewhile.Unless the other party has given you specific, credible information that time

trulyisoftheessence,youshouldavoidgivingintotheirpressuretactics.Thiscomesbacktotheprinciple(discussedinChapter1)ofseparating informationfrominfluence.Forexample,ifapotentialemployerextendsyouajobofferandtellsyouthat“wewillneedyouranswerbyFriday”—andthisdoesnotgiveyouenough time tomake a wise decision—it is okay to probe a bit and find outwhether this is a serious ultimatum. After articulating your gratitude andenthusiasmfortheopportunitytoworkforthecompany,youmightaddaquerysuchasoneofthese:

•“Isthisafirmdeadline?”

•“If,forpersonalreasons,Ineededmoretimetomakethisdecision,whatwouldbetheprocessfordoingso?”

Partitionthenegotiationacrossmultiplesessions.Youdonothavetocompleteanentirenegotiationinonesession.Nomatterhowpreparedyouare,inmostcomplexnegotiationsyouwillencounterinformation,issues,andtacticsthat you did not anticipate. If you want to avoid falling back on System 1thinkingat such times,youwill need to structure aprocess that allowsyou torethinkorre-strategizeasneeded.Forexample,youmightschedulebreakseveryhourortwosothatyoucanspendtimeevaluatingandorganizingeverythingthatyouheardthatwasunexpected.Oryoumightnegotiateovermultipledays,suchthatyouexchangepreliminaryinformationovere-mailonDay1,haveaninitialtelephone discussion on Day 2, and set aside time on Days 3 and 4 forsubstantivenegotiations.ThiswillgiveyouthetimeyouneedtoapplySystem2thinkingthroughoutthenegotiationprocess.

STRATEGY2:LEARNTHROUGHTHEUSEOFANALOGIES

Itisoftensaidthatwelearnmorefromourmistakesandfailuresthanwedofromoursuccesses.Ifthisistrue,thennegotiatorsshouldbeabletolearnfromthenegativeconsequencesoftheirdecisionbiasesandtoadjusttheirsubsequentbehavioraccordingly.However,itisoftenquitedifficultfornegotiatorstolearnfrompastmistakes;wetendtofallpreytothesamebiasestimeandtimeagain.6Why?Intherealworld,wherenegotiationoutcomesaredeterminedbyahostoffactors,itcanbedifficulttoassesswhetheramistakewasduetoflawedstrategyortomisfortune.Evenifyouacknowledgethatyourstrategywastoblame,you

maybeuncertainwhichaspectofthestrategywasflawed.

How,then,cannegotiatorsmaximizetheir learningfromexperience?Peoplelearnfarmorefromanexample,casestudy,exercise,or real-worldexperiencewhen they are able to extract an abstract principle from it.7 In otherwords, itdoesnegotiators littlegood if theyare told in retrospecthowtheyshouldhavebehavedinaspecificsituationtheyrecentlyencountered,butitisveryusefulforthemtodiscoverwhat factors toconsiderwhenfacingsimilarsituations in thefuture. Because no two situations are identical, negotiators are better offextracting the correct principle from past experience rather than the correctanswer.Thekeyistofigureouthowtodrawprinciplesoutofexperiencesandexamples.

One way to do this is to apply analogical reasoning—the consciouscomparison of different situations on dimensions that are similar. Extensiveresearchhasshownthepowerofthisapproach.

InstudiesbypsychologistsJeffreyLoewenstein,LeighThompson,andDedreGentner,participantswereprovidedwithsummariesoftwocomplexnegotiationproblemsthathadthesameunderlyinglesson(i.e.,thesametypeofsolutiontothe negotiator’s problem).Half of the participantswere asked to explainwhatlessontheyhadlearned,oneexerciseatatime.Theotherhalfwasaskedhowthetwoexerciseswere relatedandwhat lessons theyhad incommon.Negotiatorsweremuchmoreable todrawout thecritical lesson—andtoovercomesimilarproblems in their own subsequent negotiations—when they had been asked tocomparethetwoexercises.Inshort,whenwetrytolearnfromoneexperienceata time,we toooften focuson“surface” elementsof the situation,whereas theprocess of comparing and contrasting different experiences helps us draw outsimilar“structural”elements.

Consider,forexample,anexecutivewhoisreflectingontherecentdissolutionofabusinesspartnership.Hemightconcludethatnegotiatingsuchdissolutionsisverydifficultandrequiresthird-partymediation.Thoughintuitivelyappealing,this lessonmay beminimally useful. It is also possible for partnerships to bedissolvedwithoutsevereconflict, inwhichcasethelessonissimplywrong.Incontrast, another executive who reflects on multiple prior negotiations mightconclude that, whatever the underlying situation, nonrational escalation ofcommitment ismore likelywhen lawyersare involvedandwhenemotionsarerunninghigh.This executivemightdecide tobring in a thirdparty tomediate

wheneversheencounterssuchconditions—afarmoreusefulconclusion.

Howcanyouuseanalogicalreasoningtoyouradvantageinnegotiation?Trythefollowingtechniques:

Debrief multiple negotiations simultaneously. Negotiation geniusesmakeitahabittoreviewimportantnegotiationsaftertheyarecompleted.Betteryet,youshouldreviewmultiplenegotiationsatthesametime.Asyouaredoingthis,askyourselfhowthenegotiationsweresimilarandhowtheyweredifferent.Havingothermembersofyourteamororganizationhelpyoutothinkcriticallyabout your experiences, strategies, and outcomes may be especially useful,becausetheywillbeabletoweighinwiththeirownexperiencesaswell.

Whenfirmshireustotraintheiremployeesinnegotiation,weoftenconducta“group-debrief”exercise,inwhichwesetupgroupsoffourtosixpeople.Eachemployee is asked to discuss a recent or current negotiation situation, then allmembers of the group try to extract important lessons and insights from thevariousexperiences.Thisexercise isextremelyeffectiveatpromoting learningbecauseitencouragesnegotiatorstomakecomparisonsacrossnegotiationsandformanalogies.

Focus on the principles, not particulars. When reviewing pastnegotiations, try to understand the structural and conceptual aspects of whatoccurred. Rather than focusing on the uniqueness of the specific negotiationsituation, dissect your recent experience into elements that map onto thenegotiationconceptsdescribed in thisbook.Whileallnegotiationsareunique,they all have BATNAs, reservation values, ZOPAs, underlying interests,informationexchange,andsoon.Examiningtheseconceptswillhelpyoubettergeneralizelearningfromrecentlycompletednegotiationstothefuture.

STRATEGY3:ADOPTTHEOUTSIDERLENS

Whyarewe sooverconfident in our own judgments and abilities, butmoreaccurate in our assessments of the likely success of others?DanielKahnemanand Dan Lovallo explain this inconsistency by arguing that people makedecisions using two different perspectives, or “lenses”: an insider lens and an

outsider lens.8 A negotiator usually adopts the insider lens when makingjudgmentswhile immersed in the contextor situation.Bycontrast,weusuallyadopt the outsider lens when removed or detached from the situation. Theoutsider lens is the cleaner lens.Obviously, it is better to use the cleaner lensthan the dirty one; unfortunately, the outsider lens is typically not the defaultoption when we are engaged in negotiation or embroiled in conflict. Thus, anegotiatormightwellbeawarethatthetimeittakestogofromaninitialsalespitch to a signed contract is six to twelveweeks, yet still believe that he canclosethedealwithinthreeweeks.Moredangerously,thenegotiatorislikelytocontinuebeingoverconfidentdespitehavingbeenprovenwronginthepast.Thisisbecausetheinsiderlenstendstofocusononlythecurrentsituation,whiletheoutsiderlensisbetteratintegratinginformationacrossmultipleepisodes.

Considerthecaseofhomeownersnegotiatingwithacontractoraboutbuildinga new house. The homeowners know from their friends that such projectstypically end up being 20–50 percent over budget and take much longer tocomplete than originally planned (the outsider view). Yet most homeownersbelievethattheirexperiencewillbedifferent—thattheirhomewillbecompletedon time and close to the projected cost (the insider view).As a result of theirpoor planning, they end up needing to get last-minute financing for costoverruns,togiveupfeaturesthattheyreallywanted,andtoscroungeforaplacetolivebecausethehouseisnotyetreadyforthemtomovein.

Nobel Laureate Kahneman tells his own story about the insider lens.Kahneman was working with a group of colleagues on defining a newcurriculumandwritingabooktoencapsulateit.9Thecurriculumteamestimatedthat the project would take eighteen to thirtymonths to complete. Kahnemanapproachedamemberoftheteam,adistinguishedexpertincurriculumdesign,andaskedthefollowingquestion:“Wearesurelynottheonlyteamtohavetriedto develop a curriculum for a new area of study. Please try to recall asmanycasesasyoucan.Thinkof themas theywere inastagecomparable tooursatpresent.Howlongdidittakethem,fromthatpoint,tocompletetheirproject?”Havingadoptedtheoutsiderperspective,thecurriculumdesignexpertsaidthatthe minimum completion time was seven years and that 40 percent of theprojects were never completed. In fact, it ended up taking Kahneman’s teameightyearstofinishtheproject!

Surely, would-be entrepreneurs should decide whether to go into businessusing theoutsider lens—with a realistic understandingof the risks involved—

ratherthanusingthemoretemptinginsiderlens.Yet,inonestudy,morethan80percent of entrepreneurs viewed their personal chances of success to be 70percent or higher, and one-third of them described their success as certain.10Thisisclearlytheinsiderspeaking.Theoutsidercaneasilyfindoutthatthefive-year survival rate for new businesses is only about 33 percent!11Why wouldsmartandmotivated individualsbewilling tostake largesumsofmoney, theirreputations,andyearsoftheirlivesonadecisionmadeusingthebiasedinsiderlens?AswediscussedinChapter5,peoplehaveastrongurgetoseetheworldandthemselvesinapositivelight,atendencythatcanhavepowerfuleffectsondecision-making.

Theinsider-outsiderdistinctionleadsustoanothersetoftechniquesthatyoucanusetode-biasyourjudgment.Considerthefollowing:

Bringinanoutsider.Whenpreparingforanimportantnegotiation,bringanoutsider to the preparation session. This may mean reaching out to expertswithinyourfirm,hiringaconsultantwithuniqueexpertise,ortalkingtoafriend.Rememberthatyouaremorelikelytoanticipatecostoverrunswhenafriendishavingherhousebuiltthanwhenyourownhomeisbeingbuilt.Whenitcomestoyourownhouse,youanticipatethatthingswillturnoutbetterforyouthanarational analysis would suggest. The same is true when you negotiate a deal.Otherswillseefactorsthatyouhaveignored,weightnegativeinformationmoreappropriately than you do, and preserve an objective view of the situation inwaysthataredifficultforyoutodo.

Taketheoutsiderperspective.Itisoftenequallyeffective—andlesscostly—toaskyourselfhowyouwouldassessasituationifyouwerenotimmersedinit.Thismightrequireyoutothinkbacktoatimewhensomeoneelsewasfacedwithasimilarsituationortocollectdataonwhatyoucanrationallyexpectinthecurrentsituation(e.g.,dataonindustryaverages).Oryoumightaskyourselfthissimplequestion:ifsomeoneIcaredaboutaskedmeforadviceinanegotiationsuchasthis,whatadvicewouldIgive?

Collectively, using System 2 thinking, applying analogical reasoning, andadopting theoutsider lens areviable strategies for reducing the likelihood thatdecision biases will sabotage your next negotiation. If you are serious aboutbecoming a negotiation genius, you must make the use of these strategieshabitual. Too often, executives who attend negotiation courses (or readnegotiation books) discover interesting ideas, but do not actually change theirbehavior. Gathering information is not enough. Real change requires you to“unfreeze” existing decision-making processes, understand the ideas andtechniquesthatwillhelpyoumakethedesiredchange,andthen“refreeze”thenewideasandtechniquesintoyourthoughtsandbehavior.12Inotherwords,youmust become aware of biases, consider how to avoid or overcome them, andwork hard to integrate new and more effective strategies into your habitualapproachtonegotiation.

CONFRONTINGTHEBIASESOFOTHERS

Thebiases thatothersbringto the tablecanhaveserious implicationsforyournegotiated outcomes. In the remainder of the chapter, we explore how toincorporateanunderstandingofthebiasesofothersintoyourstrategy,whyandhow tohelpothersbe lessbiased,whyandhow toadjust the informationyoureceive from others, and how to respond to the other party’s decision biasesthroughcontracting.

STRATEGY1:INCORPORATETHECONSEQUENCESOFTHEIRBIASESINYOURSTRATEGY

Generalmanagersofbaseballteamsspendagreatdealoftimedecidinghowtoevaluatethetalenttheyareconsideringacquiringanddecidingwithwhomtonegotiateacontract.BillyBeane,thegeneralmanageroftheOaklandAthletics,foundawaytodothisbetterthananyoneelse—andsucceededintransforminghis teamfromlosers towinners.From1999–2002,withavery limitedbudget,Beane led the Athletics to the second-best record in Major League Baseball(MLB).Theteam’splayersearned,onaverage, less thana thirdof theamountearned by theNewYorkYankees.Yet, during this four-year period, they stillwonmoregamesthantheYankees.13

HowdidBeane accomplish this amazing feat?By studying themistakes ofother baseball managers and, with the help of a recent Harvard economicsgraduate, Paul DePodesta, using this knowledge to develop wiser negotiationstrategies. In his book Moneyball, Michael Lewis argues that other MLB

managerswereconsistentlyguiltyof three systematicmistakes thatBeaneandDePodestawereabletoidentifyandexploit:1)theyovergeneralizedfromtheirpersonal experiences, 2) they were overly influenced by players’ recentperformances,and3) theywereoverly influencedbywhat theyhadpersonallyseen, even thoughplayers’multiyear records provided far better data. In otherwords,mostbaseballmanagerswererelyingonSystem1thinking.

BeaneandDePodestadecidedinsteadtolookattheharddata.Theyfoundthatplayersdraftedoutofhighschoolweremuchlesslikelytosucceedthanplayersdraftedoutof college.Yetbaseball executives systematicallyovervaluedhigh-schoolplayersandsystematicallyundervaluedcollegeplayers.Armedwiththisknowledge, Beane stopped drafting players out of high school. In addition,Beane and DePodesta learned that certain players had a dramatically highertendency than others to be “walked,” but that baseball professionalsinappropriatelyundervaluedthisdata.14

Atthesimplestlevel,thesuccessofBeaneandDePodesta’sapproachrevealsthattheuseofsystematicandrigorousanalysiscanbesuperiortotheSystem1thinking on which many experienced negotiators rely. But much more wasactually happening: Beane and DePodesta used their understanding of thedecisionbiasesofotherstomaketradeswithotherteams.Indoingso,theywereabletogetplayerswhoweremoresuccessfulinexchangeforplayerswhowouldbe less successful. Thus, they combined their System 2 thinking with anunderstandingoftheconsequencesoftheotherside’sSystem1thinkingtomakevalue-creatingtrades.

Thelessonfornegotiators?UseyourSystem2thinking,butbereadytoadaptto the other side’sSystem1mistakes. If someone is obsessedwith sellinghiscompany at a certain price point (perhaps because a brokermentioned a highnumber,orbecauseasiblingsoldhercompanyfor thatamount),recognizethevividness of that number to him. Then, rather than fight it, see if you cancreativelymeetthisvividneed.How?Offerthedesirednumberinexchangeforconcessionsonotherissuesthatyouvaluehighly.Forexample,youmighthavehim throw in related real estate or accept better financing terms. Indeed, toomany negotiators focus excessively on salient dollar figures. If the other sidewillaccept“notapennylessthan$40million,”hemaystillaccept$40millionpaidtohimoveraverylongperiodoftime.Whenyoustartthinkingaboutthedecisionbiasesofothers,youcancustom-designnegotiationstrategiesthatadapttotheirerrors.

STRATEGY2:HELPOTHERSBELESSBIASED

Ourstudentsoftenaskus,“Wouldyourathernegotiatewithagoodnegotiatoror a bad negotiator?” Our answer is simple: we’d rather negotiate with goodnegotiators; bad negotiators will usually just get in the way of good deals.Unfortunately,manypeoplefalselyassumethatbargainingwithanincompetentor irrational (i.e.,biased)partnergives themavaluablecompetitiveadvantage.While this is sometimes true (as the Moneyball example shows), biasednegotiatorsalsohavetremendouspotentialforentirelyderailingthenegotiation.Forexample,ifyourcounterpartisoverconfident,shemightwaitfordealsthatyou cannevergiveher. If he irrationally escalates commitment to a courseofaction,hemaybecomeoverlycompetitiveandunwillingtocompromise.Ifsheisafflictedwiththefixed-piebias,shemayrefusetoshareinformationandthuseliminate opportunities to create value. In these cases, the other party’s biaseshurtnotonlytheirowninterests,butalsoyours.

For these reasons, it is often in your best interest to help your counterpartthink more clearly. How can you promote careful, reasoned, and systematicthinking?Consideragainthatnegotiatorstendtobefarmorebiasedundertimepressure thanwhen they have time to think through a proposal or idea. Thus,whenyouhaveprovidedtheothersidewithanofferthatyoubelievetobebetterthan your competitor’s proposal, give him time to think it through rather thanpushing for an immediate answer. Under pressure, negotiators who areoverconfidentintheirabilitytogetabetterdealoftensaynowhentheyshouldsay yes. If you are confident that you are offering more than he can getelsewhere,you’dbewisetoencouragehimtoexplorealternativesandgetbacktoyouaftercomparingyourofferwithothers.

Most of us also assume that we want the other side to be less prepared.However, ill-preparednegotiators typicallywant tobargainoverone issueatatime and to withhold information. They are also less able than preparednegotiators to evaluate or propose multi-issue (package) deals. All of thesebehaviors inhibit value creation.Whendealingwith an ill-preparednegotiator,encourageher to think through the relative importanceofeach issue toher. Inaddition, take the lead in negotiating multiple issues simultaneously and inmakingpackageoffers—andencouragehertodothesame.It isalsoimportantthatyouclarifyforherthatyouvaluesomeissuesmorethanothersandthatyouarehappytojointlyexploremutuallybeneficialtrade-offs.

Finally, the best thing you can do to help an ill-prepared negotiator (and tohelpyourself)istoencouragehertobemoreprepared.Ifthenegotiationisnotgoingsmoothly,youmightsuggestthatbothpartieswouldbenefitfromthinkingmoreabouttheissuesthathavesurfacedduringtherecentdiscussion.Youmightthen create a time line with the other party that includes milestones thatencouragepreparationand thesharingof information.Forexample,youmightagree that, after oneweek, eachof youwill send an e-mail that lists your topprioritiesandconcerns;afterthreemoredays,oneofyouwillberesponsibleformakinganinitialpackageproposal;then,aftertheotherpartyhasafewdaystoconsiderthisproposal,bothpartieswillmeetforfurthersubstantivediscussions.Whilemostpeoplebelievethatgivingtheotherpartythismuchtimetoprepareis dangerous, a negotiation genius recognizes that your counterpart can onlymakewisetrades,expandthepie,andacceptyourcreativeoffersifsheknowswhat she values—and that such knowledge requires preparation. So, the nexttimeyou run into awell-preparednegotiator, you shouldbe encouraged aboutthe potential to create an excellent agreement rather than nervous about beingexploitedoroutperformed.

STRATEGY3:CALIBRATEINFORMATIONPROVIDEDBYOTHERS

Imagine thatyouaremoving toanewcityand thatyouhave interviewedanumberof real-estateagentsabout sellingyourcurrenthome.Whileyouwantyour agent to be a good salesperson, you alsowant him or her to provide anaccurateestimateofyourhouse’svalue.Unlessyouknowhowmuchyourhomewillrealisticallysellfor,youcannotbecertainhowexpensiveahomeyoucanafford in your new location. Here is a dilemma that might arise. The agentsknow that you desire a high sales price and that providing you with a highestimate (within certain limits) will make you more likely to hire them.Unfortunately,themoreinflatedtheirestimates,thelessaccuratetheycouldbe,andtheworseoffyouwillbewhenassessingwhichnewhometopurchase.

Howcanyouidentifywhetheranagentisbeingoverlyoptimisticandtryingtopassonthatoptimismtoyou?Trythis:insteadofnegotiatingwithoneagent,askfourdifferentagentsfortheiropinionsontheappropriatelistingprice.Thenaskeachagent tobringyoucomputerprintoutsof theoriginal listingpricesofthelasttenhousestheysoldaswellasthefinalsellingpriceofeachofthesetenhomes. This is information that is readily available to them. (To verify theaccuracyof thedata theyprovide,youcanevenask the agents to cross-checkeachother.)Armedwith theagents’ recommendationsforyourhome,andalso

thedataonhistoricdifferencesbetweentheirlistingpricesandsalesprices,youareinafarbetterpositiontoestimatethetrueworthofyourownhouse.Youalsohavethedatayouneedtohirethebestagentofthebunch—theonewhoisnotonlysellinghigh,butalsoismorerealistic(ormoretruthful).

Undoubtedly, you’d choose different data in other types of negotiations.Imagine that you are an executive of a retail organization and that a group ofregionalmanagersreportstoyou.Eachregionalmanagerisinchargeofroughlyone-eighth of the country. You are meeting to negotiate the region-specificadvertisingbudgetsforthecomingyear.Asthemeetingbegins,themanagersoflast year’s two most successful regions suggest to you that the availableresourcesshouldbeallocatedinproportiontolastyear’ssales.Theyarguethatlastyear’s salesare thebestpredictorofnextyear’s sales,and that salesareagoodindicatorofwhereadvertisingwillbemosteffective.Whatiswrongwiththislogic?

First, some regions will have higher sales than other regions regardless ofadvertising(forexample,youwillsellmoresnowshovelsinthenorthernthaninthe southern United States). Thus, the managers may be choosing the“appropriatemeasure of success” self-servingly. If so, perhaps you should askeach manager instead to report on an analysis of the marginal impact ofadvertising dollars on increases in sales over the past ten years. A secondproblemwiththeirlogicisthatitfailstoaccountforthefactthatmanyoutcomes“regress to the mean” over time.15 Fantastic students frequently have lesssuccessfulyoungersiblings.Extremelytallparentstendtohavechildrenthatareshorterthanthem.Spectacularrookiestendtohavemediocresecondyears(the“sophomorejinx”).Andregionsthathavejusthadafantasticyearwill tendtoperformlesswellthenextyear.Why?Becauseeverysuccessfuloutcomeisdueinparttothefactoryoususpect(skill,advertisingdollars,genetics,etcetera)andin part due to chance (or unknown factors). Furthermore,extremely successfuloutcomes are likely to be high on both of these factors. Unfortunately, youcannot count on chance towork strongly in your favor every year. Thus, youneedtoadjustyourestimatesdownward.Regressiontothemeandoesnotmeanthat thepasthasnopredictability for the future.Rather, itmeans that thepastmaypredictthefuturelessreliablythanweassume.

Armedwithanunderstandingofthesebiases,theexecutiveisbetterpreparedto negotiate with the regional managers—and to expect that the two high-performingregionsfromlastyearmaycontinuetoperformabovethemean,but

not necessarily by the same amount as the previous year. The key lesson:thinking about the decision biases of others allows you to calibrate,quantitatively and qualitatively, the information, data, and arguments that youhearfromthem.

STRATEGY4:USECONTINGENCYCONTRACTSTORESOLVECONFLICTSSTEMMINGFROMBIASES

“Curing”yournegotiationcounterpart’sbiasesisnotalwaystheanswer.Youropponentmaybeextremelyconfidentabouthisviewofthefuture,whileyouareconfidentthatheiswrong.Ratherthanarguingthepoint, itsometimespaystoleverage the other side’s biased expectations. How? Using a contingencycontract. In Chapters 1 and 2,we discussed the use of contingency contracts,whichallowbothsidesinanegotiationtobetontheirbeliefsabout thefuture.Whenyouknowthattheothersideisbiased,youcandraftacontractthatallowshimtobetontheinformationthatyoubelievetobeinaccurate.Indoingso,youmakeabetthatyouexpecttobefavorabletoyouandcostlytoyourcounterpart.

Suppose thatasalespersonclaims thatherproduct ismeasurablybetter thanthatofhercompetitor.Youare fairlysure thatherclaimdoesn’tapply toyourintended use of the product, and you don’t want to run the risk of beingdisappointed if the product performs at less than her expectations. Instead ofcalling the salesperson a liar or trying to disprove her claim, propose acontingency contract instead. Specifically, offer to pay her asking price if theproductperformsatthelevelshepromises,butinsistuponaverylargediscountif it fails to meet her targeted performance level. If she has been oversellingintentionally, she will back away from your proposal. But if she is simplyoverconfident, she’ll sayyes, andyou’ll get a verygooddeal.Of course, if itturnsoutthatsheisright,youwillenduppayingmore—butforabetterproductthanyouexpected.Youwillalsofindout thatshe isbetter informedandmorecrediblethanyoubelieved.

MOVINGFORWARD

Many smart people are faced with situations in which they are suspicious ofanother negotiator’s decision-making process but lack the vocabulary toarticulatetheflawsintheotherside’slogic.InChapters4–6,we’vesummarizedclearly defined and rigorously researched concepts to help you recognize andunderstandthebiasesyouconfront.Ifyouwouldliketopracticespottingothers’biases, you need simply to read the newspaper or watch a sporting event on

television.Journalists,politicians,sportscasters,andother“expert” informationprovidersconstantlymakestatementsthatexemplifythebiaseddecision-makingprocessesthatwehaveoutlined.Buttheyarenottheonlyoneswhoarebiased.Theworstmistakeyoucanmake rightnow is to think thatyouhave just readthreechaptersthatexplaintoyouhowothersarebiased.

Negotiationgeniusesdonotassumethattheyareimmunefrombias.Rather,they accept the fact that their intuition, like that of other smart people, isfundamentally flawed. They attempt to reduce the degree to which they areaffected by biases and, when necessary, adopt more systematic decisionprocessestoavoidbias.Inaddition,ratherthanexpectingrationalityfromtheircounterparts,negotiationgeniusesanticipatebiasinothersandusethestrategieswehavehighlightedtorespondtothesebiases.

Takentogether,PartsIandIIofthisbook(Chapters1–6)shouldprovideyouwith the tools you need to negotiate more effectively in the wide variety ofnegotiation contexts that youwill encounter. In Part III,wewill build on thisknowledge and equip you to handle even the most difficult and complexnegotiations.

CHAPTER7

StrategiesofInfluence

Throughouttheearlierchaptersofthisbook,wehaveemphasizedtheneedtounderstand the other side’s perspective. For example, the principles andstrategiesofinvestigativenegotiationarecriticalbecausediscoveringthehiddeninterests, priorities, and constraints of the other side allows you to create andclaim value more effectively. One of our fundamental messages is thatnegotiationsuccessistypicallymoreafunctionofhowwellwelistenthanhowwellwetalk.

But that is not the whole story. When you are making a pitch, asking forconcessions,ortryingtoamasssupportforyourproposal,successalsodependsonyourabilityto“sell”yourideas,persuadereluctantopponents,andconvinceothers regarding themerits of your case.These skills not onlyhelpyou claimvalue for yourself, but also create value for both parties. One of the mostcommon complaints of seasoned negotiators is that defensive, untrusting, orincompetent people can stymie even mutually beneficial ideas and proposals.Thus,would-benegotiationgeniusesmust findways toovercomenotonly thereasonableobjectionsofothers,butalsotheirclose-mindedness.

Inthischapter,weleveragesomeofthemostfascinatingcurrentresearchonthepsychologyof influenceandpersuasion—including thepioneeringworkofrenowned social psychologistRobertCialdini1—to develop strategies thatwillhelp you convince others to complywith your requests, proposals, and ideas.Note that these influence strategies are not designed to help you improve themeritsofyourproposal.Rather,theywillincreasethelikelihoodthatotherswillsayyestoyourproposalswithouttheneedforyoutoimprovethem.Ofcourse,you can also expect to be the target of influence tactics originating from theother side. This chapter provides numerous “defense strategies” for resistingtheirploys,aswellasahostoffactorstoconsiderbeforeyousayyes.

STRATEGY1:HIGHLIGHTTHEIRPOTENTIALLOSSESRATHERTHANTHEIRPOTENTIALGAINS

Arepresentativefromyourlocalpowercompanycomestoyourneighborhoodofferingfreeenergyaudits tohomeowners.Youagree to theaudit,afterwhichthe representativeadvisesyou to invest inproducts and services thatwillhelpinsulate your home and lower your energy costs. Will you say yes? Asresearchers at theUniversity of Santa Cruz discovered, your answer probablydepends on exactly how the pitch is made. In the Santa Cruz study, therepresentativetoldhalfofthehomeownersthefollowing:“Ifyouinsulateyourhome,youwillsaveXcentsperday.”(ThevalueofXwasdeterminedbytheaudit.)Fortheotherhalfofhomeowners,thepitchwasreversed:“Ifyoufail toinsulateyourhome,youwillloseXcentsperday.”Noticethattheinformationcontentofthesetwostatementsisidentical.However,thosewhoweretoldhowmuch they stood to lose by not complying with the recommendation weresignificantlymorelikelytopurchasetheinsulation!2

Asthisstudyillustrates,peoplearemoremotivatedtoavoidlossesthantheyare to accrue gains, consistent with the principle of loss aversion.3 In otherwords,decisionmakersweigh informationaboutpotential lossesmoreheavilythantheydoinformationaboutpotentialgains—evenwhenthegainsandlossesare of equal magnitude. As a result, when you frame the exact same set ofinformationas a loss, itwill bemore influential innegotiation thanwhenyouframeitasagain.

Consider the following ways to leverage the power of loss aversion innegotiation:

•Stateyourproposalintermsofwhatpotentialgainstheothersidestandstoforgoifyourideaorproposalisrejected,ratherthanonwhatheorshestandstogainbyaccepting.

•Whenholdinganauction,tellbidders“youwillmissoutontheopportunitytohaveXifyoudonotincreaseyourbid”ratherthan“youwillhavetheopportunitytogetXifyouincreaseyourbid.”

•Pointoutthat“theofferfromourcompetitordoesnotgiveyouX,Y,orZ,”insteadofpointingoutthat“ouroffergivesyouX,Y,andZ.”

In each of these cases, the information content of the proposal remainsunchangedwhenyouadoptalossframeratherthanagainframe.Theinfluencecontent,however,changesdramatically.

Onceyouareawareoftheprincipleoflossaversion,youwillstarttonoticehowoftenthetacticcropsup,notonlyinnegotiations,butalsoinyourlifeasamanager,consumer,andcitizen.Forexample,whenaconsultantoratask-forcerepresentativetellsyouthat“failuretoimplementthesechangeswillresultinarevenue loss of 1.5 percent,” you are at the receiving end of an influencestrategy. Loss aversion is also one reason why negative political ads are soeffective,even thougheveryoneprofesses tohate them:whencandidateswarnyou about the dangers associated with electing their opponent (rather thantoutingtheirownmerits),theyareleveragingthisstrategy.

Theprincipleoflossaversioncanalsobeaimedtowardbenevolentends.Inastudy conducted at amedical clinic in aU.S. city,womenwere shownvideosdesigned to promote HIV testing. In one version of the video (the “control”condition), information was framed in terms of the benefits associated withgetting tested. In another version (the “loss-frame” condition), the informationwas framed in terms of the costs and risks associated with not getting tested(e.g.,“Bynotgettingtestedawomanisputtingherself,thepeoplesheloves,andher unborn children if she becomes pregnant at risk”). Sixty-three percent ofwomenwhowereshowntheloss-framevideochosetobetestedforHIVwithintwoweeks.Amongthosewhowereshownthegain-framevideo,only23percentchosetobetested.4Insimilarresearch,lossframeswerealsomoreeffectiveinpersuadingpeopletoobtainskincancerdetectionexams5and in increasing thelikelihoodthatwomenwouldconductbreastself-examinations.6

Despite its power tomotivate compliancewith demands and proposals, wehave one important caveat on the use of this strategy: an overreliance on lossframescansourrelationships.Thosewhofocusonlyonrisks,costs,losses,anddownsidesmaybeperceivedashostile,threatening,orsimplyunpleasant.Theseattributions can create barriers to negotiation if they induce the other party toretaliateinkind.Thus,youruseoflossframesshouldbestrategicandtargeted,notpervasive.Itmaybebesttoreservetheuseoflossframesforsummarizingyourargument,ormakingyour“finalpitch”statement,andtoavoidnegativityearlierinyourpresentationordiscussion.

STRATEGY2:DISAGGREGATETHEIRGAINSANDAGGREGATETHEIRLOSSES

Whichofthesetwosituationswouldlikelymakeyouhappier?

Scenario1:Youarewalkingdownthestreetandfinda$20bill.

Scenario2:Youarewalkingdownthestreetandfinda$10bill.Thenextday,asyouarewalkingonadifferentstreet,youfindanother$10bill.

Noticethatthetwoscenarioshaveidenticalpayoffs:bothresultina$20gain.However, the vast majority of people believe that they would be happier inScenario 2. Why? Before we try to answer this, let’s consider another twoscenarios.

Whichofthefollowingwouldmakeyouunhappier?

ScenarioX:Youopenyourwalletanddiscoveryouhavelosta$20bill.

ScenarioY:Youopenyourwalletanddiscoveryouhavelosta$10bill.Thefollowingdayyouloseanother$10bill.

Again,thescenariosareidenticalwithregardtofinancialoutcome.However,this time the vastmajority of people claim that ScenarioYwouldmake themunhappier.

Asthese twoexercisesdemonstrate,peopleseemtoprefer findingmoney ininstallmentsbutlosingmoneyinonelumpsum.7Inordertomaximizepleasure,then,youshouldseparatethetotalgainintolotsofsmallwins(ratherthanonebigwin).Meanwhile,tominimizepain,youshouldputallofthelossestogether—thisgivesyouonlyonelosstoabsorb.

Herearetheimplicationsofthisfindingfornegotiators:

DisaggregateTheirGains:

•Ifyouhavetheabilitytomakeconcessions,donotmakethemallatonce.Forexample,ifyoucanincreaseyourofferby$100,breakupthisconcessionintosmallerconcessionsthataddupto$100anddistributethesmallerconcessionsindividually.Yourcounterpartwillevaluatethisstringofconcessionsmorepositivelythanonelump-sumconcession.

•Ifyouhavegoodnewstoshare,trytoparceltheinformationintosmaller“gems”thatwillgivetheotherpartymoreoccasionstosmile.Forexample,ifyouhavecompletedaprojectunderbudgetandalsoearlierthanscheduled,donotshareallofthisgoodnewswithyourclientallatonce.Youwillmakeyourclienthappierif,oneday,youtellheryouhavecompletedtheprojectearly,andonanotherday,youtellheryouwerealsounderbudget.

•Ifyouhavebenefitsorrewardstooffer,separatethemintoinstallmentsthatyoucanmakeovertime.Forexample,ifyouhavebeenauthorizedtogiveanunsuspectingemployeebotharaiseandapromotion,youwillmaketheemployeehappierifyoutellthemabouttheraisetodayandaboutthepromotiontomorrow.

AggregateTheirLosses:

•Ifyouarerequestingordemandingthattheothersidemakeconcessions,makeonecomprehensivedemandratherthanseveralpartialdemands.

•Ifyouhavebadnewstoshare,shareitallatonce.

•Ifyouhavecostsorburdenstoimpose,combinethemintoone.

STRATEGY3:EMPLOYTHE“DOORINTHEFACE”TECHNIQUE

Manysalespeopleswearbythisoldruleofthumb:“Keepthemsayingyes!”Thetheorybehindthisapproachisthat,asthesellerinanegotiation,youshouldstrive to keep the buyer in a positive, agreeable, and accommodating mood.Afterall, the longersheagreeswithyou, themore likelyshe is tobelieve thatyourinterestsarecompatiblewithhers.Thereisalsotheissueofmomentumtoconsider:youwanttobuildmomentumtowardfinalacceptanceofyourdemands—notultimaterejection.

Likesomanyrulesofthumb,thisoneisonlypartiallytrue.Infact,onewaytogetthe“yes”youwantistoallow(orprovoke)theotherpartytosay“no”first.Consider some fascinating research conductedbyProfessorRobertCialdini ofArizona State University. Cialdini’s research assistants went around the cityposing as workers from the county juvenile detention center. They stoppedpeople on the street at random and asked them for a favor: “Would you bewillingtochaperoneagroupofjuveniledelinquentsonadaytriptothezoo?”Asyoumight imagine,mostpeoplewere taken abackby the extreme request,and only 17 percent said yes. The researchers then tried a different approach.This time when they stopped a person, they asked for an even greater favor:“Wouldyoubewillingtoserveasacounseloratthejuveniledetentioncenter?

This will require two hours of your time each week for three years.” Notsurprisingly, everyone turned down this request. Without skipping a beat, theresearchersthenwentontoask:“Well,ifyoucan’tdothat,wouldyoubewillingto chaperone a group of juvenile delinquents on a day trip to the zoo?” Theresponsewasstaggering.Now,50percentofthoseaskedtochaperoneagreedtocomply!Whentheexactsameproposal—arequesttochaperone—wasprecededbyanextremedemandthatwassuretoberejected,threetimesasmanypeoplesaidyes.

Whydoescompliance increaseafteran initial rejection?Because, accordingto Cialdini, when the personmaking the requestmoderates his demands (andasksforsomethinglessextreme),theothersideviewsthisasaconcessionthatmust be reciprocated.8 In other words, because the rejected party has“compromised” by asking for less, it is incumbent on the other side to “meetthemhalfway.”Anotherfactoristhecontrasteffect—ourtendencytojudgethesizeofsomethingbasedonthecontextinwhichitissituated.Placednexttotherequestforathree-yearinvestmentoftime,chaperoningazootripdoesnotseemlikemuchtoask!Cialdinireferstothisextreme-then-moderateapproachasthe“doorintheface”(DITF)strategy,referringtotheimageofasalespersonhavingthedoorslammedinhisfacewhenhemakesanoutrageousrequest.Ofcourse,in this case, the salesperson does not walk away after the door is slammed;instead,shemakesasecond,lessoutrageousrequest.

The negotiation implications of Cialdini’s study are obvious, and we’vealready covered some of them in our discussion of first offers and anchors inChapter1.Simplyput, ifyouwantsomething,askformorethanyouwant(orexpect),andbeprepared tomakeconcessions.Unfortunately,negotiatorsoftencensorthemselves,assumingthattooaggressiveanofferwillberejected—butasCialdini’sresearchdemonstrates,rejectionisnotnecessarilyabadthing.Thereare, of course, some risks associated with making outrageous demands. Yourcounterpartmightconsideryourrequesttobeignorant,crazy,orplainoffensive(thoughthezoo-tripstudysuggeststhatyoucansometimesgetawaywithsomefairlyoutrageousrequests!).InStrategy5,wewillconsideronepowerfulwaytomitigate the possibility of offending the other party when you have made anextremedemand.

STRATEGY4:EMPLOYTHE“FOOTINTHEDOOR”TECHNIQUE

Considertheresultsofthefollowingexperiment.9Inastudyconductedneara

college campus, the bartender at a local bar identified a set of regular patronsandaskedhalfofthemtosignapetitionagainstdrunkdriving.Theyalldidso.The bartender did not approach the other half of the groupwith this request.Overthenextsixweeks,thebartendernotedwhenanyoftheidentifiedpatronsbecameintoxicated.Then,astheinebriatedpatronpreparedtoleavethebar,thebartendermadeasecondrequest:“MayIcallataxitotakeyouhome?”Amongthosewhohadnotbeenaskedtosignapetition,only10percentagreedtowaitforthetaxi.Incontrast,58percentofthosewhohadsignedwerewillingtowait.

Whydidmorepeopleagreetothemoreonerousrequest(waitforataxi)afterthey had first complied with a less burdensome request (sign a petition)?Research suggests thatonce someonehasagreed toan initial request, theyaremorepsychologicallycommittedtoseeingtheprocessthroughtoitsend.Thus,willingnesstoagreewithonerequestleadstoanincreasedcommitmenttoagreewithadditionalrequeststhatnaturallyfollowfromtheinitialrequest.Thecriticalfactor here is themotivation that people have to justify past decisions and topreserve consistency between their statements and actions.Once someone hassaidyestothebartender’sinitialrequest,sheispsychologicallycommitted.Shebeginstoseeherselfassomeonewhotakesastandagainstdrunkdriving.Whenconfrontedwiththebartender’ssecondrequest,shemayfeelshehasnochoicebuttocomply;ifshedoesnot,itbecomesdifficulttojustifyherwillingnesstosignthepetitioninthefirstplace.10

This approach,whichhas been referred to as the “foot in the door” (FITD)strategy,mayappeartocontradictCialdini’s“doorintheface”strategyinwhichthe more extreme request is made initially. However, these strategies havedifferent underlyingmechanisms andobjectives.DITF (aim for rejection, thenmoderateyourdemand)isappropriate(asinthezoo-tripstudy)whenyourgoalis tomakeyourkeydemand seem reasonable.TheFITD (aim for compliancewithasimplerequest,thenincreaseyourdemands)isappropriatewhenyouareinneedofbuildingcommitmenttowardyourkeydemand.

Forexample,acarsalesmanmayemploy theDITF techniquebyshowingapotential buyer a more expensive car first, even though he has alreadydeterminedthatthebuyerisonlyconsideringthecheapermodel.Becauseofthecontrast effect, seeing themore expensive car firstwillmake the price of thecheaper car seem reasonable. Later, during the same interaction, the salesmanmightalsousetheFITDtechnique.Hecandothisbyaskingthebuyertotakethecheapercarforatestdrive(amoderaterequest).Oncethetestdriveisover,

andthebuyerhasincreasedhiscommitmenttothecheapercar,thesalesmanisinabetterpositiontoaskthebuyertopurchaseit(themoreextremerequest).

There is another important distinction between using the DITF and FITDstrategies: When applying the DITF (extreme-then-moderate) strategy, try tomake themoderate request very soonafter theother side rejectsyour extremerequest. Otherwise, the contrast effect diminishes and themoderate request isperceived not as a concession, but as an entirely different demand. The FITD(moderate-then-extreme) approach, in contrast, seems towork betterwhen theextremerequestismadeaftersometimehaspassedsincethemoderaterequestwas accepted (assuming the earlier agreement has not been forgotten). If theseconddemandismadetoosoon,thereislesstimeforfeelingsofcommitmenttobeprocessed;also,makingaseconddemandrightafterthefirstmaybeseenasoverlyaggressive,pushy,orblatantlystrategic.

STRATEGY5:LEVERAGETHEPOWEROFJUSTIFICATION

Harvard psychologist Ellen Langer and her colleagues set the stage foranotherfascinatingstudywhentheyaskedtheuniversitylibrariantoshutdownall butoneof the copymachines in the library.As a result of this conspiracy,long lines began to form at the one remaining copymachine. The researcherswereinterestedinfindingoutwhatwouldconvincepeoplewhowereinlinetolet others cut in front of them. In some instances, a researcher simply said,“Excuseme,Ihavefivepages.MayIusetheXeroxmachine?”Sixtypercentofthoseapproachedthiswayallowedtheresearchertocutinfrontofthem.Otherpeoplewere approachedwith a slightly different request: “Excuseme, I havefivepages.MayIusetheXeroxmachinebecauseIhavetomakesomecopies?”As you can see, the second approach added an entirely inane justification(obviously, the reason forwanting tocut in lineatacopymachine is tomakecopies!). What was the response this time? Ninety-three percent of thoseapproachedwiththisrequestallowedtheresearchertocutinfrontofthem!11

Astheseresultssuggest,evenentirelyfrivolousjustificationshavethepowerto induce compliance. Why? Because human beings are “hardwired” toaccommodate the (seemingly) legitimate demands and impositions of othersbecausedoingsoallowsustobuildmutuallyrewardingrelationshipswiththem.Inotherwords,wearewilling togo theextramile inorder tohelp thosewhowill become obligated to us, but not to help those who feel they can simplyimpose their will upon us and who may not ever reciprocate. And so, even

thoughpeopletendtoresistthedemandsyouimposeuponthem,theyarewillingtolowertheirresistanceandconsideryourdemandsiftheyfeelthatatleastyouthinkthedemandsarejustified.Tomakethesejudgments,accordingtoLangerandhercolleagues,humansuseheuristics,orsimple“rulesofthumb,”andevenasimplesignalsuchastheword“because”isoftensufficienttowincompliance.In the copy machine experiment, for example, the lack of substantiveinformationfollowingthe“because”waslessrelevantthantheworditself.

How can negotiators use this insight? Here is one critical piece of advice,whichwe first shared in Chapter 1: refrain frommaking demands (especiallyaggressive offers) that will not fit into a sentence with approximately thefollowingstructure:“Iamasking forXbecause…”Inotherwords, ifyoucanfindsomewayto justifyyourposition, that justificationwillprobably increasetheoddsofcompliance—or,attheveryleast,mitigatetheriskthatyourdemandwill be perceived as illegitimate, unfounded, crazy, or offensive. Even if yourgoal is not to “sell” an extreme demand (as in theDITF technique), adding ajustificationcanstrengthenyourcaseandmakeitlesslikelythattheothersidewillsimplywalkaway.

What are some potential justifications for your demands? Typically, manypotentialjustificationsexist,andnegotiatorsmustchoosetheonethatbestsuitsthedesiredoutcome.Thesellerofapieceofrealestatemight try tomaximizebids by citing the high sale prices of recent properties in the area, the above-average condition of the property being sold, or the optimistic projections ofanalysts regarding real-estate prices in the region. Meanwhile, a buyer mightjustify her low offer on the same piece of property based on the low recentvaluation,theriskthatcurrentpricesareinflatedduetoanationwidereal-estatebubble,orthelowpriceofanotherpropertythatshesawearlierthatday.

Asanotherexample,considerthedifferenceamongthefollowingthreescriptsthatanemployeemightuseinherattempttonegotiateahighersalary.

OfferA:“YouhadaskedhowmuchofasalaryincreaseIfeelthatIdeserve.Ihavethoughtaboutit,andIbelievethata10percentraisewouldbefair.”OfferB:“YouhadaskedhowmuchofasalaryincreaseIfeelthatIdeserve.Ihavethoughtabout

it,andIbelievethata10percentraisewouldbefairbecausemyperformanceoverthelastyearhasbeenexceptional.”OfferC:“YouhadaskedhowmuchofasalaryincreaseIfeelthatIdeserve.Ihavethoughtabout

it,andIbelievethata10percentraisewouldbefairbecausemyperformanceoverthelastyearhasbeenexceptional.HereissomedataontherevenuesIhavegeneratedthatsupportmyclaim.”

OfferBisclearlysuperiortoOfferAbecauseitprovidesajustificationforthedemand(a10percentincreaseinsalary).However,OfferCrepresentsthebestapproach:itprovidesajustificationandfollowsthatupwithevidencetosupportthis justification. There are potentially many ways to measure workperformance, but by taking control of the discussion early on, you have anopportunitytodefinewhatistheappropriatemeasure.OfferC,then,includesajustificationforthedemand,butalsoframesthenegotiationinawaythathelpsmaximizethepowerofthejustification.Moregenerally,innegotiation,don’tletyouroffer“speakforitself”provideajustificationforyourdemandandthentellastorythatlegitimizesyourjustification.

STRATEGY6:LEVERAGETHEPOWEROFSOCIALPROOF

In recent years, “infomercials”—long advertisements that provide extensiveinformation regarding thebenefits, application,orcelebrityuseofaproduct—havebecomeahallmarkoflate-nighttelevisionintheUnitedStates.Atvariouspointsduringthetypicalthirty-minuteinfomercial, thehostwillaskviewersto“callthenumberonthescreen”topurchasetheadvertisedproductatdiscountedprices.Manyofushavewonderedwhatintheworldwouldpersuadesomeonetoactually pickup the phone in themiddle of the night to buy something like aself-cleaningovenmitt.Apparently, an infomercialwriter namedColleenSzotspentalotoftimewonderingtheexactsamething.Atonepoint,shedecidedtochange the standard request that appeared in virtually all infomercials:“Operatorsarestandingby,pleasecallnow.”Shesimplychangedthreewordsinthe statement: “If operators are busy, please call again.”Whatwas the result?Thenumberofcallsskyrocketed!12

Why?Onthesurface,bothstatementsseemtoconveyidentical information,and neither says anything about the product. But what message does eachstatementconveyaboutthebehaviorofotherviewers?Theoldmessageseemsto suggest that very few (if any) people are calling and that the operators aresimplywaitingforthephonetoring.Thesecondmessage,incontrast,suggeststhat the phones are ringing off the hook and that youmay have to try callingmultipletimesbecauseotherpeoplearebuyingthisproduct.Psychologistsreferto this phenomenon as the power of socialproof.13As every teenager knows,whenever there isuncertaintyorambiguity regarding theappropriatecourseofaction, you should look to the behavior of similar others for guidance (“But,

Mom,everybody’sdoing it!”).As it turnsout, teenagersarenot theonlyoneswhothinkthisway.Thisiswhybarsandnightclubsmaintainlonglinesoutsidethe entrance even when the interior is almost empty (you would think theywouldprefertosellalcoholtothesepeople).Itisalsowhytelevisionsitcomsuse“laughtracks”:wethinkajokeisfunnierwhenwehearotherpeoplelaughingatit.

How can the principle of social proof improve your negotiation outcomes?Considerthefollowingtactics:

•Thesellerofahouselimitstheopen-houseviewingofthepropertytoonlyonehoursothatallpotentialbuyerswillbepresentatthesametime.

•Whenapotentialclientaskshertoprovidealistofdatesonwhichtoscheduleaninitialmeeting,theconsultant(whoissecretlydesperateforwork)providesveryfewavailabledatesinthefollowingweek.

•Asalesrepresentativebeginshispitchbylistinghisfirm’smanyotherclients.(Orabusinessschoolfillsitsbrochureswiththenamesandphotographsoffamousalumni.)

STRATEGY7:MAKETOKENUNILATERALCONCESSIONS

Someyears ago, a national trade association for construction subcontractorsdeterminedthatitneededtosurveyitsmembership.Theywereaware,however,of one of the key barriers to such market research: target audiences arenotoriously reluctant to respond to surveysandquestionnaires. In thehopesoflearninghowbest to increase response rates, theydecided to test thepowerofprovidingafinancial incentiveforfillingout thesurvey.Onerandomlychosensubgroupofmemberswassentthequestionnairewithnofinancialincentive.Ofthis subgroup, 20.7 percent returned a completed questionnaire. Anotherrandomly chosen subgroup of members was promised a $50 payment forcompletingandreturningthequestionnaire.Unfortunately,the$50incentivedidnotsignificantlychangebehavior;thistime,23.3percentofmembersresponded.Whysuchaweakeffect?Oneplausibletheoryisthattheincentivewasnotlargeenough;perhapstheassociationshouldhavepromised$100or$200.However,considerwhathappenedwithathirdgroupofmembers.Thisgroupwassentthequestionnaire and, along with it, a single $1 bill. This time, 40.7 percent ofmembersreturnedacompletedquestionnaire!14

Standard economic theories fail to explain the behavior of these survey

respondents.Not onlywas the $1 incentive considerably smaller than the $50incentive, but the $1 incentive was not really an “incentive” at all—it wasguaranteed payment regardless of whether the member complied with therequest. While economic theorists rush to create a model that explains thisbehavior,therestofusmightnotethatitispreciselybecausethe$1wasnotanincentive, but rather a unilateral concession—or gift—that the recipients feltobligedtoreciprocate.Whatisstriking,nonetheless,isthefactthatsuchasmallconcessionwouldbesoeffective.Researchontrustandreciprocitysuggeststhatrecipients of gifts and concessions are often insensitive to the degree of costincurredbythegiver;15thus,evenalow-cost(i.e.,“token”)concessionmaybesufficienttoinducereciprocity,compliance,oragreement.

Forexample,considersome tokenconcessions thatyoumightmake inyournextnegotiation:

•Youagreetomeetatatime—oratalocation—thatismoreconvenientfortheothersidethanitisforyou.

•Onthewaytothenegotiation,youpurchasedoughnutsandcoffeetosharewithyournegotiationcounterpart.

•Youbeginsubstantivediscussionsbyagreeingtooneofthesmallerrequeststhattheothersidehadmade.

In eachcase, themore salientyour concession is to theother side (e.g., theothersideknowsthatyouhaveagreedtothelocationdespiteitsinconveniencefor you), the more likely it is that they will be compelled to reciprocate insubstantiveways.

STRATEGY8:USEREFERENCEPOINTSTOMAKEYOUROFFERSANDDEMANDSSEEMREASONABLE

In a recent negotiation training session for executives, we presented thefollowing scenario (adapted from the work of Daniel Kahneman and AmosTversky16)tohalfoftheparticipants:

ScenarioA: Imagine thatyouareabout topurchaseacalculator for$50.Thecalculator salesperson

informsyou that thiscalculator ison saleat the store’sotherbranch, locateda twenty-minutedriveawayfromwhereyouarenow.Assumingthatyoucannotnegotiatethepriceatyourcurrentlocation,whatistheminimumdiscountyouwouldneedattheotherlocationtomakeitworththetwenty-minutetrip?

Beforeyoureadfurther, takeamomenttowritedownyourownresponsetoScenarioA.Thenconsider thenextscenario,whichwaspresented to theotherhalfoftheparticipantsinthesession.

ScenarioB: Imagine that you are about to purchase a laptop computer for $2,000. The computersalesperson informs you that this computer is on sale at the store’s other branch, located a twenty-minutedrivefromwhereyouarenow.Assumingthatyoucannotnegotiate thepriceatyourcurrentlocation,what is theminimumdiscount youwould need at the other location tomake itworth thetwenty-minutetrip?

If you look closely, youwill notice that both scenarios are asking the samequestion: howmuch is twentyminutes of your timeworth?But consider howdifferently executives valued twenty minutes of their time, depending onwhether they readScenarioAorScenarioB.Thosewho readScenarioAsaidthat theywouldneed,onaverage, adiscountof$20 for it tobeworthdrivingacrosstown.ThosewhoreadScenarioBsaidthattheywouldneed,onaverage,adiscountofalmost$200forittobeworththesametrip!

As this experiment suggests, the way in which people value their owninterests(inthiscase,theirtime)isopentoinfluence.Goingacrosstowntosave$20 may seem foolish when we are purchasing a big-ticket item (such as acomputer or an automobile). But if there was a $20 discount on somethingrelativelycheap(suchasacalculatorora$60sweater),wemightfeelcompelledtomakethetrip.Inotherwords,peopledonotobjectivelyevaluatethecostofanitemoranissue;rather,theyevaluatecostsincomparisonwithsalientreferencepoints(e.g.,thetotalamounttheyarespendingthatday).Thisisexactlywhycarsalespeople get away with selling so many add-ons. When you are alreadypaying $30,000 for the car, paying an additional $200–$500 for floormats orscratchproofingdoesnotseemlikeabigdeal.Ontheotherhand,ifyoualreadyowned the car and someone came to your door selling floor mats or scratchproofingatthesameprices,youwouldprobablyslamthedoorintheirface!

There is another reason why the executives in our training session werewilling to chase a$20discounton a calculatorbut noton a computer: people

care not only about the value of the item they are purchasing, but also aboutgettinga“gooddeal.”Thedesiretogetagoodor“fair”dealmakesnegotiatorssusceptible to influence.17 For example, shoppers will be more likely to pay$500 for an item when they discover that it was originally priced at $750,regardless of howmuch the item is trulyworth to them.Likewise, in a studyconductedbyeconomistRichardThaler,peoplewerewillingtopaysignificantlymore for a beer purchased froma “fancy resort hotel” than froma “run-downgrocerystore,”even though theywouldconsume thebeerat thebeach inbothcases. Inotherwords,evenwhen thevalueof thedeal is identical,negotiatorsarelikelytofinditmoreorlessattractivedependingonhowitispresented,whatitiscomparedwith,andhowmuchofa“steal”itrepresents.

DEFENDINGYOURSELFAGAINSTSTRATEGIESOFINFLUENCE

All of the strategies we have described are grounded not only in scientificresearch, but also in the experience of practitionerswhomake their living byinducingyoutoconcur,consent,orcomplywiththeirwishesanddemands.Asanegotiator,youwilllikelybeconfrontedbymanyskilledwieldersofinfluence.Unfortunately, simply learning about the strategies is unlikely to protect youfrom their powerful effects. To protect yourself, you must make a consciouseffort to anticipate andmitigate them.18Here,we reviewanumberof defensestrategiesthatyoucanemployinyourownnegotiations.

DEFENSESTRATEGY1:PREPARESYSTEMATICALLY

One of the best ways to defend against influence strategies is to preparesystematically and comprehensively for negotiations. This entails a rigorousBATNAanalysis,acarefulevaluationoftheZOPA,andathoroughinvestigationof all the issues. Negotiators who have carefully evaluated their interests andpriorities prior to entering talks are unlikely to accept an unfavorable offersimplybecauseofthewayinwhichitispresented.

DEFENSESTRATEGY2:CREATEASCORINGSYSTEM

AsdescribedinChapter2,ascoringsystemallowsyoutoobjectivelyevaluatethetotalvalueofastatedofferbycomparingitwiththetotalvalueofalternativeoffers, to the value of your BATNA, or to the degree of your aspirations.Influencestrategiesarelesslikelytopersuadeanegotiatorwhocanobjectivelyevaluateeveryproposalthatismade.

DEFENSESTRATEGY3:EXPLICITLYSEPARATEINFORMATIONFROMINFLUENCE

As explained in Chapter 1, negotiation geniuses understand that everythingthat the other side says is part information and part influence.Your task is toexplicitly separate the twobefore reactingor responding.When the other sidemakes a seemingly compelling statement, effective negotiators ask themselvesquestions such as these: “Did I learn something new here? If so, what did Ilearn?HowshouldIevaluatewhatshesaidinthecontextofmyinterestsandmypriorities?”Here isanother lineofquestioningthatcanhelpseparate influencefrominformation:“WouldIbewillingtodothisforanyoneelse?WouldIhavebeen willing to do this yesterday—or even an hour ago? Can I defend mydecisiontocriticalothers?”

DEFENSESTRATEGY4:REPHRASETHEIROFFERINOTHERTERMS

You can also mitigate the impact of influence strategies by taking time torephrasesubstantivestatements that theotherpartymakes.Youmightrephrasetheir loss-framestatement(toyourself)usingagainframe—andthenseehowtemptingtheirproposalseems.Forexample,iftheothersidesays,“Ifyoudonotincreaseyourbid,youwill lose theopportunity towin thisdeal,”youmaybetemptedtosubmitahigherbid.Beforeyoudo,takeamomentandrephrasetheirstatementasfollows:“IfIwanttohaveachanceatwinningthisdeal,Iwillhavetoincreasemybid.”Areyoujustastemptedtobidhigher?Thekeyistoidentifywhether your reaction to their proposal stems from its merits or from theirpresentation.

DEFENSESTRATEGY5:APPOINTADEVIL’SADVOCATE

AssuggestedinChapter4,ausefulnegotiationstrategyistoappointsomeoneonyoursidetoplaytheroleofdevil’sadvocate.Thisperson’sroleistoquestionyourbeliefsregardingeverythingthatisrelevanttothenegotiation.Yourdevil’sadvocate need not be present during the negotiation; you might find it moreappropriatetostructureaprocessthatallowsyouto“call in”everysooftentoconferwithher.

DEFENSESTRATEGY6:IFPOSSIBLE,DONOTNEGOTIATEUNDERTIMEPRESSURE

Influence tactics are more likely to have an effect when their target mustrespondquickly.Thissuggeststhatnegotiatorsshouldtrytosetasideampletimetonegotiate,bewillingtowaitadayormorebeforemakingimportantdecisions,andbe comfortable asking other parties to allow time for consideration of the

offerorproposal.Forexample,itislikelythatmanyofthoseapproachedinthezoo-tripstudywouldhaverejectedtherequesttochaperonejuveniledelinquentsifgiventhechancetosleeponit.

Of course, these defense strategies are not mutually exclusive. Negotiationgeniuses rely simultaneously on many or all of them. Furthermore, thesestrategiesarenotsimplyusefulforcounteringinfluencetactics;allofthemaresoundnegotiationadviceinanysituation.

THELIMITSOFINFLUENCE

Theinfluencestrategiesthatwehavedescribedwillnothelpyouimproveyourideasoroffers; rather, theysimplify the taskofsellingwhatyouhave tooffer.And,whilethesestrategiesareapowerfulmeansofpersuadingotherstoacceptyouroffersandcomplywithyourdemands,negotiatorswhorelyexclusivelyoninfluencestrategiesare likely toachieveonly limitedsuccess, for tworeasons.First, as highlighted in Chapter 3, those who focus exclusively on “selling”rather than on “negotiating” will forgo opportunities to learn about the otherside’s interests, and as a consequence, to create value. Second, if you are upagainstatoughnegotiator—orembroiledinabitterdispute—yourabilitytogettheothersidetocomply,concur,orconsentmaybeseriouslylimited.Ifallyouhavetofallbackonarethe“soft”strategiesofinfluence,youwillbeseriouslyoutgunned. Not all negotiations go smoothly, and not all negotiators areamicable.Negotiationgeniusesanticipatethis,andtheyknowwhattodowhentimesgettough.Inthefollowingchapters(andespeciallyinChapter12,whichfocuses on strategies for handling difficult negotiators), we will share theirsecrets.

CHAPTER8

BlindSpotsinNegotiation

On December 15, 2004, Johnson& Johnson (J&J) agreed to buymedicalproductsmanufacturerGuidant for$25.4billion.1 Initially, this appeared tobegoodnewsforbothGuidantstockholdersandforJ&J,asthemarketbelievedtheacquisitionhadsynergy—thatis,GuidantappearedtobeworthmoretoJ&Jthanasastand-alonecompany.

OnMay24,2005,wellbeforeJ&JandGuidantcouldclose thedeal,aNewYork Times article disclosed that, for three years, Guidant had failed to telldoctorsthatitsimplantabledefibrillatorcontainedaflawthathadcausedtwenty-sixof themtoshort-circuitandmalfunction.Theunitwasimplantedin24,000patients.TheFDAopenedan investigation intoGuidant;afewweeks later,onJune17,Guidantannouncedaproductrecallofitsdefibrillator.

OnOctober18,J&Jindicatedthatitwantedtorenegotiatethetermsofitsdealwith Guidant, and on November 2, J&J released a statement saying that itbelieved thefederal investigationandrecallhadaffectedGuidant’s“short-termresults and long-termoutlook.”2On the sameday,NewYork attorney generalEliot Spitzer announced a lawsuit againstGuidant, and the FTC conditionallyapproved the J&J/Guidantmerger.Under the termsof the agreement, J&Jhadforty-eighthourstoexecuteandfinalizethedealaftertheFTChadapprovedit.If J&J were to let the deadline expire, possibly citing a “material adversechange”inGuidant’sbusiness,GuidantcouldsueJ&Jtoforcecompletionoftheacquisition. J&J chose not to execute the deal within forty-eight hours. OnNovember7,GuidantsuedJ&J.3Ninedayslater,asnegativepresssurroundingGuidantcontinuedtomount,4J&JproposedarevisedbidforGuidantof$21.5billion.

Meanwhile, virtually unmentioned throughout the initial reporting on theGuidantacquisitionwasanotherfirm,BostonScientific,whichwouldbeputatastrategicdisadvantage if J&Jwere toacquireGuidant.BostonScientificwasakey competitor of J&J in the medical-care industry, which was now being

reshapedbyJ&J’sbidforGuidant.BetweenDecember14,2004(thedaybeforeJ&J’s offer), and April 28 (the day after Guidant shareholders approved theoffer),thestockpriceofBostonScientifichadfallenfrom$35.88to$29.46pershare.

BythetimeJ&Jproposeditsrevisedbidof$21.5billion,BostonScientific’sstockpricehadfallento$25pershare.OnDecember5,unabletostomachJ&J’sacquisition of Guidant, Boston Scientific offered $24.7 billion for Guidant.Meanwhile,Guidant’slegalandpublicimageproblemscontinuedtoworsen;onDecember27,theFDAmadepublicawarningletterthatithadsenttoGuidantaboutproblemswithitsproducts.5

Negotiationsinvolvingthesethreecompaniescontinuedinto2006.PreferringthestructureofJ&J’sdealoverBostonScientific’shigher-priceddeal,GuidanttentativelyacceptedJ&J’sraisedofferof$23.2billiononJanuary11.Thenextday,BostonScientificraised itsbid to$25billion.Thefollowingday,Guidanttentatively accepted J&J’s newly revised bid of $24.2 billion. On theseventeenth,BostonScientificofferedtobuyGuidantfor$27billion,wellabovetheamountJ&JhadbeenwillingtopayevenpriortoGuidant’slegaltroubles.6J&J decided against reraising its bid and made that decision public the nextmorning,onJanuary25.7Thatday,GuidantacceptedBostonScientific’sbidof$27billion.8BostonScientifichadwonthebattle.Butwhohadwonthewar?

Thedayafterhaving itsbidaccepted,BostonScientific’s shareprice fell to$23.15—almost $2 lower than it hadbeenprior to the company’s first bid forGuidant.Notably,J&J’ssharepricehadfalleneverytimeitannouncedabidonGuidant; it had fallen4.4percentbetween the time thatBostonScientific firstentered thebiddingwar and thedayGuidant acceptedBostonScientific’s $27billionoffer.Monthslater, inJune2006,BostonScientificwasforcedtorecall23,000pacemakersfromtheGuidantdivisionandtoadvise27,000patientswithGuidantdevicestoconsulttheirdoctors.Bynow,BostonScientific’ssharepricehadfallenbelow$17pershare.FortunemagazinewouldlaterdescribeBostonScientific’s acquisition ofGuidant as “arguably the second-worst ever, trailingonlythespectacularAOLTimeWarnerdebacle.”9

Why did Boston Scientific make decisions that caused its stock price toplummet by more than 50 percent? Why did Boston Scientific aggressivelypursue the takeover of a company that had obvious technological, legal,financial, and public-image liabilities?Why did J&J initiate a process (via its

initial bid forGuidant) thatwould lead to such a significant drop in its shareprice? Could J&J and Boston Scientific have foreseen and avoided whateventually transpired?We think so.Many organizations and individualsmakepoordecisionsincompetitiveenvironmentsduetotheirfailuretoconsiderallofthe relevant information. Very often, this information is both available andhighlycritical,yetanegotiatoroverlooksitbecauseitislocatedinwhatwerefertoasthenegotiator’s“blindspot.”AccordingtoaphenomenonthatMaxandhiscolleague Dolly Chugh call bounded awareness, negotiators tend to focusnarrowlyonthedecisionstheymustmakeandthusoftenignoreinformationthatisrelevantbutoutsidethescopeoftheirnarrowfocus.10

In this chapter, we will identify the systematic ways in which negotiatorsmake this common decision-makingmistake. Specifically,wewill reveal hownegotiatorsoftenoverlookthefollowingfactors:

•theroleofpartiesthatarenotatthebargainingtable;

•thewaysinwhichotherpartiesarelikelytomakedecisions;

•theroleofinformationasymmetries;

•thestrengthofcompetitors;

•informationthatisnotimmediatelyrelevantbutthatwillbecriticalinthefuture.

In each situation, wewill also provide youwith strategies for seeingmoreclearlytheinformationthatfallsinyourblindspot.

WHENPARTIESAWAYFROMTHETABLEAREINYOURBLINDSPOT

AsweseektoclarifytheflawsbehindJ&JandBostonScientific’scostlypursuitofGuidant,considerthismoreabstractproblem:

Twocompanies,AandB,aretheleadingplayersintheirindustry.CompanyC,whichfallsinthenexttier in the same industry, is worth $1 billion as a stand-alone company, and its management hasannouncedthatitwouldbeinterestedinbeingacquiredatafavorableprice.AnalystshaveidentifiedA

andBastheobviousbidders,sincetheacquisitionofCbyeitherAorBwouldmakeeithercompanythedominantplayerintheindustry.BothAandBhaveanalyzedthepossibleacquisitionofCandbothhaveconcludedthatCwouldbeworth$1.2billionifmanagedbyAorB.ThismeansthatifAorBcouldacquireCforunder$1.2billion, itwouldbeaprofitableacquisition,butanythingabove$1.2billionwouldcreateanet lossandwouldleadtoadropintheacquirer’sstockprice.However, ifAweretoacquireC,Bwouldbeatacatastrophicdisadvantageandwouldlose$0.5billion.Similarly,ifBweretoacquireC,Awouldalsolose$0.5billion.Finally,ifeitherAorBmakesanofferforC,theothercompanywilllearnoftheoffer.So,astheCEOofCompanyA,whatshouldyoudo?

When we present this problem in our executive education classrooms, ourstudentsoftensuggestthatAshouldofferC$1.1billion.Thisoffer,ifaccepted,wouldcreatea$100millionnetbenefitforAanda$100millionnetbenefitforC.Clearly,the$1.1billionofferisintheZOPA.

ButwhataboutB?WhenyouthinkaboutB’sposition,itbecomesclearthatCwill not have to accept A’s $1.1 billion offer. OnceA hasmade this offer, Bstands to lose $0.5 billion unless B outbids A. Rather than suffering a $0.5billionloss,Bislikelytooffer$1.2billiontobreakeven.

ButwhataboutA?UnlessAbidsagain,Awillnowlose$0.5billion.Thus,Awilloffer$1.3billion,andtheproblemrevertstoB.

The pattern is now clear: each party is better off bidding again rather thanlosing $0.5 billion. As a result, we can easily predict that the auction willescalateuntil it reaches$1.7billion,atwhichpoint itwillend.Oneof thetwocompetitors(AorB)will lose$0.5billionbecauseithas lost thedeal,andtheotherwilllose$0.5billionbecauseithas“won”thedealbyoverpayingby$0.5billion forC.Unfortunately,as soonas the firstbid ismade,neitherpartycanquitwithoutsufferinga$0.5billionloss.

Whatisthekeytowinninginthisauction?First,youmustrecognizethatanybidforthetarget(C)willleadtodysfunctionalcompetition.Second,youshoulddevelop a (legal) strategy to discourage your competitor from initiating thevalue-destroyingescalationprocess.

Why do most of our executive students miss these solutions and insteadproposethatAmakeabidforC?Thisstrategy(Ashouldbid$1.1billionforC)results from an overly narrow definition of the scope of this negotiation.Specifically,theofferemergeswhenAviewsthenegotiationasinvolvingonlyAandC. If theworldwere that simple,Aneedonlyconsiderwhether there is aZOPA—i.e.,whetherCisworthmoretoAthanasastand-aloneentity.Butthis

analysisignorestwokeyelements:1)theeffectofA’sbehavioronB’soutcomes,and2)therulesthatallowCtobringBintothegameafteritgetsanofferfromA.

Morebroadly,theABCstoryillustrateswhathappenswhennegotiatorsfailtoconsider the perspective of parties who are not at the bargaining table.Negotiation geniuses, in contrast, learn to broaden their focus to consider theimpactoftheiractionsonothersandtothinkthroughthecompetitivedynamicsthatwillresultfromtheirstrategy.

TheABCproblemisbasedonarealcase:amid-1990snegotiationinvolvingAmericanAirlines,UnitedAirlines,andUSAir.LikeCompanyC,USAirmadepublicthefactthatitwasforsaleattherightprice.Businessjournalistsquicklyspeculated that the two industry leaders,UnitedandAmericanAirlines,wouldendupinabiddingwarforUSAir,becausethevalueofUSAirwashighertoanacquirer (United orAmerican) than as a stand-alone company. The stakes forbothpotentialacquirerswereenormous:thesaleofUSAirtoAmericanwouldbeamajor setback forUnited; the sale ofUSAir toUnitedwould be a similarlydamaging blow toAmerican. In other words, American andUnited faced thesamedilemmaas companiesAandB in theABCproblem.So,whatdid theydo?

SoonafterUSAir’srevelationthatitwasforsale,RobertCrandall,theCEOofAmericanAirlines,wroteanopen letter toAmerican’s118,000employees thatstated:11

Wecontinue tobelieve, aswealwayshave, that thebestway forAmerican to increase its size andreach is by internal growth—not by consolidation…. Sowewill not be the first tomake a bid forUSAir.Ontheotherhand,ifUnitedseekstoacquireUSAir,wewillbepreparedtorespondwithabid,orbyothermeansasnecessary,toprotectAmerican’scompetitiveposition.

WhiletheletterwasnominallyaddressedtoAmericanAirlinesemployees,itis quite possible that the message was actually intended for United. In otherwords,Crandall’smessage toUnitedwas“Keep thingsas theyare,orwewillbothenduplosingalotofmoney.”Whatwastheresult?NooffersweremadeonUSAirinthemid-1990s,andthisbecameoneofthefewinstancesinwhichtheU.S. airline industry avoided dysfunctional competition. As he consideredthe scope of a possible negotiation forUSAir, Crandall clearly broadened his

focustoincludethedilemmaUnitedwouldfaceifAmericanmadeabidandthelikelyoutcomeofthebiddingwarthatwouldensueifeithersidemadeanoffer.

TheUSAir story is not unique;many other acquisitionwars have a similarstructure.Whenever two companies know that the loser of a biddingwarwillincura lossofmarketvalueonce thebiddingbegins, eachhasan incentive tocontinuebiddingbeyondthevalueof thetarget.Insuchbattles,as inthe$100auctiondescribedinChapter4, it iseasiertostayoutofthebiddingaltogetherthan it is toget out safelyonceyouhave entered.Fromall appearances, evensuchmarketleadersasJ&JandBostonScientificarecapableoffallingintothistrap.

WHENTHEOTHERSIDE’SDECISIONRULESAREINYOURBLINDSPOT

Imagine that your company, under your leadership, is considering making anoffertoacquireasmallfirmthathasinventedagreatnewproductthatfitsyourcompany’s needs. You believe that your firm can uniquely add value to thesmallerfirm’sproduct.Yourassessmentisthatthefirmcurrentlycouldbeworthaslittleas$5millionorasmuchas$10millioninthemarketplace,dependingonvaluationassumptions.But,duetotheuniquesynergiesthatyourfirmcouldcreate, you value the smaller firm at roughly $14million. You know that theother firm’s three founders own the entire firm in equal shares and theymayhavedifferentopinionsabouttheworthoftheirfirm.Howmuchwillyouoffertobuythecompany?

Waitaminute!Supposeyoulearnthatthethreefoundershaveanagreementthattheywillonlysellthefirmifallthreeagreetoacceptanoffer.Doesthisnewinformationchangeyouroffer?Ifso,whatisyournewoffer?

Now let’s try one more variation. Imagine instead that you learn that thefounders have an agreement that, if they ever receive an offer, anyone of thethree can force the saleof the firm (unless theother twobuyher shares at anequivalent price, which you are fairly certain the others cannot afford to do).Doesthisinformationchangeyouroffer?Ifso,whatisyournewoffer?

Once you realize that each of the founders is likely to have a differentreservationvalue (i.e., adifferentminimumprice that they requirebefore theywill sell), it becomes obvious that you need to consider what type of

arrangement the three foundershave regardinghowandwhen to sell. Inotherwords,youneedtofocusontheirdecisionrules.Whatmaybeyourbeststrategywhenanyone foundercan ratifya sale isprobablynot thebest strategywheneveryfoundermustagreetothesale.

Imagine that eachof the three foundershasadifferent reservationvalue forselling the firm: Founder A’s reservation value is $6 million, Founder B’sreservationvalueis$7million,andFounderC’sreservationvalueis$9million.Clearly, if one founder can force the sale, you can successfully offer amuchlowerprice—just above$6million—becauseFounderAwill accept this priceandforcethesale.If,however,allthreefoundersmustbeinagreement,FounderCisthecriticalplayer,andyouwillhavetooffermorethan$9milliontosecurethedeal. (Andifmajorityrulewasthearrangement,youwouldhavetosatisfyFoundersAandBandoffermorethan$7million.)

Oncewehaveanalyzedthisproblemcarefully,itbecomesclearthatweneedto think through the decision rules, constraints, and politics of the other side.However,whenwepresentthisscenariotoexecutives,theyoftenfailtoseetheimportanceof considering thedecision rightsof the three founders.Moreover,they tell us that they do not typically focus on such issues in the real world.Instead, in situations such as the onewe just described,many executiveswillfocus entirely on financial and accounting issues, such as calculating revenuemultiples,projectingfinancialsynergies,etcetera.Thesecalculationsareclearlynecessary,astheyprovideanobjectivevaluationforthecompanyandhelpyoutounderstandthehighestyoushouldbewillingtopayforyouracquisition.Butfocusingonlyontheseissuesandoverlookingtheotherside’sdecision-makingdynamicscanleadyoutopaymorethanisnecessary.

Formostnegotiators,thedecisionrulesofotherpartieslieoutsidetheboundsof awareness. In contrast, negotiation geniuses understand that they need toconsidernotonlytheinterestsoftheotherside,butalsohowtheothersidewillevaluateandmaketheirdecisions.

WHENTHEOTHERSIDE’SINFORMATIONADVANTAGEISINYOURBLINDSPOT

Read the following exercise and write down your response before readingfurther.

ACQUIRINGACOMPANYYourepresentCompanyA(theacquirer),andyouareplanningtomakeatenderoffer,incash,for100percentofCompanyT’s(thetarget)shares.Themaincomplicationisthis:ThevalueofCompanyTdependsdirectlyontheoutcomeofamajoroilexplorationprojectthatit iscurrentlyundertaking.Iftheprojectfails,CompanyTundercurrentmanagementwillbeworthnothing(i.e.,$0pershare).Butiftheprojectsucceeds,thevalueofthecompanyundercurrentmanagementcouldbeashighas$100pershare.Allsharevaluesbetween$0and$100areconsideredequallylikely.Byallestimates,thecompanywillbeworth50percentmoreinthehandsofCompanyAthanunder

currentmanagement.Iftheprojectfails,thecompanyisworth$0pershareundereithermanagement.Iftheexplorationprojectgeneratesa$50persharevalueundercurrentmanagement,thevalueunderCompanyAwillbe$75pershare.Similarly,a$100persharevalueunderCompanyTimpliesa$150persharevalueunderCompanyA,andsoon.Onelastdetail:Youroffermustbemadenow,beforetheoutcomeofthedrillingprojectisknown.

CompanyTwillacceptyourpricepershareifitisgreaterthanthevalueundercurrentmanagement.However,CompanyTwilldelayitsdecisiononyourbiduntiltheresultsoftheprojectareknownandthenacceptorrejectyouroffer.Thus,you(CompanyA)willnotknowtheresultsoftheexplorationprojectwhensubmittingyouroffer,butCompanyTwillknowtheresultswhendecidingwhetherornottoacceptyouroffer.Nootherfirmsareinvolved;thetargetwillbeacquiredbyyouorbynoone.As the representative ofCompanyA, you are deliberating over price offers ranging from$0 per

share (which is tantamount tomakingnooffer at all) to$150per share.Whatpriceper shareofferwouldyoutenderforCompanyT’sstock?Yourresponse:“Mytenderpriceis$_____pershare.”

What shouldyou, as theacquirer,offer for the target?Theproblemappearssimple and straightforward, but it is in fact analytically complex for manypeople. The range of responses from the thousands of auditing partners,investment bankers, CEOs, and other executiveswho have participated in ourexecutiveprogramsistypicallybetween$50and$75pershare.Thiscommon—butdangerouslyincorrect—responseisbasedonthelogicthat“onaverage,thefirmwillbeworth$50tothetargetand$75totheacquirer;consequently,asaleprice in this rangewill, on average,beprofitable tobothparties.”Put anotherway, theZOPA(onaverage) ranges from$50–$75; thus,anoffer in this rangemakesstrategicsense.

But let’s see what actually happens when we work through the logic ofwhethertomakeanofferinthisrange.Imagine,forinstance,thatyouoffer$60pershare:

The$60offerwillbeaccepted60percentofthetime—thatis,wheneverthefirmisworthbetween$0and$60tothetarget.Sinceallvaluesbetween$0and$60areequallylikely,thefirmwill,onaverage,beworth$30pershare to the target.Thismeans, itwillbeworth(onaverage)$45pershare to the

acquirer. Because the offer is for $60 per share, the acquirerwill lose (on average) $15 per share.Consequently,a$60pershareofferisunwise.

Ifyouworkthroughthelogic,asimilaranalysisappliestoanypositiveoffer.Onaverage, foranoffer tobeacceptedatall, theacquirerwillgetacompanyworth25percent less than thepricepaid.This isbecause, foranyoffer that isaccepted, the value of the company (after exploration) will fall anywherebetween $0 and the amount offered, with all values equally likely. Thus, onaverage,thefirmwillbeworthhalfoftheofferedvaluetothetargetandthree-fourthsof theofferedvaluetotheacquirer.Asaresult,alloffersabove$0persharearemorelikelytolosemoneythantomakemoney.Thismeansyoushouldhaveoffered$0pershare.

The key to this paradox is the target firm’s information advantage.Specifically, because the target will accept the acquirer’s offer only after theexplorationprojectiscomplete,thetargetwillsellthefirmsometimeswhenitisprofitablefortheacquirer,butveryoftenwhenitisofextremelylowvalue—thatis,whenitisa“lemon.”

GeorgeAkerlofwontheNobelPrizeinEconomicsforresearchdemonstratingthat the selective acceptance of offers can lead to market distortions.12 Forinstance,Akerlofnoted, theaverageusedcaron themarket isnotanaverage-qualityusedcar,sincecarowners tend toholdon togoodcarsorsell themtorelativesorfriends.Theworsethecar,themorelikelyitistoenterthegeneralmarketplace.Knowingthis,buyersshouldreasonablybecomewary;theresultisa loweringof thevalue thatyoucanget foryourusedcar,evenwhenyouaretryingtosellagoodproduct.

Akerlof’sanalysishighlightsthedangerofbeingtheless-informedpartyinanegotiation—acommonsituationforbuyers.Butwhydon’tsmartpeopleforeseethisproblemandavoidmakinganofferinthe“AcquiringaCompany”exercise?Because we have a tendency to systematically exclude critical informationregarding what the other side knows in our analysis. Specifically, we fail torecognize that thebenefit tousofmakinganofferdependson theofferbeingacceptedbytheotherparty,andthatacceptanceismostlikelytooccurwhenwehave offered toomuch! This phenomenon is the embodiment of thewinner’scurseproblem.

The winner’s curse describes situations in which a bidder gets a prize, but

onlybypayingmorethantheitemisworth,duetohisorherfailuretoconsiderthe information advantage of the other party. Thewinner’s curse is a specificformofablindspotinwhichthekeyistheinformationaladvantageoftheotherside.GrouchoMarxappearedtograsptheintuitionbehindthe“winner’scurse”whenhequippedthathedidn’twanttobelongtoanyclubthatwouldhavehimasamember.Ifaclub’sstandardsweresolowastoaccepthim,hedidn’twantanypartofit.

Manypeoplebelievethatexperienceisthekeytoavoidingthewinner’scurse.In this case, however, experience is not the solution.Max and his colleaguesSherylBallandJohnCarrolltestedtheabilityofbrightMBAstudentstolearntoavoidthewinner’scurse.13ThesestudentsplayedtwentytrialsoftheAcquiringaCompanyexercise,wheretheyearnedrealmoneybasedontheprofitabilityoftheirdecisions.Participantsreceivedfullfeedbackimmediatelyaftereachtrial,basedonarandomlyselectedvalueofthefirm;inaddition,weletthemobservechanges(whichwereoverwhelminglydecreases)intheirassetbalance.Despitethemountingevidencethatbiddingabove$0waspoorstrategy,anddespitetheaccumulationof financial losses, across the twenty trials, participants failed tolearnthecorrectresponse;themeanbidcontinuedtohoverabove$50pershare.In fact,only fiveoutof seventy-two participants froma leadingMBAprogramlearned to make a bid of zero over the course of the trials. In more recentresearch,theseerrorswereshowntopersistevenafteronehundredtrials.14

How,then,canyouavoidbecomingavictimofthewinner’scurse?

1. Imaginehowyouwill feel if youroffer is immediatelyaccepted.Beforemakinganoffer,imaginethattheothersidewillimmediatelyaccepttheoffer thatyouplan tomake (for thecar, thehouse,or thecompany).Nowaskyourself, “Does her acceptance tell me anything about the value of thecommodity?DoessheknowsomethingthatIdon’tknow,anddoesthatreasonexplain her acceptance?” The winner’s curse results not from an inability tothink about the decisions of other parties, but fromour failure to consider theeffectoftheirinformationadvantage.

2. Seek out objective, expert advice. Another strategy for your most

importantnegotiations is toobtain thehelpofanexpert, suchasamechanic’sunbiased evaluation of a used car, a professional inspector’s assessment of ahouse,orahigh-quality,independentvaluationofatargetfirm.

3.Make your offer on a contingency basis.More generally,wheneveryouaredealingwithabetter-informedcounterpartinthemidstofanimportanttransaction,youshouldseektolessentheimpactoftheotherside’sinformationadvantage.ConsiderthefollowingwayinwhichanacquirerintheAcquiringaCompanyexercisecouldprofitablyofferavalueabove$0.Insteadofofferingaprecisedollarvaluepershare,theacquirercouldagreetopayafixedpercentageabove the firm’svalueafter exploration.Forexample, if theagreementwas topay 25 percent above value per share to Company T, both companies wouldstandtobenefitfromtheeventualsale.Contingencyclausesareinfactcommonfeaturesofacquisitionagreements.

WHENTHESTRENGTHOFTHECOMPETITIONISINYOURBLINDSPOT

Imaginethatyourcompanyisinapatentraceagainstfourotherfirms.Thefirstcompany tocomplete thescientific researchneeded for thepatentwill earnanenormousmarketadvantage,buttheresearchisveryexpensive.ThefourfirmsthatlosethepatentracewilllosetheirentireR&Dinvestment.

You ask your chief scientist for an assessment of the likelihood that yourcompanywillwin thepatent race.“This isnotadifficultengineeringproblemforus,”hetellsyou.“Wehavea40percentchanceofwinning.”

Should you trust that assessment? How could you get a more accurateestimate?

Here is another situationwhere recent psychological research can help you.ResearcherDonMoorehasshownthatpeoplearemuchmorewillingtobetontheirlikelihoodofwinningacompetitionagainstotherswhentheyareaskedtoperformafamiliarorobjectivelyeasytaskthanwhentheyareaskedtoperformanobjectivelydifficulttask.15Ofcourse,whatpeopleoftenfailtorealizeisthatifthetaskiseasyforyou,itislikelytobeeasyforyourcompetitoraswell;thesameistruefordifficulttasks.Inotherwords,ifthechallengeisaddinguptwo-

digit numbers, which you consider easy, you may be overconfident aboutwinning. But if you’re hesitant about entering a juggling competition foramateurs,youmayhavelostsightofhowharditisfortheothercontestantsaswell.ThesameprinciplecanoperateinacomplexR&Ddecision.

Research on reference group neglect16 follows a similar pattern. DecisionresearchersColinCamererandDanLovalloshowthatcompaniestendtofocusontheiruniqueskills,products,distributionsystem,andsoon,whilethequalityof their competition stays out of focus. For example, competitors often fail toassessthestrengthoftheircompetitionwhendecidingwhethertoenteramarket—anextremelycostlymistake.

Thegoodnewsisthatitispossibletofixthisproblembyexplicitlyfocusingon the unique capabilities of the competition.17 When we focus on ourcompetitors individually,weareabletomoreaccuratelyassess theotherside’slikelihoodofsuccess(andbyextension,ourownlikelihoodoffailure).

Returning to the patent forecast, how should you interpret your chiefscientist’s response? At the very least, you should ask yourself the followingquestions:

1)Hassheconsideredthefactthatthisisaneasyengineeringproblemforusbutoverlookedthefactthatitmayalsobeeasyforourcompetitors?

2)Hasshefocusedonourfirm’suniqueskillsandoverlookedtheadvantagesandthreatsposedbyourcompetitors?

3)Hassheconsidered,individually,eachcompetingfirm’slikelihoodofwinning,orhasshelumpedall“others”intoonecombinedthreat?

Havingconsidered thesepossibilities, youmightdiscover that,while the40percentestimatemaybeagoodindicationofhowwellyourR&Disdeveloping(“Things are going great!”), it may not capture the threat posed by yourcompetitors(thingsmaybegoinggreatforthemaswell).

WHENTHEFUTUREISINYOURBLINDSPOT

Max recently developed and taught (as part of a team) a course for themost

seniorexecutivesofoneofthetwentylargestfirmsintheworld.Thisfirmoftencreateslong-termcontractsandmakessignificantinvestmentsinnationsthatareinfluxandwherebusinessrelationsdonotalwaysfollowWesternexpectations.Theywantedtheverybestcorporatediplomacytrainingpossible.

One negotiation casewe presentedwas set in a countrywheremanyof theexecutives had negotiated or would soon be negotiating. The case itself wasbasedonarecentepisodeinvolvingthefirm.Wealsoinvitedhigh-levelformerdiplomats to sit in on the classes.These diplomats hadworked in the countrywhereourcaseoccurred,andwecouldcallonthemtoprovideinsightintolocalcustoms,changingpolitical circumstances, andbusinessnorms.Theyprovidedthisknowledge,andalsomuchmore.

Thekeyinsightofferedbythesediplomatswasthateffectivenegotiatorsmustbegin to think more broadly about what it means to collect “relevant”information. Often, it is not obvious what is—or might one day become—relevant,orperhapsevencrucial.Becausemostnegotiatorsare too focusedonthe “current” opportunity, problem, or crisis, they do a poor job of asking thequestionsandcollectingtheinformationthattheywillneedinthefuture.

Herearesomeoftheimportantquestionsthatthediplomatsposed:

•Howwillchanginglawsaffectthewisdomofthetransaction?

•Whatprecedentareyoucreatingforfuturedeals?

•Howcanyougaininformationaboutthekeypersonnelofanorganizationwithwhichyouplantopursueajointventure?

•Howwillthepartnerfirm’scompetitorsreacttothejointventure?

•Howmuchpowerdothesecompetitorshave?Whatisthesourceoftheirpower?

•Whatassumptionsareyoumakingwhenyouestimatethelong-termsuccessofthisstrategy?

As thediscussioncontinued, itbecameclear that theexecutives involved inthe actual case had not asked the questions that the diplomats were nowidentifying; if they had done so, the corporation’s business development

activitieswouldhavebeenmoresuccessful.

This“diplomat’sperspective” issharedbymanynegotiatorsanddealmakerswho have had the experience of negotiating in contexts that are culturallydistinct from their ownor in dynamic environments. In 2002, theProgramonNegotiation at theHarvard Law School presentedUnitedNations ambassadorLakhdar Brahimi with its annual “Great Negotiator” award. The awardrecognizedBrahimi’smanydiplomaticaccomplishments,chiefamongthemhisrole inmediating the political negotiations that followed the overthrow of theTalibangovernmentastheUNsecretarygeneral’sspecialenvoytoAfghanistanin 2002. Brahimi had also headed UN troubleshooting missions to Yemen,Liberia,Sudan,Nigeria,SouthAfrica,andothernationsincrisis.Duringapaneldiscussion,Brahimiwas asked how he prepared for the difficult and complexnegotiation in Afghanistan. Brahimi recalled the advice an “old Britishdiplomat”hadoncegivenhim:“Yougosomewhereandyoutryandunderstandthatcountrybecauseonedayyoumayneedtonegotiatewiththatcountry.”18

Negotiation geniuses—in business, in politics, and in everyday life—donotbegintofocusonasituationonlyafteriteruptsintoacrisis.Rather,theyprepareforeventualitieswellinadvance.Theyareabletodosobecausetheyunderstandthedifferencebetweenfocusingnarrowlyoninformationthatseemsrelevanttothepresentconcernandfocusinggloballyoninformationthatmayonedaymakethedifferencebetweensuccessandfailure.

WHENWHATISRIGHTINFRONTOFYOUREYESISINYOURBLINDSPOT

Inthe1970s,UlricNeisser,apsychologistatCornellUniversity,createdanow-famous video that showed two superimposed groups of students passingbasketballstoeachother.19Inthevideo,onegroupworewhiteshirtsandpassedabasketball tooneanother,andtheothergroupworedarkshirts,andpassedadifferent basketball to one another. We have often shown this video to ourexecutiveandMBAstudentsandasked themtocount thenumberof times themembers of thewhite-shirt group pass the ball. Because the two groupswerefilmedseparatelyandthensuperimposed,thepass-countingtaskisdifficult;theviewers have to pay close attention to avoid confusing the two differentbasketballs.

Manyofourstudentsareabletoaccuratelycountthetotalnumberofpasses:

eleven.Yetmostof themmiss something.After theplayers in thewhite shirtsmaketheirfourthpass,apersonholdinganopenumbrellawalksfromoneendof thescreen to theother,passing right in frontof the twogroupsof students.Anyone watching this video who has not been asked to count passesimmediatelyspotsthepersonwiththeumbrella.However,amongviewerswhoare busy counting passes, typically only between 5–20 percent see the personcarrying anumbrella!Full disclosure: neitherDeepaknorMax saw it the firsttime they saw the video.Neisser referred to this phenomenon as inattentionalblindness.20 This blindness is not due to a flaw in our vision; rather, it is anatural consequence of the humanmind’s limited ability to focus onmultipletaskssimultaneously.

Ifitisthiseasytomissanimagethatis(literally)rightinfrontofyoureyes,imaginehowmucheasieritistomississues,interests,andperspectivesthatareimportanttotheotherparty,butwhicharenotinplainsightbecausetheyarelesscriticaltoyou.

EXPANDINGYOURAWARENESS

Certainly,theabilitytofocusnarrowlyonaproblemisacriticalskillthatallowsus to complete many tasks effectively and efficiently. But the research onbounded awareness should cause you to wonder what you may have missedduringperiodsofintensefocusinnegotiation.Whenyouarebusyestimatingtheother side’smaximumwillingness to pay, are you ignoring the effect that thisdealwillhaveonyourcompetitors?Whenyouarefocusingonthepotentialforsynergy with your acquisition target, are you overlooking the possibility thatinfluential and self-interested decision makers could derail the negotiation?Whenyouarebusyexplainingtothecustomerhowmanyoftheirproblemsyourproductorservicewillsolve,areyouignoringotherinterestsandconcernsthatcould push them toward your competitors? When, as a new player in theindustry,youaredoingeverythingpossibletoincreaseyourfirm’srevenue,areyouignoringfuturedifficultiesyoucouldfacewhenyouwanttotransitionintoahigh-marginbusinessmodel?

Iftheseproblemssoundfamiliar,youprobablywanttoknowhowtohavethebest of both worlds in negotiation: focusing intently when necessary andexpanding your awareness to include elements that are typically in your blindspot.How can you accomplish these seemingly contradictory tasks? First, thecontentofthischaptershouldhelpyoupredictwhichfactorswilltypicallyfallin

your blind spot. You should be extra vigilant in seeking out such commonly“invisible” information. Furthermore, the more important and complex thenegotiation,themorenecessaryitisforyoutoseekoutinformationthattendstofallinyourblindspot.

Another strategy is to take time to reflect on your most important pastnegotiations.Didyoumissanyimportantopportunities?Didyoufailtoexploreinformation that may have helped you? How would you have found thatinformation?Theanswers to thesequestionsmayprovidehints as tohowyoucanimproveinformationgatheringandstrategydevelopmentinyourcurrentandupcomingnegotiations.

Finally,youcan simplify the taskofgatheringand synthesizing informationfrom diverse sources by enlisting the help of others in your organization. Foryourmostimportantnegotiations,assembleateamwhosepurposeis toexposeblind spots.Define the rolesof your teammembersbyputting eachperson inchargeofaparticularblindspot.Forinstance,onepersoncouldbeinchargeofassessingandmonitoringpartiesthatarenotatthetable,anotherpersoncouldbeinchargeof evaluating the strengthof competitors, and soon.Then, set asidetime(e.g.,duringyourweeklymeeting)foreachpersontoupdatethegroupandfor the teamto revise its strategyaccordingly. Justas“manyhandsmake lightwork,” the many eyes of your team can lighten the task of expanding yourawareness.

WHYNEGOTIATIONGENIUSESHAVEFEWBLINDSPOTS

Doesitseemasifwehaveidentifiedtoomanyareasforyoutofocusonwhilenegotiating?Ifso,youcanmakeeasierthetaskofincreasingyourawarenessbyadoptingthe investigativenegotiationperspectiveoutlinedinChapter3. Ifyouapproach every negotiation as a mystery to be solved andmake it a point tocarefully identify your assumptions, you will naturally gravitate toward thesourcesofinformationthatmanynegotiatorsignore.Itiswhenweoverestimatethevalueofwhatweknowandunderestimatethevalueofwhatothersknowthatwe fall victim to those elements of negotiation that lurk in our blind spot.Byadoptinganinvestigativemind-set,negotiationgeniusesavoidthisfate.Genius,then,issometimesnothingmorethantakingthetimetoseethattowhichothershaveturnedablindeye.

CHAPTER9

ConfrontingLiesandDeception

Whenwe’veaskedgroupsofexecutivesorMBAstudentswhethertheyhaveeverliedinanegotiation,mostofthemadmitthattheyhave.Whenwe’veaskedthesamegroupwhethertheyhaveeverbeenliedtoinanegotiation,allofthemclaimthattheyhavebeen.Indeed,manyofourstudentsandclientstellusthatdeceptionissimplypartofnegotiatingintheirindustry.Inotherwords,asmuchaswemaywishotherwise,everynegotiatorhastodealwithliesanddeception.Fortunately,thereisalotyoucandotoprepareforthis.

Consider the following three stories. Howmany of them ring true to you?Howoftenhaveyoufoundyourselfinasimilarsituation?

STORY1:THEOBVIOUSLIERafael, the founder and president of a small firm that manufactures lighting equipment, wasnegotiatingthesaleofalargeorderwithapotentialcustomer.AfterRafaelquotedhisprice,whichhefeltwasinlinewithprevailingmarketrates, thecustomeraskedforsometimetoconsidertheoffer.Twodayslater,thecustomercalledbackandtoldRafaelthathehadanotherofferthatwas5percentlowerthantheoneRafaelhadmade.IfRafaelcouldbeatthisotheroffer,thecustomerwasreadytomakethepurchase.Rafaelwasnotsurewhattodo.Ontheonehand,heseriouslydoubtedthatanotherfirm would have beaten his price by 5 percent. On the other hand, he could not simply call thecustomeraliar.Furthermore,evenifRafaelwassurethatthecustomerdidnothaveabetteroffer,ifherefused to lower his price, the customerwouldhave towalk away in order to save face—to acceptRafael’s pricewouldmake it obvious that therewas no other offer and that the customer had beenlying.Caughtinthisdilemma,andquiteconfidentthathewasbeingliedto,Rafaelloweredhispriceandmadethesale.

STORY2:THEDECEPTIONYOUDISCOVEREDTOOLATEStacy,whohad twentyyearsof industryexperience,wasahighly successful executiveat aFortune500company.Whenshedecidedtoswitchjobs,shehadanumberoflucrativejoboffersfromsomeofthemostprestigiousfirmsinthecountry.ButStacywasparticularlyattractedtoanoffermadebytheCEOofa small start-upcompany towhomshewas introduced throughamutualacquaintance.Thecompensation packagewas not particularly stellar—shewouldmakemuchmoremoney at a largerfirm—but shewouldhave theopportunity to try somethingdifferent and tomakeabig impact inafledglingnicheof the industry.More thananythingelse,Stacywassoldon thebreadthofdecision-

makingauthorityshewouldhaveinshapingandgrowingthebusiness.Stacyacceptedthe job.Lessthanayear later,Stacyleft thefirmdisappointed,disgruntled,andindisbelief.It turnedout that theCEOhadnotbeenstraightforwardwithher regarding the role shewouldplayand theauthority shewould have. Instead, he had simply wanted to hire a high-profile executive with contacts in theindustry;oncehired,Stacyhadbeenrelegatedtotheroleofsalesperson.Stacyfeltthatshehadbeenliedtofromthebeginning.

STORY3:THEDECEPTIONYOUNEVERDISCOVEREDThomas,thepurchasingagentforamanufacturingfirm,wasinnegotiationswithasupplier.Typically,when purchasing components fromoutside vendors,Thomas’s firmwould hold an auction and buyfrom the lowest-price supplier.Becauseof theuniquenatureof thisparticularcomponent,however,Thomas found himself in the uncomfortable position of having to negotiatewith the one and onlysupplierthatcouldmeetthefirm’sspecificationsbytherequireddeadline.Tomakemattersworse,thesupplierknewthatnoothersuppliercouldmeetThomas’scurrentneeds.Aftermuchdiscussion, thesupplierquotedThomasaprice.ItwashigherthanThomashadexpected,andhigherthanhisfirmhadbudgeted for the component. Hoping to get at least a slight concession from the supplier, Thomasasked,“Myfirmismakingabigpurchase,andwearelikelytomakepurchasesfromyouinthefuture.Is this really the lowest price at which you can sell this component to us?” The supplier lookedThomasstraightintheeyeandresponded,“Iappreciateyourbusinessnow,andIwouldappreciateitinthefuture,butthisisthelowestpriceatwhichwehaveeversoldthiscomponent.”Stillsomewhatdisappointedwiththeprice,butsatisfiedwiththesupplier’sresponse,Thomasacceptedthedeal.Hehadnoideathatthesuppliercouldhaveloweredthepricebyanother20–25percent.

As these stories demonstrate, deception can take many different forms.Sometimesyourcounterpartwilltellyousomethingthatsheknowsisuntrue(alie);sometimesshewillcrafttechnicallycorrectstatementsthataredesignedtomislead and misinform you. Sometimes the deception is big, sometimes it issmall;sometimesitisobvious,sometimesitisdifficulttodiscover;sometimesitisexpected,andsometimesitcatchesyoucompletelybysurprise.

Before we go further, it is worth noting that the reasons people lie innegotiationcanalsovary.Peoplemighttell“benevolent”liestomakeothersfeelgood(“Youlookgreattoday!”),tohelpotherssaveface(“I’mgladyouacceptedouroffer, since Icouldn’thavemovedanother inch”),or toavoidunnecessaryconflict (“You represented uswell in that negotiation”).More often, however,liesanddeceptionaredesignedtofulfillentirelyself-servingends:tomakemoremoneyandtogetabetterdeal.

Whilenoonecaneverbeentirelysafefromtheliesanddeceptionsofothers,negotiationgeniusesunderstandwhatittakestotackleanddiffuseawidevariety

of nefarious tactics. In this chapter, we will confront the darker side ofnegotiationhead-onandpresentthefollowingstrategies:

•howtomakeitlesslikelythatpeoplewilllietoyou;

•howtodetectwhensomeoneislyingtoyou;

•whattodowhenyoucatchsomeoneinalie;

•howtoeliminateyourowndesire—andneed—tolie.

Manyofourstudentsandclientshavecomplainedtousthattheywouldliketo bemore ethical in their dealingswith others, but admit that sometimes thetemptationtolieisirresistible.Theywouldbewillingtobetruthful—aslongashonestywouldnotcostthemthousandsormillionsofdollars.Thischapterwillalsohelpyouunderstandhowyoucanbeethicalwithoutlosingyourshirtatthebargainingtable.

PRE-EMPTINGLIESANDDECEPTION

The best defense against lies and deception is to eliminate your counterpart’stemptation to lie. Typically, the other side has certain motivations to lie—forexample,theymaygetabetterdealbylying.Buttheothersidealsohascertainmotivations not to lie—if the lie is discovered, they risk losing the deal ordamaging their reputation. To eliminate their motivations to lie, you need tomakesalienttothemthereasonstheyshouldnotlietoyou.Thiscanbedoneinanumberofways.

DEFENSESTRATEGY1:LOOKPREPARED

Throughout this book,wehave exalted themerits of preparation—themorepreparedyouare,thebetteryouwillnegotiate.Butthatisnotthewholestory.Itnot only pays to be more prepared, it also pays to look more prepared! Putsimply, themore prepared you seem, the less people will want to lie to you.Why?Becauseifyoulookprepared,itmakesthemthinkthatyoumightbeabletodetectwhentheyarelying—thusmakingitriskyforthemtolietoyou.

ConsiderStory1,inwhichthecustomercametoRafaelwith“abetteroffer”

from a competitor. Imagine what would have happened if, in their earlierdiscussions,Rafaelhad(truthfully)mentionedtothecustomerthatheknows,onapersonal level,mostofhis competitors,or thathis firmkeepsaneyeon theratescompetitorsarecharging.EitherofthosestatementswouldhavemadethecustomerreconsiderthestrategyofcomingtoRafaelwithafakeofferfromanallegedcompetitor.

Itiseasytoseewhyithelpstolookpreparedwhenitcomestoissuesrelatedto price.But negotiators often overlook the value of appearing preparedmoregenerally.ConsidertheseotherwaysinwhichRafael—oryou—couldsignaltotheothersidethatyouhavedoneyourhomeworkandareprepared:

•Arrivingontimeforallmeetingsandnegotiations.

•Beingwellpreparedtodiscussdetailsregardingthemyriadofissuesthatareinvolved.

•Beingwellorganizedandefficient.

•Speakingintelligentlyonissuesrelatedtotheirbusinessandtheindustry—includingissuesthatarenotdirectlyrelevanttothecurrentnegotiation.

•Rememberingthefinerdetailsofpriordiscussionswiththeothersideand/orreferringexplicitlytonotesyoumadeduringanearliermeeting.

•Respondingexpeditiouslytorequestsforinformationortotheotherside’soffers.

Allof these tacticswillnotonlyhelpyou tonegotiatemoreeffectively,butalsomake it less likely that others will lie to you. If you present yourself assomeone who is always prepared and who is systematic in her approach tonegotiations,youwillgarnerrespectanddiscouragedeceptionatthesametime.

DEFENSESTRATEGY2:SIGNALYOURABILITYTOOBTAININFORMATION

Imaginethatyouhavenoideawhethertheothersideislying—andheknowsthat you are clueless. Does this mean that you are in serious jeopardy? Notnecessarily.Youmaynotknowwhetherhe is lying rightnow,butwhat ifyoucould discover his deception tomorrow? If you can signal that you have theabilitytodiscover(inthefuture)whethersomeoneliedtoyou,youmaydissuadehimfromlyinginthefirstplace.

How might this work? Think about Thomas (from Story 3), to whom thesupplier suggested that it was impossible to obtain a lower price on thecomponent.Howwould the supplier have responded ifThomashad stated hisrequestforaconcessiondifferently?Considerthesetwovariations:

Originalscript:“Myfirmismakingabigpurchase,andwearelikelytomakepurchasesfromyouinthefuture.Isthisreallythelowestpriceatwhichyoucansellthiscomponenttous?”

Revisedscript:“Myfirmismakingabigpurchase,andwearelikelytomakepurchasesinthefuture.Asyouknow,weneedthesuppliesquicklythistimearound,whichputsyouinauniquepositiontofilltheorder.But,asyoualsoknow,othervendorshavetheresourcestofulfillourneedforfutureorders.Assuch,Iwillbemeetingwiththemtodiscusshowlowapricetheywillchargeforthesecomponentsin the future. Perhaps theywill not be able to beat your price.But Iwould like to know fromyoubeforeItalktothem:Isthisreallythelowestpriceatwhichyoucansellthiscomponenttous?Canyoufindawaytolowertheprice,orshouldIassumethatiftheothervendorscanbeatthispriceweshouldgowiththeminthefuture?”

DEFENSESTRATEGY3:ASKLESSTHREATENING,INDIRECTQUESTIONS

What do you suppose will happen if you ask someone to reveal herreservationvalue?Unlessconsiderabletrustexistsbetweenyouandher,shewilleither refuse to tell you her reservation value—or she will lie about it. Thisshouldcomeasnosurprise,yetnegotiatorsoftenaskquestions thatarealmostguaranteed to motivate the other side to lie. There is a better way to getessentiallythesameinformation:asklessthreatening,indirectquestions.

Imaginethatyouareinterestedinfindingouttheproductioncostsofavendorwith whom you are dealing. If you ask her directly to reveal her company’scosts,youareinvitinghertolietoyoubecausesheknowsthatassoonasyouknowthesecosts,youareinapositiontomakeanofferjustabovecost.Herearesomealternativequestionsshewouldbemorelikelytoanswertruthfully:

•Canyoupleasegivemesomeinformationregardingyourproductionprocess?

•Canyouexplaintomehowyoursupplychainoperates?

•Doyoupurchaseyourmaterialsdomestically?

•Whoareyourprimarysuppliers?

•Whatarethecharacteristicsofyourtypicalbuyer?

•Canyouprovidemewithalistofsomeofyourothercustomers?

•HowmuchwouldIneedtoincreasethesizeofmyordertoqualifyforapriceconcession?

Whilenooneofthesequestionsgivesyoualloftheinformationyouneedtocalculate their costs, if you know your industrywell, the combined responsesshouldhelpyoumakeaveryaccurateestimate.

DEFENSESTRATEGY4:DON’TLIE

Ifweaskedyoutoneveragainlietoanyoneduringanegotiation,wouldyouagree to be truthful forevermore? If not,why not? If you’re likemost peoplewe’ve asked, one reason is that you do notwant to be the only sucker at thebargaining table. You’d love to be entirely honest, you might say, but,unfortunately,youliveinaworldwhereotherpeoplelie.Beingtheonlytruthfulpersonwouldputyouatadisadvantage.Soundsreasonable.

Butthere’saproblemwiththisperspective:whatifeveryoneelseisjustifyingtheirownliesusingthesamelogic?Whatifmostpeoplewouldlovetoliveinaworld without deception, but each is stuck telling lies in self-defense?Unfortunately,manyofusfacethisviciouscycleinnegotiation.Weareface-to-facewithothernegotiatorswhomightprefertobehonest,butwhodonottrustusenoughtoriskit.Inresponse,we,too,becomemorewillingtolie.

Fortunately, this logicalsoyieldsapotentialsolution:wecanmake iteasierforothers tobe truthful ifwemake it apointnot to lie.This strategywillnotdissuadethosewhowanttoexploityourhonesty,butitwilldissuadethosewhoare lyingoutof self-defense.As timegoeson, andyour counterpart discoversthatyouhavebeenhonestwithhim,hewillfinditeasiertobemorehonestwithyou.

How can you signal your desire for this kind of relationship?By revealinginformation that makes you somewhat vulnerable. In other words, revealsomethingthattheothersiderecognizesissomewhatcostlytoyou.Whatkindofmessagewould thismove send? It is possible that your counterpartwill view

youasnaiveorunprepared,butitisalsohighlylikelythatshewillappreciatethetrustinggestureandreciprocateinkind.Youcanhelpyourcausebymakingyourintentionsexplicit:“Iknowthatthereisalotatstakeinthisrelationshipandthatthisislikelytomakeeveryonemoreguardedandskeptical.ButIalsoknowthatthemoreopenandhonestwearewitheachotherfromthestart,theeasieritwillbe forus todevelopamutually rewarding long-term relationship.With that inmind, I would like to share with you some information related to our coststructure.”Someonemusttakethefirststep,anditmayaswellbetheonewhoisaspiringtobecomeanegotiationgenius.

LIEDETECTION

Doyouthinkyoucantellwhensomeoneislyingtoyou?Manypeoplebelievetheycan.Unfortunately,mostof thesepeoplearewrong.Toomanyofus trustourintuitionwhenourintuitionisnottrustworthy.Tomakemattersworse,many“experts” tell us that we should trust our intuition (for example, MalcolmGladwell in his popular book Blink), when the evidence suggests seriouslimitationsinourintuitivejudgments.1PsychologistPaulEkman,whohasspentdecades measuring the ability of people to distinguish truth from lies, hasconcludedthattheaveragepersonisactuallyaverybadliedetector.2Ekmanhasalso developed expert techniques for lie detection; his research suggests thatnegotiatorsshouldfocusontelltalesignssuchaspupildilation,changesinvoicepitch,andfacial“micro-expressions.”

We take a different approach. Unlike participants in Ekman’s laboratoryexperiments, negotiators find themselves in complex, dynamic environmentswhereitisdifficulttofocusonthesubtletelltalesignsoflying.Youwouldnotbewelladvisedtoaskyournegotiationcounterparttorepeatwhathejustsaidsothatyoucan lean forwardandpeer intohiseyesockets inhopesof seeinghispupilsdilate.Instead,werecommendthefollowingtactics:

DETECTIONSTRATEGY1:GATHERINFORMATIONFROMMULTIPLESOURCES

The first thing to remember is that deception depends upon informationasymmetry. Inevitablyinnegotiation, therewillbesomefactsanddatathat theothersideknowsthatyoudon’t—andcan’t—know.Thisinformationasymmetrymakesyouvulnerabletodeception.Buttherearealsomanyfactsandpiecesofdata that you don’t know, but which you can learn about—from yourcounterpart,orfromothers.Toreduceyourvulnerability,youmustrelyonyour

preparation.

Negotiationgeniusesexhaustallsourcesof informationprior to,during,andafternegotiation.Themoreinformationyouhave,theeasieritwillbeforyoutodetectlies.Forexample,Stacy(fromStory2)didnotknowthattheCEOwhohiredherwasplanningtosidelineheronissuesofsubstanceandtouseheronlyforthepurposesofnetworking.Itmayhavebeenpossibleforhertolearnthis,however.Forstarters,shecouldhavespokenwiththelastpersonwhoheldherposition in the firm.Shecould alsohave tried togather informationabout theCEO’smanagement style fromotheremployeesof the firm.Finally, shecouldhaveaskedthepersonwhointroducedhertotheCEOwhatheknewabouttheCEO’sinterestsinhiringher.NoneoftheseconversationswouldguaranteethatStacywoulddetect theCEO’sdeception, but eachwould increaseheroddsofdiagnosingtheCEO’sdishonesty.

DETECTIONSTRATEGY2:SETATRAP

Someseasonednegotiatorstellusthattheyhaveaverysimplewayoftestingthehonestyoftheotherparty:theyaskaquestiontowhichtheyalreadyknowtheanswer,andthenevaluatetheresponse.Ofcourse,forthetraptowork,thequestionmustconcernanissueaboutwhichtheothersidehasanincentivetolie.

Forexample,astudentofourswhoworkedasabuyerinthetextileindustryonce asked a seller whether the price he had quoted was the lowest price atwhichtheparticularmaterialcouldbesold.Theseller,whowasawarethatthebuyer was new to the industry, swore that he had never sold the material toanyone for a lower price. Unfortunately for the seller, the buyer had comeprepared; she had spoken with a friend in the industry who had recentlypurchasedthematerialforalowerpricefromthesameseller.Asaresultofthatinitialinteraction,thebuyerdecidednevertoworkwiththatselleragain.

DETECTIONSTRATEGY3:TRIANGULATEONTHETRUTH

Centuriesago,whenshipsweretheprimarymeansoftravel,navigatorshadtorelyonstarchartsandbasictrigonometrytodeterminetheirpositionontheopenseas.Byconsideringtheirshiptobethethirdpointinatrianglewhoseothertwopointswerestarsthatmaintainedaconstantdistance,thenavigatorswereableto“triangulate”theirwaytodiscoveringtheship’slocation.

Whatdoesthishavetodowithliedetectioninnegotiation?Thepointisthat

youmay never discover a lie if you ask only one question (especially if youdon’t know the answer to it). Instead, you need to ask many questions and“triangulate” on the truth. The more questions you ask, the more difficult itbecomesfortheotherpartytocomeupwithconsistentanswers—unlesstheyaretellingthetruth.Tofindoutwhetherhiscustomertrulyhadanotherofferfromacompetitor,Rafael (in Story 1) could have triangulated on the truth by askingquestionssuchasthese:

•Whendidyoureceivethisoffer?

•Whatexactlydidmycompetitoroffer?

•Didheprovideyouwithspecificproductinformation?

•Whatwasthatinformation?

•Didmycompetitorgivethisoffertoyouinwriting?

•Ifnot,whydoyouthinkthatis?Didyouaskforitinwriting?

•Ifyoudidgetitinwriting,mayIseeit?

Whatifyourcustomerisunwillingtoansweranysuchquestions?Thisshouldmakeyouatleastalittlesuspicious.Hemaynotwishtorevealhisreservationvaluetoyou,butifheiscompletelytight-lippedaboutthemoststraightforwardquestionsregardinghisalternatives—andifhehasnoreasonableexplanationforhissecrecy—thenyoushouldproceedasifhehasbeenbluffing.

DETECTIONSTRATEGY4:LOOKOUTFORRESPONSESTHATDONOTANSWERTHEQUESTIONYOUASKED

Ourmostusefuladviceregardingliedetectionstemsfromthiscriticalinsight:most people do not like to lie, but they are usually very comfortablewith youbeingdeceived. In otherwords, peoplewill often go to great lengths to avoidsayingsomethingthatistechnicallyuntrue(i.e.,alie),buttheywillbehappytomisleadyouindirectlywiththeirresponse.Let’sconsideraclassicexample.

Recallthedialogue(fromStory3)betweenThomasandthesupplier:

Thomas:“Myfirmismakingabigpurchase,andwearelikelytomakepurchasesfromyouinthefuture.Isthisreallythelowestpriceatwhichyoucansellthiscomponenttous?”

Supplier:“Iappreciateyourbusinessnow,andIwouldappreciateitinthefuture,butthisisthelowestpriceatwhichwehaveeversoldthiscomponent.”

If you read carefully, you will realize that the supplier never answeredThomas’squestion!Hehadaskedwhetherthiswasthelowestpriceatwhichthesupplier could sell. The supplier responded that he had never before sold thecomponentatalowerprice.ThatsoundslikeananswertoThomas’squestion(itimpliesthat“wecan’tsellanycheaper”),butitclearlyisnot.Itisquitepossiblethat the supplier has never sold the specific component to someone else at alowerprice—technically,thesuppliermayhavetoldthetruth—butthatisquiteirrelevant.

IfThomashadbeenmoreperceptive,hewouldhavespottedthenonresponseand questioned the relevance of prior sale prices in the current situation. Hecould reiterate, for example, that he is making a large purchase (perhaps thelargestthatthesupplierhaseverreceivedforthiscomponent)andthathewillbearepeatcustomer.Furthermore, it ispossiblethateventhoughthesupplierhasnot sold theexact samecomponentata lowerprice,hemayhavesoldsimilarcomponentsmorecheaply.Facingthismoreintensescrutiny,thesupplierwouldhavefounditmuchmoredifficulttojustifyhisposition.

As it is, the supplier is unlikely to feel any guilt about this transaction. Inadditiontothehostofself-servingjustificationshecouldgiveforhisbehavior,he could also remind himself that he “never lied.” That’s the key. Instead oflyingoutright,peopletendtomakesurethattheyhavetechnicallytoldthetruth—while at the same time trying to mislead you. This maneuver is a boon towould-be lie detectors. Negotiation geniuses ask clear, focused questions thatmake it incumbentupon theotherparty to respond transparently.Sincepeoplearemore likely todeceive indirectly than toexplicitly lie,negotiationgeniuseswho listen carefully to the answers provided (and to the answers that are notprovided)areinagreatpositiontocatch“nonlyingdeceivers”intheact.

DETECTIONSTRATEGY5:USECONTINGENCYCONTRACTS

Oneof theauthorshasa largeconsultingclient in the retailbusiness.Whentheretailerbuysgoodsoverseas,itoftenpurchasesinverylargequantities.Forone key agreement that we heard about, the contract was so specific that itincludedthenameof theship thatwouldbring thegoods to theUnitedStates.After the contract was signed, but before the boat was loaded in the foreigncountry, the retailer learned that theUnited States government had created anembargo against this particular group of goods that was to go into effect atapproximatelythesamedatethegoodswouldreachtheUnitedStates.Theshipmightarrivebytheembargodeadline,oritmightnot.

TheU.S.retailertoldtheforeignmanufacturerabouttheembargo,askedforthegoods tobe sent by air, and asked themanufacturer topay for thegreatlyincreased costs of shipping by air. Themanufacturer told the retailer to relax,assuredthemthattheshipwouldarrivebeforetheembargo,andsuggestedthattheAmericanswerebeingunnecessarilynervous.Theretailerrespondedthatifthegoodswerenotsentbyair,therewouldbenodeal.Themanufacturerpointedout that theywouldhavebeenhappy toaccommodate the retailer if therewassome actual risk that the goods would not reach the United States in time;however,asthingsstood,therewasnorisk—buttherewasasignedcontract—and theywould be happy to fax the retailer a copyof it.The negotiationwasbecomingquiteheated,andthetimepressurewasmounting.

Then the retailer had a stroke of (negotiation) genius. He proposed to themanufacturer that thegoodsbesentbyairand that theextrashippingcostsbebornebythepartywhoseclaimturnedouttobewrong.Althoughtheshipwouldbe carrying no goods of interest to either party (because the goods would beshipped by air), both partieswould trackwhen it actually reached theUnitedStates. If the ship beat the embargo, the retailer would pay the entire excessshippingcostsofsendingthegoodsbyair;iftheshipwaslate,themanufacturerwould bear the costs. The retailer thought this was a wonderful contingencycontract.Bothsidescouldstandbytheirassessments,thegoodswouldgettotheUnitedStatesontime,and,givencurrenttechnology,bothsidescouldchecktheWebdaily to seehow theyweredoingon the “bet.”The arrangement seemedperfect—untilthemanufacturer’srepresentativecalledtosaythattheywouldnotaccept the contingency contract. “This is getting way too complicated,” themanufacturer’srepsaid.“Whydon’twejustsplittheextracosts50–50?”

Whatdid the retailer learn from this response?That themanufacturerneverbelieveditsclaims!Ifithad,itwouldhavejumpedattheopportunitytoaccepta

clause that allowed it to avoid additional shipping costs. As we discussed inChapters 1 and2,when theother sidemakes a dubious claim regarding somefuture prospect, youdonot have to take theirword for it, nor doyouhave toargue about who is right. Instead, ask them to “put their money where theirmouth is” by proposing a contingency contract. Contingency contracts are anexcellentdeviceforallowinghonestpeopletostakefinancialoutcomesontheirdifferencesinexpectations(seeChapter2).Theyarealsoanexcellentdevicefordiagnosingwhen theotherside is lyingabout theirbeliefsandexpectations. Iftheyareunwilling toagree toacontingencycontract,youcanbemorecertainthattheydonotbelievetheirownclaims.

Youmaybecuriousaboutwhathappenednextinourclient’snegotiationwiththemanufacturer:Theretailerneededthegoodsbadlyandagreedtothe50–50split.Theboatarrivedonedaylate!

YOUCAUGHTTHEMINALIE…NOWWHAT?

It’shard todetect lies. It’snotmucheasier toknowwhat todoafteryouhavedetecteda lie.Foronething,youare likely toexperiencearangeofemotions:anger, anxiety, disappointment, and surprise. In addition, you likelywill havemultipleconflictingmotivations:Shouldyoutakerevengeortrytosalvagetherelationship?Shouldyouwalkawayfromthedealortrytomaximizeyourvaluefromit?Shouldyoutelltheotherpartytostoplyingorwaittoseewhattheywillsaynext?Shouldyoucallhimaliarandstaytruetoyourprinciplesorhideyouroutrageandfocusonyourprofits?

While there is no single right answer to any of these questions, there aresystematicwaystothinkabouthowtoresolvetheseconflicts.Thefirstthingtodo in such a situation is to stay calm and treat the deception like any othernegotiationproblem—somethingthatneedstobebetterunderstoodandcarefullyresolved.Then,answerthefollowingthreequestions,whichwillhelpyoumakethebestdecisionforyou.

QUESTION1:WASITREALLYALIE?

Isitpossiblethatyourcounterpartdoesnotevenknowthatwhatshesaidwasuntrue? In other words, she may not have intended to lie, but was simplyuninformed.Inmostnegotiations,itisbesttogivetheothersidethebenefitofthedoubt—but toalsobemorecarefulasyoumoveforward. Ifyou thinkyouwereliedto,butaren’tsure,investigateusingthestrategiesoutlinedabove.But

unlessyouarecertainthattheothersidelied,youwilllikelygainlittlebycallingher a liar. Almost certainly, she will deny the allegation, and you will findyourselfinanescalatingconflict.

Inaddition,keepinmindthatwhatsoundslikealietoyoumaynotsoundlikea lie to your counterpart. In Story 3, Thomas and the supplier are likely tocharacterize thesupplier’s remarksverydifferently. IfThomasdiscovers thatalowerpricewaspossible,hewill think that thesupplier lied.Thesupplierwillcertainly think otherwise. Similarly, when our executive and MBA studentsengageinnegotiationsimulations,itiscommonforonestudenttoclaimthathercounterpartliedduringthenegotiation,andforthecounterparttostronglydenytheaccusation.Typically, the“liar”neveractuallyutteredanuntrue statement,but did allow the other side to be deceived. What should you do in such asituation?Don’tcallyourcounterpartaliar,butexplainthatyoufeelyouweremisledordeceived,thendiscusswhetherthedeceptionwasintentionalornot.

Finally, note that not all lies are considered “unethical” in all contexts andcultures.IfyouarehagglingforapieceofartwithastreetvendorinIndia,youcanbecertainthatyouwillhearlotsofprices,justifications,andstoriesthatarebasedinfiction.Fewpeoplewouldconsidertheseclaimsunethical;rather,thatisthe“language”inwhichthevendor’sbusinessisconducted.Similarbehaviorinother contexts would be highly unethical, however. Before labeling yournegotiationcounterpartdishonest,audityourculturalassumptions.Wasitalie?Orareyounegotiatinginacontextwhereyoudonotunderstandthenorms?

QUESTION2:DOIWANTTOCONTINUEWITHTHISNEGOTIATION?

If and when you are certain that someone has deliberately lied, you mustdecidewhethertosimplywalkawayfromthenegotiationorwhetheryouhavetoomuchtolosebydoingso.Ifyouarewillingtowalkawayonprinciple,yourtaskiseasy.Youwilldecidewhetherornottoconfronttheliarandgivevoicetoyouremotions; thenyouwill revert toyourBATNA.Often,however, it isnoteasytowalkaway.

QUESTION3:DOINEEDTOWARNTHEMORCONFRONTTHEM?

Ifyouwouldliketocontinuethenegotiation,youprobablyshouldnotscream“Liar!”Instead,youneedastrategythatallowsyoutosignalthatyouareawareofthelie,whilealsogivingtheothersidetheopportunitytosaveface.Therearetwowaysofdoingso;thestrategyyouchoosedependsonwhatyouaretryingto

accomplish.Ifyouarenotparticularlyupsetaboutthelie,butwanttodiscourageyourcounterpartfromlyinginthefuture,youshouldusea“warn”script.Iftheliewasmore egregious, and youwant to extract an apology or concession inexchange for your willingness to continue negotiations, you should use a“confront”script.Hereishoweachofthesestrategiessounds:

WarnScript:“Youmentionedthatthecostofthesematerialsis$1.05perunit.Ithinkthatyoumayneedto check your data.Wehave strong tieswith a number of suppliers and are certain that the cost is$0.90.Perhapsyouareworkingwitholddataorweremisinformedalongtheway.Inanycase,let’strytobemorecarefulaboutfactsandfiguresaswegoforwardwiththisdeal.”

ConfrontScript:“Youmentionedthatthecostofthesematerialsis$1.05perunit.Ifeeltheneedtopointouttoyouthat,unlikesomeofyourothercustomers,wehavestrongtieswithanumberofsuppliers.Becauseofthis,weknowwhensomeoneisinflatingcosts.Forexample,thecostofthematerialsinquestionisactually$0.90.Wehavebeennegotiatingingoodfaithwithyouandaretakingpartinthisnegotiationtocreatevalueforbothsides.Butwearenowalittleuneasyaboutthewayinwhichyouhave negotiatedwith us. Perhaps there is a simple explanation for the discrepancy in our numbers;perhapsyouweremisinformed.ButIwouldjustliketomakeyouawarethatwearedisappointedwiththisexchange.Canyouhelpusunderstandyourperspectiveandsuggestsomewayforustoovercometheanxietywearenowfeeling?”

As youwill notice, the second script containsmuch stronger language andalso implies the need for an apologyor concession. In some instances, itmayevenbeappropriateforyoutoaskforaspecificconcessionasreparation.Youwillalsonoticethatbothscriptsprovideanopportunityfortheothersidetosaveface.This iscritical ifyouhavealreadydecided thatyouwish tocontinue thenegotiationortherelationship.

Itisoftentempting—butnotalwaysjudicious—toretaliatequicklywhenyoufeel you have been deceived. Negotiation geniuses take the time to evaluatewhether the other side might have been misinformed or had considered theirbehavior tobeappropriate to thecontext.Theyalsokeepaneyeon theirowninterests, which may require a response that is powerful enough to fix theproblembutcontrolledenoughtoallowtheothersidesomeroomtonavigate.

SMARTALTERNATIVESTOLYING

Liesanddeceptiondonotsimplyemanatefromthosesittingontheothersideof

thetable.Howoftendowesaythingsinnegotiations(andineverydaylife)thatweknowarenot themostpreciseversionsof the truth?Howoftendowesaythingsthatareambiguous,andthatwehopewillconcealthetruthtoourbenefit?Obviously, ethical questions surround this issue—and most people we knowwishthattheyweremorehonestandethical.Ifyouareoneofthesepeople,thestrategies that followwill help you.But even if youhave no interest in beingmoreethical,therearereasonsforyoutoheedthisadvice.Forliesarenotonlypotentiallyunethical;theyarealso,veryoften,poorstrategy.

Most negotiators have at some point felt the pain of being trapped by theirownlies.Considerwhathappens ifyouarewilling topayup to$15,000forapurchase,butduringthenegotiation,youstrenuouslyarguethatyou“cannotpayadollarmorethan$13,000.”Asnegotiationscontinue,youeventuallydiscoverthat theother sidewill acceptnothing less than$14,000. Inotherwords, your“finaloffer”doesnotfall in theZOPA.Whatwillyoudonow?Unfortunately,youmusteitherwalkawayfromthedeal(whichcouldhavebeenconsummatedatapricebetween$14,000and$15,000)oradmitthatyouwerelyingaboutyourreservation value. Or consider what happens when, during a negotiation, youpretendthatyouvalueanissuegreatly,wheninfactyouplaceverylittlevalueonit.Yourhopeisthatbyoverstatingitsvaluetoyou,youwillbeabletoextractgreaterconcessionsinreturnforgivingitup.Butwhatiftheothersidegivesintoyouonthat issue?Youmayendupwithsomethingyoudonotreallyvalue,whiletheothersidewaitsforyoutoreciprocateonotherissues.

Whetheryourmotivation is to improveyourowncharacteror to reduce thecostsassociatedwith ill-conceived lies, thestrategies that followwillhelpyounegotiate more honestly without putting you at a disadvantage against otherswhoaredishonest,corrupt,or—more likely—complex individualswithvirtuesandvicesjustlikeyou.3

STRATEGY1:INCORPORATEREPUTATIONANDRELATIONSHIPCOSTSINYOURCALCULUS

WhenweaskourMBAstudentswhetheritisacceptabletolieinnegotiationstogetwhatyouwant,adisappointinglylargeminoritysaysthatitis.Whenweaskourexecutivestudentsthesamequestion,veryfew(ifany)saythatlyingisacceptable.Inlargepart,thisdifferenceinperspectiveisattributabletothefactthatourexecutivestudentshavemanymoreyearsofnegotiationexperiencethanourMBAstudents.Theyhavewitnessedandexperienced the consequencesofnegotiatinginbadfaith.Whethertheyhavelearnedfromtheirownexperiences

orthoseofothersintheirorganizationsandindustry,theyhavediscoveredhoweasy it is todestroya relationshipora reputation—andhowhard it is tobuildtheseupagain.

Unfortunately,mostnegotiatorsaremyopic; theydonotseepast thecurrentdeal or the current relationship. Those who do adopt a more long-termperspective find it much easier to be truthful and honest—even if this costsmoneyintheshortrun—becausethelong-termpayoffisworthit.

STRATEGY2:PREPARETOANSWERDIFFICULTQUESTIONS

Oneofthebiggestreasonspeoplelieinnegotiationisthattheydonotknowhowtoanswertoughquestions.Caughtoffguard,andworriedthattheywillsaysomething that puts them at a disadvantage, they opt to lie. You can learn toavoidthisreaction.Thosewhoanticipatethetough,probingquestionstheothersidewill ask can prepare truthful responses that will not hurt them. Considerthese two responses to the question that a potential employer might ask acandidatewhohasnootherjoboffers:“Doyouhaveanyotherjoboffers?”

UnpreparedResponse:“Yes,Ido.IhaveafewotheroffersthatIamconsidering.”

PreparedResponse: “No, this is the only offer that I currently have.But I only recently sent outmyresumes,andIhavemanyinterviewsscheduled.”

Ajobcandidateismorelikelytoresorttothefirstresponse(alie)whenheorshe is unprepared.When someone asks you about your other job offers, yourlikely immediate reaction is to worry that having none makes you seemdesperate;themostobviouswaytoavoidthisperceptionistolie.Butsuchliesareveryrisky. If theemployerprobesfurtherabout theseotheroffers,your liemay be discovered. The prepared response not only avoids the lie, but alsomitigatestheperceptionthatyouaredesperate.

STRATEGY3:TRYNOTTONEGOTIATEORRESPONDTOQUESTIONSWHILEUNDERTIMEPRESSURE

Regardless of how prepared you are, there will be times when a questioncatchesyouoffguard.Whattodo?Totheextentpossible,avoidansweringthe

questionuntilyouhavehadanopportunity to thinkmorecarefullyaboutyourresponse. This is not as difficult or awkward as it sounds. There is usuallynothingwrongwithmakingoneofthefollowingstatements:

•“Idon’thavethatinformationwithme,butI’msureIcangetitforyoulatertoday.”

•“That’saninterestingquestion.I’llhavetothinkabouttheanswerandgetbacktoyou.”

•“I’veneverbeenaskedthatbefore.Icouldtrytogiveyouapartialanswerrightnow.Butifit’sokaywithyou,I’dliketotakesometimetofindoutourcompany’sstanceonthatissueandgiveyouamorecompleteresponselater.”

Another way to avoid answering tough questions under time pressure is tostructure your negotiation differently. For example, you may have somepreliminarydiscussionsaimedatraisingdifficultquestionsovere-mail;thiswillgive you the opportunity to respond at your own pace. Similarly, instead ofnegotiatingbyphone(whichmaymakeyoufeelcompelledtoanswerquestionsimmediately),youcouldsetupaninformallunchmeetingwhereyouwouldfeellesspressuretoanswereveryquestionassoonasitis“yourturn”tospeak.

STRATEGY4:REFUSETOANSWERCERTAINQUESTIONS

Youdo not need to answer every question that your counterpart asks. If heasks you to reveal your reservation value, for example, you should not feelcompelledtoanswer.Supposethattheotherpartyasks,“What’sthelowestpriceyou will accept for this shipment?” One way to respond, and to defuse theawkwardmomentwithhumor,istosay:“Ithinkyoualreadyknowtheanswer—it happens to be themost you arewilling to pay for it!”More generally, it isoftenacceptable to respond toaquestion thatyoudonotwish toanswerwithoneofthefollowingremarks:

•“Thisisadiscussionthatwecanhavelateron,oncewehavebothcommittedtothedeal.Idon’tfeelcomfortabledivulgingthisinformationatthemoment.”

•“Asyouundoubtedlyunderstand,wecannotsharethatinformationforstrategicreasons.”

•“Theanswertoyourquestiondependsonmanyotherfactorsthatweneedtodiscuss.”

STRATEGY5:OFFERTOANSWERADIFFERENTQUESTION

Ifyoufeeluncomfortableaboutrefusingtoansweradirectquestion,youcanmitigate your unease byoffering to answer a different, related question.Here,theideaistobeupfrontaboutyourinabilityorunwillingnesstorespondtothespecific question, then to offer a concession by providing other usefulinformation.Forexample,ifsomeoneasksyoutotellthemtheproductioncostof the goods you are selling, and you are tempted to lie in order to secure ahigher margin, you can instead say the following: “Unfortunately, I’m not atliberty to divulge specific cost information, but I can appreciate why you’reaskingforit.Youwanttomakesurethatyou’regettingahigh-valueproductforthe price you’re paying.Well, letme provide youwith some information thatwillgiveyouthatconfidence.Icansharealotofspecificinformationregardingourproductionprocessandsomeinformationregardingourpricingmodel.”

Byproviding information that theothersidevalues,andwhichdoesnotputyou at a disadvantage, you servemultiple purposes simultaneously: you avoidlying,yougivetheminformationthatisofvaluetothem,youappearreasonableandforthcoming,andyoumakeitmorelikelythatadealwillbeconsummated.

STRATEGY6:CHANGEREALITYTOMAKETHETRUTHMOREBEARABLE

Why,fundamentally,arehumanbeings tempted to lie?Weoften liebecausereality is notwhatwewant it to be.Returning to our job interview story, thecandidate is temptedto liebecausereality(havingnooffers)differsfromwhathe desires (havingmultiple offers).We earlier resolved this dilemmawith thefollowing“preparedresponse”:

PreparedResponse: “No, this is the only offer that I currently have.But I only recently sent outmyresumes,andIhavemanyinterviewsscheduled.”

But what if the candidate does not even have any interviews scheduled?Worse yet,what if all of the resumes he sent out have already been rejected?Musthenowrevealhisdesperationbytellingthetruth?Is“No,thisistheonlyofferthatIcurrentlyhave”theonlytruthfulresponse?

Notquite.Ifthecandidatecanchangetherealityofthesituationbeforeheis

askedthetoughquestion,hehasanotheroption.Forexample,thedaybeforehisone-and-onlyinterview,thecandidatemightsendoutanotherdozenresumestoanothersetofcompanies.Then,duringhisinterview,hecantruthfullyrespondtotheemployer’squestionasfollows:

Changed-RealityResponse:“No,thisistheonlyofferthatIcurrentlyhave.ButIonlyrecentlysentoutadozenresumesandamlookingforwardtohearingbackfromthosecompaniesinthenextfewweeks.”

With this response, thecandidate isable tobe truthfulbecausehehasmadelyingunnecessary.Moregenerally,whenyou are tempted to lie or to deceive,takesometimetothinkaboutwhyyoufeeltheneedtoportrayafalsereality.Isitbecauseyouareembarrassedorashamedofyoursituation?Ifso,canyoudosomethingtochangeyourrealityinsteadoflyingaboutit?

STRATEGY7:ELIMINATECONSTRAINTSTHATTEMPTYOUTOLIE

Dan, amanager at a large consumer-products firm,was askedbyhisVP tosubmitadetailedannualbudgetrequestforhisdepartment.Unfortunately,Danhadanincentivetooverstateanticipatedcosts; in theeventofcostoverruns, itwould be useful to have a little surplus to fall back on. His department’sprojectedcostsfor thecomingyearwerecloseto$14million,butDaninsteadsubmitted a report with cost estimates totaling $16 million. Of course, themanagersofotherdepartmentsinthefirmhadsimilarincentivestolieabout(or“inflate”)theircostestimates.Asaresult,thecompany’stotalbudgetexceededthe amount earmarked for departmental budgets. Without an accurateunderstandingofwhoneededhowmuchmoney,theVPdidhisbesttoapportionthefundsefficiently.Notsurprisingly,somedepartmentsreceivedlessthantheyneededandothersendedupwithmuchmore.Thosethatgotthemost(includingDan’s department) felt compelled to spend the surplus money frivolously inordertojustifytheirinitialdemands.

Consider a possible solution to this problem. Dan’s least predictable costseachyearwere related to thehiringofsubcontractors.Thebudget requestwasdueinFebruary,butmanyofthesubcontractorscouldnotbehireduntilMarch.If Dan had asked theVP to be allowed to submit a second, revised budget amonthlater,andiftheVPhadagreed,hewouldnothavehadtolieinthefirstplace. Instead,Dancouldhaveused theextra time togathermoreprecisecost

estimates,therebyeliminatingtheneedtoinflatehisfigures.

Often, our own honesty (and that of others whom we label unethical) isconstrainedbyrules,policies,timepressures,andincentivesystems.Itisfinetoargue that a “truly” ethical person would be honest despite these constraints.Nonetheless, itbehoovesus—andourorganizations—to try tocreate thekindsof environments that encourage rather than discourage truthful and honestbehavior.

DONEGOTIATIONGENIUSESEVERLIE?

Wehavebothbeenasked(often!)whetheritisokaytolieinnegotiation—or,inavariantofthesamequestion,whenisitokaytolieinnegotiation?Ouranswerisverysimple.Don’tdoit.Don’teverlie.Lyingisnotworththecosts.Instead,spendyourtimeandenergyhoningyourskillsasaneffectivenegotiator.Itisourbelief that negotiation geniuses do not feel the need to lie. Of course, aphilosophicalquestionremains:isitokaytolieiftheliewouldhelpothers,savelives, or make someone feel good? In our experience, you do not need helpansweringthisquestion.Ifyourmotivesaregenuinelybenevolent—andarenotintheleastself-serving—youranswertothequestionwillbeatleastasgoodasours.

CHAPTER10

RecognizingandResolvingEthicalDilemmas

•“Sure,Iwillbenefitifyoubuyourproduct,butIwouldn’ttrytosellittoyouifIdidn’tbelieveitwasthebestproductforyouandyourcompany.”

•“Whenyouworkforus,youknowyou’reworkingforacompanythattreatsallofitsemployeesequally,regardlessofraceorgender.”

•“Ouragreementcreatesvalueforeveryone—we’reexpandingthepieandalsobenefitingsociety.”

•“Mysalesteamdeserves70percentofthecreditforthecompany’ssuccessoverthelasttwoyears.”

Imagine that you are negotiatingwith a personwho hasmade one of thesestatements. Inaddition, assume thatyoudonotbelieve that the facts that theyreportaretrue.Whatisyourfirstreaction?Ifyouarelikemostpeople,youwillprobably conclude that your counterpart is unethical and is lying to gain theupperhandinthenegotiation.

Butthereisanalternativeexplanation,onethatyoushouldconsiderthenexttimeyouthink(orknow)thatastatementmadebytheotherpartyisfalse:mostpeople—and negotiators are no exception—make incorrect, self-servingstatements on a fairly regular basis without even being aware that they areengaginginunethicalbehavior.Whenyoutreatsuchnegotiatorsasliars,theyarelikelytobehighlyoffended,astheybelieve—andcanoftenjustify—everywordtheysaid.Inaddition, treatingthemlikeliarsmaywellstartanescalatorypaththatdestroystherelationship.How,then,canyoudealwiththisproblem?

THEPROBLEMOFBOUNDEDETHICALITY

Many (and perhaps most) of the unethical behaviors in which people engageduringnegotiationsresultfromordinary,unintentionalpsychologicalprocesses,not fromdeliberate—orevenconscious—deception. InChapter8,weused theterm“boundedawareness”torefertothesystematicfailureofnegotiatorstoseereadily available and important information in their environment. In his work

with Mahzarin Banaji and Dolly Chugh, Max also uses the term “boundedethicality”1 to refer to the systematic and predictable psychological processesthat lead people, including negotiators, to engage in ethically questionablebehaviors that are inconsistent with even their own preferred ethics. Boundedethicalitycomesintoplaywhenanegotiatoractsinamannerthatharmsothersandthatclasheswithhisorherownconsciousbeliefsaboutrightandwrong.

Thefirststep inunderstanding thepowerofboundedethicality is todiscardthe common assumption that the seemingly unethical behavior you observesuggeststhattheotherpartylacksyourhighethicalstandards,orthattheyhaveconsciouslychosenself-rewardingbehavioroverwhat theybelieve toberight.In recent years, research in social psychology has thoroughly debunked thenotionthatallhumanbehavior is intentionalandhasunderscoredthepowerfulimpactoftheunconsciousmindonouractions.

The second critical step is to understand that the problem of boundedethicality does not only affect others. You, too, are vulnerable. If behavingethicallyisgenuinelyoneofyourobjectives,youneedtounderstandthewaysinwhichanhonestpersonsuchasyourselfmightactunethicallywithoutconsciousawareness.Youmaythinkthatyouaredoingnothingwrong,whileatthesametimeactinginwaysthatfallshortofyourownethicalstandards.Becauseyourmoralityisn’ttheproblem,yourmoralcompasswillnothelpyouatsuchtimes.Rather, the solution is to increaseyour awarenessof thepsychological pitfallsthat bedevil even the most well-intentioned and ethical negotiators. In thischapter,wewillshowyouhowvariousfactorscanleadyouandyournegotiatingpartnerstobehaveunethically—withoutconsciousawareness—andhowyoucancorrectsuchbehavior.

CONFLICTSOFINTEREST

When people talk about conflicts of interest, they usually assume thatprofessionalsconsciouslyconsidertheseopposingforces(what’sgoodforthemversus their professional obligations). Take, for example, the old lawyer joke,“It’s not whether you win or lose, it’s how long you play the game,” whichimplies thatattorneysareprimarilymotivatedtomaximizetheirbillablehours.However,when lawyers are paid by the hour, theymay truly come to believethattheirclientsarebestservedbyathorough,time-intensiveprocess,whereaslawyerswhoseclientspaythemapercentageofasettlementmaybemorelikelytobelievethattheirclientsarebestservedbyaquickagreement.Thesebeliefs

arenotconsciousordeliberatelyunethical,buttheyarebiasedbycircumstance.Or as Upton Sinclair once stated, “It is difficult to get a man to understandsomethingwhenhissalarydependsuponhisnotunderstandingit.”

Inbuyer-sellernegotiations,itiscommonforthesellertobelievethatsheisselling a higher-quality product than the buyer thinks he is buying. In fact,buyers often believe that the goods offered by different sellers areindistinguishable fromeachother,while thesellersviewtheirownproductsassignificantlybetterthanthoseofotherproviders.Thus,whenasalespersonsays,“Sure,Iwillbenefitifyoubuyourproduct,butIwouldn’ttrytosellittoyouifIdidn’tbelieveitwasthebestproductforyouandyourcompany,”shemaywellbelievethisstatement.Yetsubstantialresearchtellsusthattheseller’sconflictofinterest (being honest versus making the sale) can lead her to unconsciouslyviewtheworldthroughabiasedlensandtobelievethatherproductistheverybestoptionforyou—evenwhenthat isnot thecase.Whenasellerclaims thathisproductsarethebestonthemarket,andaprospectivebuyerbelievesthattheproductsareindistinguishablefromthoseofthecompetition,thebuyerislikelyto make sinister attributions about the seller’s ethics.When the discussion isover,thebuyerassumesthattheseller’sstatementswereindicativeofunethicalbehaviorwhen,infact,thesellerwasfallingpreytothepsychologicaltrapthatSinclairpredicted.

THEPROBLEMOFAGENTS

Conflictsofinterestoftenbecomemostproblematicwhenagentsareinvolved—whethertheagentsareinvestmentbankers,lawyers,literaryagents,real-estateagents, or some other type of third party with a stake in the negotiation’soutcome. Consider what happens when a real-estate agent advises you, thebuyer, to raiseyourbidonahouseeven thoughyour currentbid is consistentwitharationalassessmentoftheproperty’svalue.Istheagentthinkingonlyofher own commission?We would argue that she is probably not intentionallycorrupt,butsimplyhuman,andthereforeimplicitlymotivatedtoseetheworldinawaythatmaximizesherownreturnsfromthedeal.Theagentcanquicklythinkofpastsituationsinwhichabuyerpreferredtooverpayratherthanrisklosingahouse, or bitterly regretted not heeding the agent’s advice to overpay. On theother hand, it will be much harder for her to recall times when this was thewrongadvice,eventhoughthishappenedmorefrequently.

Whenyouareplanningtobuyorsellahouse,youragentwillundoubtedlytell

youthatsheisworkinginyourbestinterest.2Butwhenwelookatthesituationobjectively,itbecomesclearthattheagentisathirdpartyinthetransaction,onewhose interests do not perfectly match those of her principal (the buyer orseller).Thebuyerwhowishestopayaslittleaspossibleandwhoisinnohurrytobuymayhave todealwithawell-intentionedagentwho ispaidmorewhenthe selling price is high and who would love to close the deal as soon aspossible. Similarly, a seller may be in no rush to sell, yet her agent devotesconsiderable energy to persuadingher that it is best tomake a sale before themarketcoolsdown.Whatcanbedoneaboutthisproblem?

Duetothefailureofagentstoactprofessionallyinmanydomains,includingauditing,investmentbanking,andrealestate,bothfederalandstategovernmentshavesteppedintoremedythesituation.Themostpopularsolutionhasbeentoimplement rules mandating disclosure. The reasoning is that, if consumersunderstandthattheiradvisersandagentshaveaconflictofinterest,theycantakethestepsnecessarytoprotectthemselves.Aresuchremedieseffective?Perhapsnot.Consider that, inmost states, real-estate agents for buyers and sellers arerequired tohave their customers signadisclosure statementclarifying that theagent will earn a percentage of any sales transaction. Most people sign thedisclosure form and then never again consider the actual conflict of interestbetweenbuyerandagent.Instead,theytrulybelievethattheiragentisprovidingobjectiveadvice.

Furthermore, research suggests that disclosure could actually increase theproblemsthatresultfromconflictsofinterest.3Inastudyconductedbydecisionresearchers Daylian Cain, Don Moore, and George Loewenstein, participantsplayingtheroleof“adviser”were(insomecases)requiredtotellaparticipantplayingtheroleof“client”thathehadavestedstakeinhavingtheclientbelievethatacommodityhadahighvalue.Asitturnsout,thisdisclosureled“advisers”tofeelmore comfortable exaggerating their estimates; after all, “I already toldthem I was biased.” At the same time, the “clients” often believed that theiradvisersweremoretrustworthyiftheyhaddisclosedtheirconflictofinterest.Inother words, advisers would have been more honest, and clients would havebeenmorecautious,iftherehadbeennodisclosure!

If disclosurewill not help resolve this ethical dilemma,what arewe to do?First,totheextentpossible,trytosolicitadviceandexpertisefrompeoplewhodo not have a stake in the outcome andwho do not profit frommanipulatingyour behavior or decisions.When this is not possible, try to collect additional

informationfromoutsidesourcesthatcanserveasarealitycheckontheadviceyou have been given. For example, if the real-estate agent tells you that aparticularpropertyorregionisworth investing in,solicitanoutsider’sopinionbyaskingadifferent real-estate agent (a friend, anacquaintance,or a strangerwhomyouhavenothired)whetherthisadviceseemssound.Finally,bewillingtoaskyouragenttojustifyheranalysis.Insteadoftakingher“expertopinion”atface value, try to discover what objective criteria or procedure she employedbeforemakingherclaims.Shemaytrusther“intuition,”but there isnoreasonthatyoushould.

A final note: most of us view conflicts of interest as a genuine societalproblem that must be remedied. We understand that conflicts of interest cancontort people’s judgments.Yetwehave trouble believing that they affect ourownjudgments.Thetruthisthatnoneofusisimmune.Thereisnogoodreasontobelieve thatyouwillbehaveanydifferently from theagent, theauditor, thebuyer, or the seller when you have conflicting motivations and interests. Toavoid such unintended unethical behaviors, the first step is to recognize yourownfallibility.

IMPLICITASSOCIATIONSANDSTEREOTYPES

Steve Barrett, the purchasing agent for his firm, had to choose between twolandscaping companies to maintain the grounds of five different buildings.CompanyAhadalonghistoryintheareaandofferedfairlytraditionalservices.Company Bwas newer and offeredmanymore contemporary and innovativeideas. Company A was owned and represented in meetings by a white male;CompanyBwasownedandrepresentedbyaHispanicfemale.Barrettweighedthe proven reliability of CompanyA against the contemporary image that hisfirm wished to convey. Almost every discussion and analysis led Barrett tobelievethatheshouldmoveintofinalnegotiationswithCompanyB.Intheend,however,Barrettdecidedtogowithhisgut.Hehiredtheolder,moretraditionalfirm.

Amonthlater,Barrettwasfillingoutsomepaperworkthataskedhimtoreportondiversity in the firm’s supplier relationships.Barrett didn’tmind fillingoutthe forms, as he was a strong supporter of his firm’s view that women-andminority-ownedcompaniesshouldbeseriouslyconsideredascontractors.Ashecheckedthe“Caucasian”and“male”boxestoindicatetheethnicityandgenderof the owner of Company A, Barrett scanned the race and ethnicity of the

finalists for his past dozen supply contracts. He noticed that women-andminority-ownedcompanieswereoftenfinalistsinhissearches,butrarelygotthecontract. As he thought back, Barrett began to feel a bit guilty. In the end,however, he concluded that these suppliers were not yet fully competitive,thoughhehopedtheywouldbeinthenearfuture.Barrettremainedproudofhiscontinued(andoftenvocal)supportofequityandfairnessinsocietyandofhiscompany’saggressiveaffirmative-actionpolicies.

Soonafterthelandscapingcontractwassigned,BarrettwatchedasegmentoftheTVshowDatelineNBCfeaturingHarvardpsychologistMahzarinBanajithatdisturbed him.The segmentwas about the ImplicitAssociationTest (IAT) onHarvard University’s website (http://implicit.harvard.edu).4 (We encouragereaders tovisit thewebsitebefore reading furtherand to tryoneor twoof the“tests.”) This website provides a set of exercises designed to identifyunconsciousracialandgenderbiases.Withthelandscapingepisodeonhismind,Barrettdecidedtotakeoneoftheteststoprovetohimselfthathisdecisionhadbeenunbiased.

ThefirstsetofitemsonthetestthatBarrettselectedaskedhimtocategorizephotographsofHispanicsandEuropean-Americansasquicklyaspossible.Usingcomputer keys as described on the site, Barrett identified faces as either“Hispanic” or “white.” In the next test, he was asked to identify words thatappearedonthescreenaspositive(i.e.,“good”)ornegative(i.e.,“bad”).Barretthadnotroubleclassifyingwordssuchas“nice,”“love,”and“peace”as“good”andclassifyingwordssuchas“death,”“devil,”and“bomb”as“bad.”

Inthenextstage,thesetwotestsweremerged.NowBarrettwasaskedtohitonekeyifaHispanicfaceora“good”wordappearedonthescreen.Hewastohitadifferentkeyifawhitefaceora“bad”wordappeared.Thistaskprovedtobemorecomplicated;Barrettfoundhimselfmakingafewerrorsandrespondingconsiderablyslowerthanhehadinprevioustasks.

Afterthirtywordsorphotoshadappeared,thetaskchanged.NowBarrettwasaskedtouseonekeytoidentifyeitheraHispanicfaceora“bad”wordandtohita different key to identify either a white face or a “good” word. Barrett waspleasedthathewasabletocompletethistaskveryaccuratelyandquickly.

Ashehadexpected, thecomputerconfirmed thatBarrett’s responses for thesecondcombinedsetofwordsandfacesweremuchfasterthanhisresponsesfor

the first combined set. It appears that Barrett processed information andcompleted tasksmore quickly whenwhite faces were associatedwith “good”and Hispanic faces were associated with “bad” than when Hispanic wasassociated with “good” and white with “bad.” As a result, the computersuggestedtoBarrettthatheshowedanimplicitassociationbetween“Hispanic”and “bad” and between “white” and “good.” Although he didn’t consciouslyendorse such a preference, Barrett’s implicit attitudes seemed to favor whitesoverHispanics.Were these implicit associations connected to his landscapingdecision? If thecompanyownedby thewhitemalehadbeen theone thatwasnewerbutmoreinnovative,wouldBarretthaveconcludedthatinnovationwasamore critical factor than experience? Would he have found a way to justifyhiringthewhitemaleanyway?Barrettwasunsettledbytheresultsofthestudyandwhattheymightimply.

Most of us, including those who perceive ourselves to be liberal and non-discriminatingonthebasisofraceandgender,maybeunawareofourimplicitassociations.Typically,peoplearenotonlyunawareoftheirimplicitprocesses,but are also reluctant to believe that there can exist thought processes (whichaffectbehavior!)thatareinaccessibletothem.So,considerwhatitcouldmeanwhenapotential employer says inanegotiation, “Whenyouwork forus,youknowyou’reworkingforacompanythattreatsallemployeesequally,regardlessof race or gender.” One likely possibility is that the employer believes herstatement,butthatsheandothermembersofherfirmnonethelessdiscriminatethroughtheirimplicitthoughtprocesses.

Humans tend to stereotype people from groups other than our own, oftenwithoutconsciousawareness.Stereotypingconsistsof identifyingakeyfeaturethat is perceived to describe some members of a group, applying thesedescriptionstoallmembersofthegroup,andfailingtonoticetheuniquenessofspecificgroupmembers.Clearly,amajordrawbackofstereotypingisthatitcanleadpeople to becomeprejudiced and to behaveunkindly towardmembers ofother groups. It can also lead us to overlook important information about theindividual,causingus tobehaveinwaysthatare inappropriate,uninformed,orirrationalgivenwhattheotherpersonisreallylike.Oneresultofstereotypingisthat our own negotiated outcomes tend to suffer. Dolly Chugh, of the SternSchoolofBusinessatNYU,referstothisasthestereotypetax,thepricewepayfor not overcomingour stereotypesof others.5 Inotherwords, our stereotypesnotonlyhurtotherpeople,theycanalsohurtus.

Unfortunately, many negotiation texts encourage you to stereotype yournegotiation opponent. Such books promote stereotypic and overly simplisticadvice on how to negotiatewith theChinese, the Japanese, SouthAmericans,Israelis, and so on.While it is critically important that you learn asmuch aspossibleaboutculturalnormsbeforeyouenterintocross-culturalnegotiations,itis dangerous to negotiatewith “them” as if they are all the same.We readilyidentifyvariation in theway thatpeople fromourownculturebehave,butwetooeasilyacceptstereotypesaboutpeoplefromothercountriesandcultures.Toooften, these stereotypes leadnegotiators to act as if theyalreadyknowagreatdeal about the other side, when they could learn much more by entering thenegotiationwithanopenmindandsearchingforindividuatinginformation—or,betteryet,bypreparinginadvance,byaskingquestions,andbytryingtolearnabouttheperspective,personality,anddiverseinterestsoftheotherparty.

We most commonly think about stereotyping based on obvious differencessuch as race, gender, nationality, and so on. Yet it’s also possible to formstereotypesaboutspecificcompaniesandtheirnegotiatingstylesthatleadustosnapjudgmentsabouthowaparticularcompany“thinks.”Ofcourse,companiesdon’tthink;peopledo,andindividualswithinaspecificcompanydiffer.Whennegotiatingwithdifferentmembersofthesameorganization,we,too,oftentreatthese individuals as a single actor—even as we recognize the diversity ofthought and opinion within our own organization. Have you ever started aconversation with a representative of a phone company—or an airline—in aheatedmannerbecauseyouhadapreviousconversationwitharepresentativeofthat company who was unhelpful and rude? How did that work out for you?Probablynotwell.

So,whenSteveBarrettchosetohireatraditionallandscapingcompanyownedbyawhitemaleratherthananinnovativefirmownedbyaHispanicfemale,washe aware of his implicit attitudes and the degree to which he was showing apreference for thosewhowerea lot likehim?Probablynot.Becomingamoreethical, effective negotiator requires that we not only confront our intentionalbiases,butalsoseektounderstandourimplicitpreferences.Negotiationgeniusesarenotunbiasedpeople.Rather, theyarepeoplewhoconfront theirbiasesanddoasmuchastheycantoovercomeoroffsetthem.

PARASITICVALUECREATION

PharmaceuticalFirmXmanufacturesabeneficialdrugandisselling100million

pillsperyearat apriceof$4.05perpill.Themanufacturingcost is$0.05perpill,sothedrugisearningFirmX$400millionperyear.Afteraperiodoftime,Pharmaceutical Firm Y introduces a drug that treats the same ailment. BestestimatessuggestthatthiscompetitionfromYwillleadXtoreducethepriceofitsdrugbyabout$1,to$3.05.Furthermore,Yisexpectedtocapture40percentofthemarketbycharginganevenlowerpriceof$2.55perpill.Inotherwords,Xisexpectedtosell60millionpillsfora$180millionprofitperyear,andYisexpected to sell 40million pills for a $100million profit per year. After Y’sentryintothemarket,X’sandY’scombinedprofitability($280million)willbesignificantlylessthanthe$400millionthatXwasearningasamonopolist.

Fortunately,thechiefnegotiatorforFirmXhastakenacourseonnegotiationandvaluecreationandhasmasteredtheideaspresentedinChapters2and3ofthisbook.HeapproachesY’schiefnegotiatorwiththefollowingoffer:WhatifXweretopayY$125millionannuallytostayoutofthemarket?Because$125millionismorethanthe$100millionthatYexpectstoearn,YwouldbebetterofffinanciallyifitdidnotcompetewithXinthismarket.Xwouldalsobebetteroff, since its current $400million profit minus a $125million payment to Ywouldexceedthe$180millionprofititexpectsifYentersthemarketplace.

This solution seemsperfect,doesn’t it?Byworking together,XandYhaveexpandedthepieandcreated$120millioninvalue.Letthecelebrationsbegin!

Butwaitaminute.Wheredidthat“created”valuecomefrom?Unfortunately,itcamefromtheailingconsumerswhomustnowcontinuepaying$4.05perpillrather than $2.55 or $3.05, the approximate amounts they would pay if Ybrought itsproduct tomarket. Inotherwords, the$120millionwasnot reallycreated; it was just transferred from consumers to producers. Because suchagreements restrain competition, theU.S. FederalTradeCommission (FTC)—along with similar entities in other countries—considers them illegal. If suchagreementswereallowed,XandYcouldcolludetocreatevalueattheexpenseofconsumers.JamesGillespieandMaxBazermanusethetermparasiticvaluecreation todescribewhatoccurswhennegotiatorscreatevaluebytakingvalueawayfrompartieswhoarenotatthebargainingtable.6Wethinkthat theword“parasitic”isappropriatebecausethebenefitsthatthenegotiatorsachievecomeattheexpenseofothers.

Since this type of agreement is clearly illegal, and Firm X could not haveapproached Firm Y with the kind of offer we described, let’s consider how

parasiticvaluecreationmightactuallyplayoutintherealworld.Whatmightitlook like? In a variation of the scenario described above, the FTC suedpharmaceuticalcompaniesSchering-PloughandUpsher-Smith,accusingthemofreaching an agreement that restricted trade.Before theFTC lawsuitwas filed,Upsher-Smithwasplanning to introduceagenericpharmaceuticalproduct thatwould threaten Schering-Plough’s dominant product (K-Dur 20, a potassiumsupplement). Schering-Plough tried to stop Upsher-Smith’s entrance into themarketplacebyfilingalawsuitthataccusedUpsher-SmithofviolatingSchering-Plough’s patent. The two pharmaceutical firms reached an out-of-courtsettlementthatspecifiedthatUpsher-Smithwoulddelayitsentryintothemarketand that Schering-Plough would pay Upsher-Smith $60 million for fiveunrelatedproducts.

TheFTClawsuitagainstthepharmaceuticalfirmsarguedthatthe$60millionwasashampaymentforthemarketdelay,intendednotasfaircompensationforthe five products but rather to keep Upsher-Smith’s generic product off themarket. The pharmaceutical firms’ lawyers argued that negotiating multipleissues simultaneously (combining the settlement of the pending litigationwiththe transaction involving five other products) helped create value and wasbeneficialtosociety.Theyevenhiredawell-knownnegotiationexperttotestifythatvaluecreationwasgoodforsociety.

We know this casewell becauseMaxwas on the other side, serving as anexpertwitnessfortheFTC.Max’sview,thenandnow,wasthatparasiticvaluecreation had occurred: the companies created value for themselves, with noapparentconcernfortheharmfuleffectsoftheiractionsonconsumersand,morebroadly,onsociety.InMax’sopinion, thefivepatentssimplyprovidedacoverstory.7

Sadly, many of the negotiation exercises conducted in training seminarsimplicitly encourage students to engage in parasitic value creation. In onecommonsimulation,studentsrepresentfirmsinanindustrythathasfewplayers.Acrossanumberofrounds,eachfirmmustdecidewhethertochargeahighorlowprice.Whenonefirmchargesahighpriceandtheotherfirmchargesalowprice, the low-pricefirmpicksupmarketshareandwinsat theexpenseof thehigh-pricefirm.Yetthegameissetupsothatbothpartieswouldbebetteroffifthey both charged high prices. Such exercises are based on the well-knownprisoners’dilemmaproblem,inwhichplayersareindividuallybetteroffplayinganoncooperativestrategy(settingalowprice),butcollectivelybetteroffplaying

a cooperative strategy (setting a high price).8 In such simulations, instructorspraise the studentswho figure out how to develop a pattern ofmutually highpricesthatleadtosuccessfulvaluecreationforbothfirms.Givenwhatweknowabout parasitic value creation, it is troubling thatmuch of this training occurswithoutanyconsiderationofwheretheextraprofitcomesfrom—theconsumer!

Whenwe use the term “parasitic value creation,”we do notmean to insultmost value-creating agreements, nor are we objecting to companies chargingwhateverpricesthemarketwillbear.Mostofthetime,valuecreationshouldbeallowedevenwhenitwillimposecostsonpartieswhoareawayfromthetable.For example, we view the U.S. pharmaceutical industry as one of the greatsuccessstoriesofthepastcentury.Ifthesefirmshadn’tachievedhealthyprofits,manydrugsthatsavelives,reducetheneedforsurgery,andrelievepainwouldnotexist.

On the other hand, any analysis that focuses only on the profits ofcoordinating pharmaceutical firms and ignores the harm done to consumerswouldbeincomplete—andpossiblyunethical.Webelievethatthesecompanies(andtheirnegotiators)shouldconsider,inmuchthesamewayantitrustlawsaskfirmstoconsider,whethertheyarecreatingsocietalvalueorsimplyhelpingeachotherextractasmuchmoneyaspossibleattheexpenseoftheconsumerorotherstakeholders.Whenyournegotiationswillaffectpeoplewhoarenotseatedatthetable,suchasconsumersorfuturegenerations,makesurethatyourethicalityisnotboundedbytheunintentionalexclusionoftheseparties’concerns.

Howcanyoujudgewhetherthevalueyoucreateinyournegotiationbenefitssociety?Onecriterionwouldbe tocallvaluecreationsociallybeneficialwhenthe value created for the parties at the table exceeds the costs imposed onoutsiders; in such cases, while some of the value created may result fromparasiticvaluecreation, theoverall result is still anetbenefit to society.Moregenerally, to remain alert to the potentially parasitic aspects of your valuecreation,werecommendthatyouaskthefollowingquestions:

•Whoareallofthepartiesaffectedbythisagreement?

•Howiseachpartyaffected?

•ShouldIbeconcernedaboutanyoftheseparties?

•Howdotheeffectsoftheagreementonpartiesnotatthetablecomparewiththeeffectsonthepartiesinvolvedintheagreement?

Weclosethissectionwithapoliticalnote.Onelegal,yetdisturbing,exampleof parasitic value creation concerns the role of special-interest groups inelections. In the United States, special-interest groups, including corporationsand nonprofit organizations, contribute large sums of money to politicalcampaigns.Politicians,inturn,providespecial-interestgroupswithaccesstothefederal government and influence over policy. Politicians benefit, as the fundskeeptheircampaigncoffersfull.Andthevastsumsthatspecial-interestgroupsspendyearafteryearonlobbyingsuggestthattheyarereceivingafinereturnontheir investment. From a simple value-creation perspective, this negotiationachievesgainforallparties—unlessyouhappentobeanaveragecitizenwithouta powerful lobby! Ideally, elected officials would implement wise policy foreveryone, rather than enacting distorted policies that benefit special-interestgroupsattheexpenseofthebroaderpublic.Thenagain,forthemanyreasonswehavealreadycoveredin thischapteronboundedethicality,wefear thatfew, ifany,politiciansorlobbyistsarehavingahardtimesleepingatnight.Theyhavelots of ways to justify their behaviors and little incentive to question theirprofitablestrategies.

OVERCLAIMINGCREDIT

After twelve years of marriage, Jim and Karen have decided to divorce.Fortunately, they are both nice people, and have agreed to divide their assetsfairlyandtoavoidconflictthatcouldnegativelyaffecttheirtwochildren.Theyhireadivorcemediator,whoasksbothJimandKarentotellherprivatelyhowthefinancialassetsshouldbedivided.

“IthinkIdeserve60percentoftheassets,”Jimtellsthemediator.“Inthefirstyear of our marriage, I received a very large inheritance from an uncle thathelpedusoutalot.Wewouldn’thavebeenabletoaffordthedownpaymentonour house if it wasn’t for that money. So, I think I deserve a bit more thanKaren.”

Next,themediatormeetsprivatelywithKaren,whoalsobelievesthat60–40isthecorrectdivisionofassets,butnotinfavorofJim.“IthinkIshouldget60percent and Jim should get 40 percent. After all, I’ve earned almost twice as

muchasJimoverthepasttwelveyears.”

Is Jim being greedy? Is Karen? Are they both arguing for more than theyhonestlybelievethattheydeserve?Hasthedivorceaffectedtheirethicsfortheworse?More likely, as a result of egocentrism (described in Chapter 5), theygenuinely believe that they have contributed more to the marriage than isactuallythecase.

Overclaimingcreditcanhindertheimplementationandprogressofavarietyof joint ventures, from start-up companies to marriages. Because we tend tomake self-serving attributions regarding our behaviors, even honest, well-meaningpeoplearelikelytobelievethattheycontributedmoretoanenterprisethan they actually did and then to make moral judgments about those whodisagreewith them. This serves to fuel the conflict. So, when your colleagueargues, “My sales teamdeserves 70 percent of the credit for the corporation’ssuccessoverthelast twoyears,”acceptthefact thatsheprobablybelievesthisstatementistrueevenifyouaresureitisnot.Ifpushed,shecanprobablyfindsome data or logic (however frivolous it may seem to you) that supports herclaim.

Evenatasocietallevel,overclaimingcaninflictgreatharm.Acrosstheglobe,overharvesting has devastated once-thriving fisheries. Many fisheries havecollapsed,andconsiderableuncertaintysurroundsthequestionofwhenandhowtheywillbebroughtbacktoasustainablelevel.Asignificantpartoftheproblemcanbe traced to the fact that different fishinggroups all believe they areonlytakingtheir“fairshare”oftheresource.9

Howcanyoucontrolyourownnaturalpsychologicaltendencytooverclaim?MaxandhiscolleaguesNickEpleyandEugeneCarusorecentlyaskedonegroupofMBAstudentsfromaprestigiousprogramtoestimatethepercentageofworktheypersonallycompletedintheirstudygroups.10Onaverage,theclaimsmadebymembersofeachgroup,whenaddedtogether,totaled139percent.Ofcourse,thereisonly100percenttogoaround.However,theresearchersfoundthatthetendencytooverclaimdiminishedwhentheyaskedgroupmembersto“unpack”the contributions of others—that is,when they asked groupmembers to thinkabout the contribution of each othermember, not just their own contribution.Overclaiming did not disappear entirely, but it did drop by about half;consciouslyandexplicitlythinkingaboutthecontributionsthateachpersonhadmadereducedthemagnitudeofthebias.Ifyouwanttodiminishthetendencyof

yourgrouporteammemberstooverclaimcreditorcontribution,onewaytodoso is toget them to focusnotonlyonwhat theyhavedone,butonwhateachindividual,consideredoneatatime,hasdoneaswell.

PUTTINGITTOPRACTICE

Most discussions of ethics in negotiation focus on your intentional choices—whetherornotitisokaytolie,tohideinformation,andsoon.Inthischapter,wehavestressedthatnegotiatorsareoftennotevenawarethattheyareengaginginethically questionable behavior. Furthermore, the busier people are, the moretheywillrelyonautomaticthoughtprocesses,andthemorelikelyitisthattheywill engage in ordinary unethical behaviors.11 Unfortunately, most negotiatorsare busy people forwhom negotiating is just one of themany tasks that theymustaccomplisheachday.Tomakemattersworse,thereisalreadyalottothinkabout when negotiating: how to create and claim value, how to be a goodinvestigativenegotiator,howtodefendagainststrategiesofinfluence,etcetera.Howcananegotiatordoallof thisandstillavoidfallingbackonthekindsofautomaticprocessesthatleadtoordinaryunethicalbehaviors?

Our perspective on bounded ethicality yields specific advice for managingyourownethicalbehaviorandforunderstandingandmanagingthebehaviorofothers.Intermsofyourownbehavior,someimportantstepsinclude:

1.Ifyouareinasituationwhereyouhaveaconflictofinterest,becomeextravigilant.Totheextentpossible,trytoeliminatethesourceoftheconflict(e.g.,byrecusingyourselffromdecisionsinwhichyouhaveaconflictofinterest).

2.Beawareofthepossibilitythatyoumaybediscriminatingagainstothersunconsciously.TakingtheIATtests(mentionedearlier)mayhelpyouappreciatethisnaturaltendency.Then,beproactiveandtakestepstooffsetyourproclivityforselectivelyrewardingthosewhomyouimplicitlyfavor.

3.Wheneveryoufeelthatyouhavecreatedvalue,trytoanalyzewhereexactlythatvalueiscomingfrom.Isanyonebeingmadeworseoff?Isthistrade-offacceptabletoyou?

4.Whenallocatingcredit,becarefulnottogiveyourselftoomuchcredit—ortogivetoomuchcredittothosewhomyoulike.Specifically,bewaryofthetendencytooverweightthosefactorsandinputsonwhichyouperformstronglyandthatmakeyoulookgood.

You can also use your understanding of bounded ethicality to betterunderstandyournegotiationcounterpartsandtodevelopbetterrelationshipswith

them.Here,weofferthreeguidelinesforleveragingyourknowledgetothisend:

1.Audittheclaimsofyourcounterpartsandlookforunintentionalbiases.

2.Acceptthefactthattheymaybeunawareoftheirboundedethicality.Theymaynotnoticethattheyarebiasedorthattheyarebeingparasiticintheireffortstocreatevalue.Avoidsinisterattributions.Whensomeonemakesastatementthatyoudonotbelieve,or“creates”valueattheexpenseofothers,avoidlabelinghimaliarorathief.Instead,helphimseethecausesandconsequencesofhisjudgmentsandbehaviors.

3.Finally,ifyouareunabletohelpyourcounterpartrevisehisbiasedperspective,followtheadviceinChapters6and9tocraftaresponsethattakeshismisperceptionsintoaccount.Forexample,whenyoubelieveasalespersonisoverstatingthequalityofhisproduct,ratherthanwithdrawingfromthediscussionoraccusinghimofexaggeration,dealwiththisordinaryunethicalbehaviorthroughtheuseofacontingencycontract.Askhowthesuperiorqualityofhisproductcanbemeasured,andattachpaymenttoperformance.Ifthesalespersonwasbeingintentionallydeceptive,hewillbackofftheclaim.Butifheisengaginginordinaryunethicalbehavior—andbelieveshisexaggeratedclaim—hewillacceptthecontingencyclause(toyourbenefit).

THEETHICALNEGOTIATIONGENIUS

We recognize that there is no guarantee that you will easily implement theserecommendations.Hopefully, however,wehave convincedyou that anethicalnegotiation genius is one who wants to try to eliminate unintended unethicalbehaviorsalongwithmoreobviousintentionalones.Justbecausemanyoftheseunintendedunethicalbehaviorsarecommondoesnotmeantheyare“okay.”Inourview,ethicsinnegotiationisaboutactivelystrivingtobeabetterperson,notaboutreaching—andsettlingfor—an“acceptable”statusquo.

CHAPTER11

NegotiatingfromaPositionofWeakness

Oneofthequestionsthatwehearmostoftenfromourstudentsandclients—many of whom are seasoned dealmakers—sounds something like this: “Theframeworkandstrategiesyouhavepresentedaregreat.Theyhavehelpedusalot.Butwhatcanyoudowhenyouhavenopowerinthenegotiation?Canyougetagreatdealwhentheothersideisholdingallthecards?”Whenweaskourstudentsandclientstoexplaintheirsituation,wehearmanyversionsofthesamebasicstories.Herearethemostcommon:

STORY1:“Inourbusiness,potentialcustomersconstantlytellusthatwehavetolowerourprice,andthatifwedon’tlowerit,theywillgotoourcompetitors.Theydonotseemtowanttotalkaboutanythingotherthanprice.Andthefactofthematteris,theycangotoourcompetitorsandgetwhattheywant.Howcanwepossiblynegotiateagooddealinsuchsituations?”

STORY2:“IrecentlyreceivedajobofferfromacompanythatIwouldliketoworkfor.TheonebigproblemisthatthecompensationisnotasgoodasIwouldlikeittobe.TheotherbigproblemisthatmyBATNAstinks. I have no other job offers, and I’m pretty desperate. How can I negotiate a better deal formyself?”

STORY3:“Iaminvolvedinadisputeandtheothersideisthreateningtosue.Theirlawsuitisentirelyfrivolous,butifwegotocourt,theycancontinuetolitigateuntilIgobankrupt.Theyhavealotofmoneyandcaneasilyaffordalongcourtbattle.WhatcanIdo?”

STORY4:“Mycountryisasmallplayerontheworldstage.Whenitcomestonegotiatingeconomicorpoliticalinternationalagreements,weareconstantlybeingpushedaround.Morepowerfulcountriesoverlookourinterests,andwepracticallyhavetopleadforwhatwemostdesperatelyneed.Istheresomewaytoimproveourposition?”

Asthesestoriesdemonstrate,weaknessinnegotiationresultswhentheotherside’sBATNAisrelativelystrongandyourBATNAisrelativelyweak.Haveyouever felt trapped in such predicaments? How did you respond? In ourexperience, most people in such situations either panic or quickly accept thefutility of trying to negotiate away their misfortune. Few actually do what ittakes to negotiate effectively and to improve their outcomes. We have alsonoticed that those who do think carefully and systematically about suchsituations,andwhodonotabandonthenegotiationframeworkdevelopedinthisbook, are often able to achieve outstanding results in the face of seeminglyimpossibleodds.

Inthischapter,wewillhelpyoutounderstandthesecretsofthesenegotiationgeniuses.Wewill firstpresent strategies thatyoucan leverageevenwhenyouhave little power. We will then share with you strategies for upsetting thebalanceofpower—thatis,howyoucanmovefrombeingweaktobeingstronginthenegotiation.

NEGOTIATINGWITHOUTPOWER

There is perhaps nothing that creates more anxiety for negotiators than thefeeling of desperation that comes from having no good alternatives. Thesituationonlyworsenswhenyourealizethattheothersideisnotasanxiousasyouaretodothedeal.Whetheryouarenegotiatingthespecificsofyouronlyjobofferoracontractwiththeonlyvendorwhocanprovidewhatyoudesperatelyneed,knowingthat“nodeal”wouldbedisastrouscanplacealotofpressureonyou.Unfortunately,thisanxietycancauseyoutogiveupthehopeofcreatingorclaimingvalueandtolosesightoftheneedtoprepareandexecutenegotiationscarefullyandsystematically.Instead,youbegintofocusongettingadealdoneatanycost.Whileitwouldbeunfairforustosuggestthatthereisnoreasontobeconcernedinsuchsituations,itwouldalsobeunfair—andwildlyinaccurate—tosuggest that there is littleyoucando to improveyourprospects.Consider thefollowingstrategies:

STRATEGY1:DON’TREVEALTHATYOUAREWEAK

Think back to the story we presented in Chapter 1, in which PresidentRoosevelt’s campaignmanagerwas negotiatingwith a photographer over howmuch topay for theuseof threemillioncopiesof aphotograph.Theproblemwas that the campaign had already printed the three million copies, and thephotographer(whoownedthecopyrighttothephotograph)hadthelegalrighttocharge $1 per copy. The campaign manager’s BATNA was very weak: if anagreeable price could not be negotiated, they would have to throw away thepamphletsorfacelitigation.Neitheroftheseeventualitiescametofruition.Notonlydid thecampaignmanagersecure the right touse thephotograph,but thephotographerevenofferedtopay$250toconsummatethedeal.

Thekeytothecampaignmanager’ssuccess:thecampaignmanager’spositionwas weak, but the photographer did not know that it was weak. Had thephotographer known that three million copies of the photograph had alreadybeen printed, hewould have known that hewas in the position of power andcouldnegotiateamoreprofitabledeal.

Theobviouslesson:havingaweakBATNAisnotterriblyproblematiciftheother side does not know that your BATNA is weak. If you have a weakBATNA,don’tadvertiseit!

Surprisinglyenough,manypeopledonotheedthisadvice;infact,theyoftenmake their bad situationworse byunwittingly revealing theweakness of theirBATNA. You do this whenever you tell your customer that “time is of theessence”orthat“wecanmeetwithyouwheneveryouhavethetime.”Often,itis important to convey that you are facing time constraints or that youhave aflexible schedule. But you can send the samemessages without making yourdesperationtransparent.Forexample,youmightsaythat“oneofourpreferencesis to move ahead quickly” or that “we have some flexibility with regards tomeetingwithyou.”Whenyouareunderpressureandfocusedontheweaknessof your BATNA you may need to remind yourself to use this less revealinglanguage.

STRATEGY2:OVERCOMEYOURWEAKNESSBYLEVERAGINGTHEIRWEAKNESS

Recently,anexecutivestudentcametoDeepakforhelpwithanegotiation.Hewasattemptingtosellhis50percentstakeinacompanytohisbusinesspartner,whocontrolledtheother50percent.Theseller(Deepak’sstudent)wasfocused

onthedesperationofhissituation:heneededliquidityverysoon,andhispartnerwas the only viable buyer of his shares. The first thing the seller wanted todiscusswas thedegree towhichhe shouldbewilling todevaluehis shares inordertomakethedealhappen.“HowlowshouldIbewillingtogo?”heasked.

Nowhere in his analysiswas there a consideration of howmuch the sharesmight be worth to the business partner—that is, how high a price the buyermight be willing to pay. When Deepak began to probe in this direction, itbecameclearthatthebusinesspartnerhadmuchtogainbybuyingouttheseller:thebuyerhada lotofmoney,hehadlongdesiredtotakethecompanyinnewdirectionsthatthesellerhadresisted,andpurchasingtheshareswouldgivethebuyer full control over the company’s future.As thediscussion continued, thestudentbegantorealizethathewasnottheonlyonewhowas“weak”thebuyerwasalsoweak,albeitforverydifferentreasons.Focusingonthesefactorshelpedthesellertoincreasehistargetandchangethetrajectoryofthenegotiation.Inhisdiscussionswiththebuyer,heoutlinedthemanybenefitstothebuyerofmakingthispurchase,downplayedhisowndesperation,andanchoredaggressivelyinhisopeningoffer.Whatwastheeventualoutcome?Thetwosidesagreedtoadealinwhichthestudentsoldonly40percentofthecompanybacktohispartner—atatotalpricethatwashigherthanhehadoriginallyhopedtoreceiveforhisentire50percent.

This story highlights the distinction betweennegotiatorswho focus only ontheir own BATNA and those who evaluate the other side’s BATNA. If theirBATNAisweak,thatmeansthatyoubringalotofvaluetothedeal—andyoushouldbeabletoclaimsome(ormuch)ofthatvalue.Inotherwords,havingaweakBATNAisnotparticularlyproblematiciftheotherside’sBATNAisweakaswell.

Consider again the success of Roosevelt’s campaignmanager. Imagine thatthephotographerhaddiscoveredthatthecampaignmanager’sBATNAwasveryweak.Would that guarantee a good outcome for the photographer and a pooroutcome for the campaign manager? Not necessarily—because thephotographer’sBATNAwasalsoweak! If therewere “nodeal,” the campaignwould suffer the costs of reprinting three million pamphlets, but thephotographerwould also lose a huge (“once in a lifetime”) opportunity to gettremendouspublicexposureforhisartisticwork.

Whattypicallyhappenswhenbothsidesareinapositionofweakness?Ifyou

think back to the fundamental framework developed in Chapter 1, you willrecognizethatwhenbothpartieshaveaweakBATNA,itmeansthattheZOPAislarge. In other words, a lot of value is created when the two sides reach anagreement. Who claims more of this value? Usually it is the one whounderstands the fundamentals and leverages the strategies we discussed inChapter1.Inthiscase,theonewhofaresbetteristheonewhomakestheotherside’s weakness more salient throughout the negotiation. By focusing on thephotographer’s opportunity for publicity, the campaign manager was able tosecureagreatoutcomeforhisside.Meanwhile,thephotographerwassofocusedontheprospectoflosingagreatopportunitythathefailedtoconsiderthevaluethathecouldbringtotheRooseveltcampaign.

STRATEGY3:IDENTIFYANDLEVERAGEYOURDISTINCTVALUEPROPOSITION

Firmsthatbidforbusiness(suchasconsultingfirms,offshoreservicesfirms,quasi-commodity suppliers, construction and landscaping professionals, etcetera) often find themselves in a position of weakness. Here is a commoncomplaint:“Inourindustry,ourcustomersholdanauctionforeverydeal.Theysolicit bids, and then accept the lowest one. There is no opportunity to createvaluebyintroducingmultiple issues.Ourcustomers tellus thatwemust lowerourpricefurther,otherwisetheywillgotoourcompetitors.”

Thesenegotiatorsarestuckbargainingoveronlyoneissue(usuallyprice) inan arena where their competitors can compete effectively on the issue beingdiscussed. Though these situations represent a very specific example of“weakness,”wedevotespecialattentionto themherebecausetheseareamongthemostcommonproblemsourstudentsandclientsface.

Howcanyoucreate andclaimvaluewhenyour counterpart (typically, yourcustomer) is only interested in discussing price? Inmany such situations, youcanimproveyourprospectsbychangingthegameyouarebeingforcedtoplay.Consider that, in negotiation, your ability to legitimately claim value is afunctionofyourabilitytocreatevalue.Ifyoubringnothingtotheothersidethatthey cannot get elsewhere, then your offer is no better for them than theirBATNA. In other words, the ZOPA is small or nonexistent.Whywould theywanttomakeadealwithyou?

Thegoodnews is that, veryoften,youdo bring something to the table thatdistinguishesyoufromyourcompetitors.Thisisyourdistinctvalueproposition(DVP), and it need not be a lower price. You may have a better product, a

higher-qualityservice,agoodreputation,astrongbrand,orahostofotherassetsthatyourcustomervaluesandthatyoucanprovidemoreeffectivelyorcheaplythanyourcompetitors.Keep inmind thatyourDVP isnot just somethingyouthink your customer should value, but something they actually value. If youbringsuchvalue-addingelements to thedeal,youhavethepossibilityofusingthem to getwhat youwant (for example, a highermargin, repeat business, etcetera). The key is to figure out how to make your DVP a factor in thenegotiation. This can be difficult when you are stuck in a price-only auction,whentheothersideseemsuninterestedindiscussinganyissueotherthanprice,or when the other side is not familiar with the principle of creating value bynegotiatingmultipleissues.Fortunately,alloftheseobstaclesaresurmountable.ThefollowingfourstrategiescanhelpyoumakeyourDVPafactorthenexttimeyoutakepartinanegotiationorauction:

Submitmultipleproposals. It is not always possible to adequately gauge,priortomakinganoffer,whetherthecustomerhasanyinterestsotherthanalowprice.Forthisreason,biddersoftenwonderwhethertheyshouldbidthelowestpossiblepriceoraslightlyhigherpricethatincludesadditionalfeatures(suchasa higher-quality product or additional services). Next time, try doing both!Insteadofsubmittingonebid,considermakingtwoormorebidssimultaneously,astrategythatweinitiallydescribedinChapter3.Forexample,onebidmightbelowonpriceandonservice,whiletheotherissomewhathigheronboth.Ifthecustomer values service, theywill appreciate knowing that they can get extraattention fromyour firm at an additional cost. This strategywill also increaseyourchancesofsubmittingthewinningbid: if theyonlyvalueprice,your lowbid will be competitive; if they value other features, your higher bid will becompetitive.

Loweryourbidjustenoughtogetintothesecondround.Onereasonwhymanycompaniesuseprice-onlyauctionsisthattherearetoomanypotentialvendorsfromwhichtochoose.Butnotallauctionsendwithasignedcontract.Often, the auction is designed simply to “narrow the field.” For example, acustomermight invite tenormorefirms tobidforaproject,and thenwinnowthe list down to the two or three firms with the lowest price bids. Thesecandidatesare then invited toengage inone-on-onenegotiations.OurHarvard

colleaguesGuhan Subramanian andRichardZeckhauser have coined the termnegotiauction to describe this two-stage process.1 In such situations, you neednotsubmitthelowestbid;rather,youshouldsubmitabidthatislowenoughtopass the initial hurdle, and then try to create valuewhen negotiatingmultipleissueswiththecustomer.

Keep inmind thatyourcustomersmaynotnecessarily“announce”a formalnegotiauction(mostwillnothaveheardtheterm)orexplaintherulesaheadoftime.Buttheymaystillproceedasthoughthatistheprocesstheyarefollowing.Moreover,manycustomerswillbewillingtodiscussyourmulti-issueproposalevenaftertheauctionisoverifyouwerea“lowenough”bidder.Assuch,itisoften a good idea to reach out to your customers after you have “lost” theauctiontoseeifyouareinapositiontoofferapackagedealthattheyvalue.

One of our students recently described to us how his firm ended up on thelosingendofthisstrategy.Hisfirmwascompetingagainstfiveotherfirmswhowereallvyingforthesameprizedcustomer.Thecustomerheldanauctionandannounced that two of the five firms would advance to the final round ofnegotiations.Thestudent’sfirmwasoneofthetwotoadvance.“Wewereprettyexcited,”recalledthestudent.“Weknewhowtopositionourfirminrelationtothis[oneremaining]competitor,andwewereconfident that thedealwasours.Butwelostthedeal—toacompetitorwhohadnotevenmadeitpasttheinitialauction!”Whileourstudentandhiscolleagueswerecelebrating,thesalesteamof the third firm had gone back to the customer andmade the case that theycouldprovidethebestpackagedeal,despitehowtheauctionhadturnedout.

Taketheagentoutofthegame.Acommoncomplaintamongnegotiatorswhoareforcedtocompetesolelyonpricesoundssomethinglikethis:“Weareahigh-value partner for our customer. Unfortunately, the customer uses apurchasing agent to negotiate its deals, and this agent is compensated entirelybasedonhowlowapriceshenegotiates.Thenextthingweknow,we’restuckinan auctionwhere the only thing thatmatters iswho can provide the cheapestproduct. We lose—and the customer loses, too. The only winner is thepurchasingagent!”

Intermediaries such as purchasing agents—whose incentives are not alwaysalignedwiththosewhohavehiredthemtonegotiateontheirbehalf—constitute

oneof thebiggestbarriers toefficientdealmaking.But thereareways tokeepsuchintermediariesfromderailingyournegotiation.Herearetwostrategiesfordoing so, based on the successful experience of our executive students andclients:

•Sendacopyofyourproposalstothecustomer.Somemonthsago,oneofourstudentsdecidedtotrythestrategyofsubmittingmultipleproposalstothepurchasingagent,andsohesubmittedahigh-price/high-valueofferandalow-price/low-valueoffer.Hislow-priceofferwasaccepted.Someweekslaterhediscovered(inaconversationwiththecustomer)thatthecustomerhadneverevenseenthehigh-priceproposal!Inotherwords,theagenthadconvenientlyeliminateditfromthe“shortlist”thatwassubmittedtothecustomer.Havinglearnedfromthatexperience,ourstudentnowmakesahabitofsendingtohiscustomers(“asacourtesy”)acopyofanyproposalhesubmitstothepurchasingagent.“EvenifthecustomerchoosesnottolookattheinformationIsend,”explainsourstudent,“theveryfactthatit’ssittingontheboss’sdeskmakesthepurchasingagentthinktwicebeforehetriestodisregardmyhigh-valueproposal.”

•Negotiateapost-settlementsettlementwiththecustomer.Whenourclientsandexecutivestudentstellusthatpressurefromtheagentisforcingthemtosidelinetheirdistinctvaluepropositioninanefforttolowertheprice,weoftentellthemnottoworry.Typically,purchasingagentsexitthesceneoncetheyhaveservedtheirpurpose(albeitself-servingly)ofchoosingavendor.Ifyoureallyhavetheabilitytocreateadditionalvalueforthecustomer(beyondcuttingprice),youwillbeinastrongpositiontopitchyourpropositiononceyouaredealingwiththepartythatstandstobenefitfrom“hearingyouout.”Inotherwords,don’tassumeyouarestuckwithaninefficientagreement;ifbothsidescanbemadebetteroff,youcanalwaysrevisetheagreementafteryouhavewonthedeal.

Educateyourcustomersbetweendeals.Howoftendoyoucommunicatewithyourcustomers(orpotentialcustomers)whenthereisnopotentialdealonthetable?Youmightsendyourcustomersaholidaycardonceayear,buthowoftendoyoureachouttoeducatethemaboutyourabilitytoprovidethemwithnewsourcesofvalue?Ifyouarelikethevastmajorityofnegotiators,youspendlittle (if any) time doing so. But if your customers do not understand yourdistinct value proposition, then that is exactly what you should be doing. Itshould come as no surprise that customers will value your input and insightsmostwhen theyhave the time to listen to you,when they are least concernedaboutcuttingcosts,andwhentheyareundernopressuretocommittoanything.Theseconditionsaremostofteninplacewhenthereisnodealonthetable—thatis, when they are not likely to disregard your comments as an attempt tomanipulatethem.Inthemiddleofanauction,timepressure,costconcerns,andpressuretomakeafinaldecisionallworkagainstyou.Butthosewhoreachoutto their customers (and potential customers) in between auctions have the

possibility of building relationships, learning about their customers’ interestsand, most important, making their DVP a factor in the next negotiation orauction. Most customers are willing to discuss these matters openly and willappreciateyourdesiretounderstandtheirneeds.Inatleastafewcasesthatweknowof,vendorswereabletopre-empttheircustomers’nextauctionsentirely;bysignalinganinterestinunderstandingandmeetingthecustomers’needsandnegotiatingmultiple issues simultaneously, theywereable to signdealsbeforetheyeverwenttoauction!Thisshouldnotbetoosurprising:bothsidesstandtobenefit by engaging in negotiations that extend beyond discussions of price.Sometimesallthecustomerneedsisalittlebitofencouragement—oreducation—topushhiminthedirectionofhisownself-interest.

STRATEGY4:IFYOURPOSITIONISVERYWEAK,CONSIDERRELINQUISHINGWHATLITTLEPOWERYOUDOHAVE

Manyyearsago,whenDeepakwasaseniorincollege,hereceivedajobofferfromaconsulting firm.Deepak loved theoffer,withoneexception: the salarywas lower thanhehadhoped itwouldbe.Deepakcalled theHRmanagerandaskedwhethersalarieswerenegotiable.TheHRmanagertoldhimthatsalarieswerenotnegotiable,butofferedtosetupalunchwiththemanagingpartnersothatDeepakcoulddiscussanyissuesthatconcernedhim.Atlunch,afteranhourofpleasantconversation,themanagingpartnerexplainedthatthefirmcalculatedstarting salaries using a very simple formula in which only three factorsmattered:thecollegethenewhirehadattended,hisorheracademicmajor,andprior work experience. Since they had already considered these factors, theycouldnotincreaseDeepak’ssalary.

Deepakknewthathehadverylittlepowerinthenegotiation:hehadnobetteroffer to use as leverage, and he estimated that “holding out formore”wouldresult in little, if any, increase in salary.He decided to try a different kind ofstrategyaltogether.

Deepakrespondedbysayingthatheunderstoodthepartner’sperspective,thathe really loved the firm, and thathewoulddefinitely accept theoffer.Havingsaid that, Deepak continued, would the partner be willing to continue thediscussion regarding his salary?With the partner’s consent, Deepak made anextensive argument that boiled down to the following: he would bring morevalue to the firm than the simple formula suggested. He concluded byemphasizingthatsalarywasnotthemostimportantissuetohim—hehadalreadyacceptedtheofferbecausehewasveryexcitedabouttheopportunitytoworkat

thisfirm—butthatsalarywasnonethelessanissue,asitwouldbeforanyyoungpersonstartingoutinlife.Iftherewereanyhelpthatthefirmcouldgivehim,itwouldbegreatlyappreciated.

Thepartnerlikedwhatheheard,andpromisedDeepakthathewouldatleastgivethisperspectivesomethought.Thefollowingday,thepartnercalledDeepaktotellhimthatthefirmwouldgivehima10percentincreaseinsalarybecausetheyhad“takenanotherlookathis[summer]workexperienceanddecidedthatitprobablyshouldhavebeengivenmoreweightinthefirstplace.”

Was that really the reason for the raise?Deepak thinks that is unlikely.Themore likely reason is a simple but significant insight regarding power: if youhavevery littlepower,youmaybebetteroffgiving itupentirely.Putanotherway,ifyoucan’toutmuscletheothersideinanegotiation,youmaywanttostopflexing your muscles and, instead, simply ask them to help you. Whennegotiators try to leverage their power, others reciprocate.This pattern can bedisastrouswhenyouaretheweakerparty.Butwhenyoumakeitclearthatyouhavenointentionoffightingornegotiatingaggressively,othersmayalsosoftentheirstance.OncethemanagingpartnerdecidedthathewantedtohelpDeepak,he simplyneeded to findaway to justify thisdecision.Oncehe foundaway,Deepakgotwhathewanted.

STRATEGY5:STRATEGIZEONTHEBASISOFYOURENTIRENEGOTIATIONPORTFOLIO

Maxrecentlyconsultedwithafirminanindustrywhereprofitmarginshavefallen from about 20 percent to less than 5 percent over the last decade. Thisdeclineinmarginshasbeenduetoanincreaseinnewmarketentrantsandtoagrowing perception among customers that the competitors in the industry areinterchangeable. Inanattempt to learnabout thefirmandindustry,Maxaskedthe firm’s executives how often they simply refused to reduce their marginsbelow 10 percent. In other words, how often did they risk losing the deal inhopesofearningahigherprofitmargin?Theexecutivesrespondedthatthedayswerelonggonewhentheycouldtrytobesotough—theyneededeverydollarofrevenuethattheycouldget.Maxthenaskedthemtoestimatewhatpercentageoftheir business they would lose if they held out for 10 percentmargins. Theirestimate: at least 25 percent. At that point, Max simply recommended doingsomearithmetic:“Ifyoudoubleyourmargins [from5percent to10percent],”Maxnoted,“andyouloseeven49percentofyourbusiness,youarestillbetteroffintermsofoverallprofit.”

The resultsof this simpleanalysiscameasa surprise to theexecutives.Buttheir surprise is not, in fact, surprising. Too often, when negotiators aremyopicallyfocusedonthecurrentnegotiation,thestrategytheyadoptisnotaneffective one for their portfolio of negotiations. If you had only one deal tonegotiate, it would make sense for you to reduce your margins as much asnecessary towin the deal; after all, any amount ofmoney is preferable to nomoney at all (assuming that nomoney iswhat youwill get by pursuing yourBATNA).Butbecausetherearealmostalwaysmultiplenegotiationstoconsider,youneedastrategythatmakessenseforyourentireportfolioofnegotiations.Ifyouaregoingtonegotiatemanydealswithmanydifferentcustomers,youmaybewilling to lose somemoney inonenegotiation (becauseyouheldout for ahighermargin and lost the deal) in order towin evenmoremoney in anothernegotiation(becauseyouheldoutforahighermarginandtheyaccepted).Betteryet, ifyoucandistinguishbetween thosenegotiatorswhowill accept ahighermarginandthosewhowillnot—andifyoucanjustifychargingdifferentpricestodifferentcustomers—youmaybeinapositiontoincreaseprofitsevenfurtherbycharginghighermarginsonlytothosewhocanstomachit.

Thekeyistoaudittheimplicitassumptionsyoumakewhenformulatingyournegotiationstrategy.Youmayperceiveyourselfasbeing“weak”ifyoumeasurestrengthonlyastheabilitytopushhardinanygivennegotiationwithoutlosingthe deal. But youmay discover that you are actually quite “strong” once youbegintothinkaboutyourabilitytowithstandlosingsomedealsbecauseyouaremaximizing the value of your entire negotiation portfolio.When you consideryourentireportfolio, it isfareasier toimaginetakingbiggerrisks,keepingtheclientsforwhomyoucanaddthemostvalue,andbecomingmoreprofitable.

UPSETTINGTHEBALANCEOFPOWER

Weaknessisalwaysfrustrating,butperhapsnevermoresothanwhentheotherside acknowledges the value you create, but still pushes you around—simplybecause they are bigger and stronger and can dowhatever theywant.Maybeyour largest customer thinks it has the right to make onerous last-minutedemandsor to ignore someof its contractual responsibilities.Or perhaps yourcompetitorhasdecidedtosueyouforinfringingontheirpatent—acasethathaslittlemerit,but that theycan litigate to thehilt thanks to theirdeeppockets. Ifyouwanttostayinbusiness,suchbulliesimplicitlysay,youwillhavetoplaybytheir rules. In some cases, small business owners are held hostage by theiremployees; their top salespersonmight be rude, unprofessional, and overpaid,

but ifhe leaves the firmand joins thecompetition, theywill losehalfof theirbusiness.

Ineachofthesesituations,yourprospectsseembleakfortworeasons.First,youareinapositionofweakness.Second,youaredealingwithapersonoranorganization that is inconsiderate of your needs and entirely cavalier in thepursuit of their own self-interest.Howmight you negotiate in such instances?Begin by considering the various strategies we have outlined above fornegotiating without power. If these are not sufficient, consider exercising adifferent, potentially powerful option: shifting the balance of power in yourfavor.Aswewilldemonstrate,somenegotiationsrequireusnottoimproveourability toplaythegameas ithasbeendefined,but tochangethenatureof thegameitself.Thefollowingstrategieswillhelpyouturn the tablesonwould-bebulliesandachieveoutcomesfarsuperiortothoseyoumightotherwiseexpect.

STRATEGY1:INCREASEYOURSTRENGTHBYBUILDINGCOALITIONSWITHOTHERWEAKPARTIES

IntheirbookNegotiatingRationally,MaxBazermanandMargaretNealetellthestoryofhowLeeIacocca,thenCEOofChrysler,foundawaytomitigatehiscompany’sweakness by building a coalitionwith otherweak parties: hisU.S.competitors.2In1986,thethreeU.S.autocompanies(GeneralMotors,Ford,andChrysler) were engaged in extremely unhealthy competition, as each tried togainmarketsharethroughtheuseofrebates.Eachtimeonecompanyannounceda rebate, theother two rushed to raise theirown rebateoffer.Before long, theautocompanieswerelosingmoney,onaverage,oneverycartheysold!Iacoccarecognized that, because of this escalation problem, the automakerswere in averyweakpositionvis-à-vistheconsumer.HedecidedtoputanendtothisbyannouncingtothepressthatChryslerwoulddiscontinueitsrebateprogram—butthat if either of the other two companies continued to offer rebates, Chryslerwouldmatchthoserebates.ThisactionbyChryslerhelpedtoendtherebatewar,stoppedprofiterosionintheindustry,andreturnedallthreeU.S.automakerstoprofitability.

Whywas Iacocca’s strategy effective?Because it shifted power away frombuyers and toward sellers.When a company offers to match its competitors’offers, this can turn out to be a very bad deal for consumers; such initiativeseliminate the incentive that competitors have to lower their prices (or offerrebates)toattractcustomers.Asaresult,thethreeU.S.automakers,whichcouldnolongerbepittedoneagainstanotheronpricealone,gainedbargainingpower.

Youcanusethesamestrategy—buildingcoalitionswithotherweakparties—in your own negotiations. Consider that, when your customer hasmany othercompanies fromwhomhe canpurchase, you are in aweakposition, but so iseachofyourcompetitors.Whenyourbosshastheoptionofhiringorfiringyou,youare in aweakposition,but so is eachofyour coworkers.Andwhenyourcountryissmallandhaslittlevoiceininternationalnegotiations,yourcountryisinaweakposition,butsoaremanyothersmallcountries.Fortunatelyforthosewhohavelittlepowerintheirnegotiations,itissometimespossibletoshiftthebalanceofpowerbyaligningwiththeseotherweakentities.

Forexample,whenbargainingwithmanagement, individualemployeeshaveoften banded together to form unions. If a company were to negotiate withemployeesoneat a time, it couldcredibly threaten tohire someoneelse if theemployee’s demands were perceived as excessive. When employees bargaincollectively, however, they avoid competing against one another. The result istypicallyanabove-marketwageforallemployees.Thisprocesseffectivelyshiftspowerandmoney fromshareholders toemployees.Asimilar rationalehas ledmany small businesses in the United States to negotiate collectively withinsurancecompaniesinordertolowerthecostofhealthinsurance,andhasledmany small farmers in developing countries to form “cooperatives” that allowthemtonegotiatehigherpricesfortheproducetheytaketomarket.

In the realm of international relations, a vivid example of the power ofcoalitions surfaced during the 2003World Trade Organization negotiations inCancún, Mexico. Disgruntled by the continued lack of attention paid to theissuesofconcerntodevelopingnations(suchasreducingagriculturaltariffsandfarm subsidies), twenty-one “weak” countries banded together to create theGroupof21.Thisgroupisnowinamuchstrongerpositiontonegotiatefortheinterestsofitsmembersthananymembernationwouldhavebeenonitsown.

Ineachof theseexamples, coalitionbuildingamongweakerparties led toaweakeningof thepreviouslymorepowerfulside’sBATNA.Whenyoubuild—andareabletosustain—acoalitionwithotherweakparties,youmakeitdifficultfortheothersidetopitoneweakpartyagainstanother,ortocrediblythreatentowalkawayfromthedeal.

STRATEGY2:LEVERAGETHEPOWEROFYOUREXTREMEWEAKNESS—THEYMAYNEEDYOUTOSURVIVE

In 1919, after the end ofWorldWar I, the leaders of the victorious Allied

forces(mostnotably,theUnitedStates,GreatBritain,andFrance)metinParistoconductmanymonthsofnegotiationsthatwoulddeterminethefateofEuropeandmuchof the rest of theworld.Manyof the countries affected by thewarwere invited tomakeappeals and arguments to theAllies regarding their fate.Most of these arguments pertained to the reshaping of geographic boundaries.Thenegotiationsledtothebirthofsomenewnations,aswellastothereshapingof existing boundaries that helped some countries while hurting others. Mostnationsthatgainedterritoryhadbeenstrongalliesofthevictorsandcouldthusjustifyaclaimtothe“spoils”ofwar.ButamongthosethatprofitedfromthesetalkswasaweakcountrythathadcontributedrelativelylittletotheAlliedwareffort:Romania.Whenthenegotiationsended,Romaniahadroughlydoubledinsize.Howwas this possible?WhywasRomania able to claim somuchvaluewhenithaddonelittle,ifanything,tocreatevalue?

Romania’s power lay not in its strength but in its weakness. Here’s why:When the war ended, the greatest perceived threat to the Allied nations (inparticular, toGreatBritain and theUnitedStates)was not a resurgenceof thedefeated enemy. Rather, it was communism, the recently empowered politicalphilosophy that had made its debut with Russia’s 1917 October Revolution.Because of the great fear of communism’s potential to spread westward,Romania, which lay immediately to the west of Russia, suddenly became animportantconsideration.IfRomaniafell,communismwouldgainanotherlargefootholdinEurope.TheleadersofRomaniadidnotwantthis tohappen;moreimportant,theyknewthattheAlliedforcesdidnotwantthistohappen—andthatishowtheywereabletoextractmorevaluefromthepostwarnegotiationsthantheymight have otherwise “deserved.”Romania’s argument can be simplifiedthus: give uswhatwe ask for, or elsewewill remainweak; thenwewill bedestroyed,andyouwillsufferasaconsequence.

Similar dynamics play out in business contexts as well. In one case, twocompanies that had signed a joint-venture (JV) agreement found themselvesenmeshed in a bitter dispute when one of the companies, anxious about theother’sgrowingpresenceinamarketinwhichtheycompeted,threatenedtosueforpatentinfringement.Thedefendantknewthatthecasewasfrivolous,butalsoknewthattheplaintiff,amuchlargercompany,couldaffordtolitigateuntilthedefendantwent intobankruptcy.Despite itsseeminglyprecarioussituation, thedefendantmanagedtoconvinceitsJVpartnertodropthelawsuitandtoreachamutually agreeable settlement. The defendant’s argument was essentially thefollowing: “If you take us to court, you have the power to push us into

bankruptcy. Clearly,we do notwant this. But let’s also think aboutwhat thiswouldmeanforyou:youwouldloseavaluablepartner.Itwouldbebestforbothofusifwecouldsetasidethethreatofpatentlitigationandseewhetherwecanworkoutanagreementthatallowsustocontinueusingthedisputedtechnology,foryoutofeelmoresecureaboutyourmarketposition,andforustocontinueavalue-creatingrelationshipthatcapitalizesonoursynergies.”

What is the underlying principle of this strategy? If you create value forothers,yougainatleastsomepowertoclaimvalueforyourself—regardlessofwhethertheothersidewishestorewardyouforwhatyoubringtothetable.Inextremecases,whentheypushtoohard,theypotentiallyhurtthemselves.Theymaynotrecognizethis,however,whichiswhyitisworthremindingthemthatstrengthisnotsimplymeasuredby“whatyoucanforceothers todo”or“howeasilyyoucanmakesomeone’slifemiserable”rather,itmaybebettermeasuredby“whatvalueyoucancreateforothers.”Asaresult,itisoftenusefultotellthenegotiation “bully” that an overly strong show of force can becounterproductive: “If you push me too hard, you’ll destroy me—and lose avalue-creatingpartner.”

STRATEGY3:UNDERSTAND—ANDATTACK—THESOURCEOFTHEIRPOWER

Formany years now, PlannedParenthoodmedical clinics across theUnitedStates have faced a recurring problem. Every so often, antiabortion protestorspicket outside the clinics in the hope of discouraging women from enteringthem.Thestrategyseemstoworkquitewell;manywomenwhomightotherwisevisittheclinicsaredauntedbytheprospectofpassingthroughalargecrowdthatiswavingsignsandhurlingverbalabuse.Settingaside themoralandpoliticalelementsofthisconflict,howmighttheclinicsdealwiththestrategicproblemofreducingthenumberofintimidatingprotestors?

AnumberofPlannedParenthoodclinicsaround thecountryhaveadoptedaparticularly creative strategy for fighting back, usually referred to as the“Pledge-a-Picket”program.Here’showitworks:Theclinicasksitssupporterstopledgedonations to thecliniconaperprotestorbasis.Themoreprotestorsthatshowuptopickettheclinic,themoremoneytheclinicraisesindonations!For example, if someone pledges 50 cents per protestor, and one hundredprotestors show up at the clinic, that supporter will donate $50 to the clinic.Many clinics have used this strategy to effectively reduce the incentive ofprotestors to show up to picket, and some have raised tens of thousands of

dollars in pledges.ThePlannedParenthoodofCentralTexas (PPCT) inWacohasevenpostedasignoutsideitsclinicthatreads:“EvenOurProtestersSupportPlannedParenthood.”

As thePledge-a-Picketstoryreveals, it isnotenough thatyourecognize thestrengthsandweaknessesofeachside.Itisalsocriticalthatyouunderstandthesource of each side’s strengths andweaknesses.Once the PlannedParenthoodclinicsunderstood that the sourceof their opponents’ powerwas the ability todrawlargenumbersofprotestorsoutsidetheclinic,theywereabletothinkofanovelwayofdiminishingthebenefitsofdoingso.

AstudentofDeepak’swhoownsahighlysuccessfulreal-estatedevelopmentcompany recently used this strategy to deal with a problem that will seemstrangetomanyAmericans.Hiscompanyislocatedinacountrywhereblatantpolitical corruption is much more common than in the United States. In thisparticular case, the developer was awaiting governmental approval for a verylucrative construction project that he had signed. Everythingwas ready to gowhen,suddenly,theapprovalprocesswasstoppeddeadinitstracks.Thereasonbecamecleardayslaterwhenthedeveloperreceivedaphonecallfromthesonofthepowerfulelectedofficialwhowasinchargeofsigningoffontheapproval.Thesonwantedastakeintheproject,andhemadeitclearthatifthepartnershipwereaccepted,theapprovalwouldbegrantedquickly.Thedeveloperknewthatitwaspossibletocircumventtheson(andhisfather)bygoingthroughthecourtsystem and by contacting other officials withmore seniority, but that processwould take a long time.Unfortunately, timewas of the essence; his companywasabouttogopublic,withaninitialpublicoffering(IPO)scheduledinthreemonths. If potential investors were to discover that the project might not beapproved, the company would be valued somewhat less. More problematicwould be the timing of such a rumor. If the politician’s sonwas rebuffed, hecould decide to publicize the approval problems just when the company wasabouttogopublic.Whattodo?

Deepak advised the following strategy, which the developer executed withmuch success: go public immediatelywith the information regarding potentialdelaysinapproval.Inotherwords,revealtothemediathattheprojectisunderway,butthatitsapprovalwillprobablynotbefinalizeduntilsomemonthsafterthecompanygoespublic.Atthesametime,thedevelopershouldreleaseallofthedocumentsrelatedtothemeritsoftheproject,aswellasthelettersthatthepolitician sent earlier in support of the project’s approval. That way, investor

confidencewillremainhigh.

Thisstrategyhasat least threeobviousmerits.First,bygettingaheadof thestory,thedevelopercontrolshowthenewsisreportedandinterpreted.Second,bymakingthisinformationpublictwomonthsbeforetheIPO,thenewsitselfismadelesssalient to investorsbythe timethecompanygoespublic.Third,andperhapsmostimportant,withthenewsalreadyinthepress,thepolitician’ssonloseshisonlysourceofleverage.Becausetheson’spowerliesprimarilyinhisability to damage the developerwhen he ismost vulnerable (during the IPO),that is the element to be targeted. As with the Pledge-a-Picket strategy, thisstrategyidentifiesanddestroystheprimarysourceofanopponent’spower.

The same principle applies to negotiations of all sorts. If you are afraid toconfrontyourpowerful salesperson,orarewaryofdenyinghis request foryetanotherexorbitantraise,consider thesourceof thesalesperson’spower.Inthiscase, it may be that the salesperson has stronger relationships with yourcustomers thanyoudo.Knowingthis,howmightyoustrategize?In theweeksandmonthsahead,beginbuildingrelationshipswitheachofyourkeycustomers.Youmightevenlocktheminwithattractivemultiyearcontracts.Then,whenyoustanduptoyoursalesperson’sdemands,thereislittlewithwhichhecanthreatenyou.Hemaychoosetoleavethefirmandgotoacompetitor,buthisabilitytotakeyourcustomerswithhimwillbesignificantlyweakened.

THEPOWEROFGENIUS

Allofthestrategiesandinsightsdiscussedinthischapterstemfromonecrucialinsight:while being in a position ofweakness is sometimes unavoidable, youwillnegotiatemosteffectivelywhenyouleveragethefundamentals—systematicpreparation and careful strategy formulation. Unfortunately, many negotiatorscompound theproblemofweaknessbybecomingobsessedby the factors thatmakethemweak.Thisdoesnotmeanthatyoushouldignoreyourweaknesses.But, as dangerous as it is to ignore your weaknesses, it can be equallydevastatingtooverlookyourstrengthsortoassumeyouhavenone.

Thosewho“thinkweak” inevitablyalso“actweak.” Ifyouareobsessedbyyourweaknesses, youwill be less likely to set reasonably high aspirations, tofeelconfidentaskingformoreinformation,todemandthatyourconcessionsbereciprocated,ortopushtheothersidetoconsiderthevaluepropositionyouareoffering.Youwillalsobemoresusceptibletoinfluencetacticsandthreats.

Negotiation geniuses recognize their weaknesses and try to mitigate them.Once they have done so, they know they must also focus on their strengths,prepare systematically, and negotiate with an eye toward improving theirnegotiatingposition.Doingsowillnotguarantee“victory,”butitwillensurethatyou have done as well as possible given the situation. Indeed, the power ofnegotiation genius may be most valuable to you in precisely those situationswherethealternativeistodespair—ortorelyongutinstinct.

CHAPTER12

WhenNegotiationsGetUgly:DealingwithIrrationality,Distrust,Anger,Threats,andEgo

Bymostexpertaccounts,theCubanMissileCrisisbroughttheworldclosertonuclearannihilationthanithaseverbeen—beforeorsince.Thecrisisentailedan escalation of conflict between theUnited States and the SovietUnion thattookplacebetweenOctober16, 1962, andOctober28, 1962.Whatdrove twocivilized nations to the brink ofmutual destruction?More important, howdidtheymanagetonegotiatetheirwaytoasafe,mutuallyacceptablepeace?

InhisbookThirteenDays,RobertKennedydescribedtheeventsleadinguptothecrisis,arguablythemostdangeroustwoweeksinallofhumanhistory.1Theconflictwas instigatedwhenUnitedStates spyplanes revealed that theSovietUnionhadbegunplacingmissiles inCubathatwouldbecapableofdeliveringnuclearweapons to theUnitedStates.Due to thecloseproximityofCuba, theU.S. government became very anxious. Making matters worse, just weeksearlier, Soviet ambassador Anatoly Dobrynin had explicitly promised theAmericansthatnosuchmissileswouldbeplacedinCuba.

In the days that followed theAmericans’ discovery of themissiles, the twoenemies exchanged threats and counterthreats. As the conflict escalated,emotionsmountedanddistrustheightened.Bothsideswereawarethatanattackbyeithercountrywouldleadtoretaliation,andsoitwouldbeentirelyirrationalforeithersidetotakeanystepsthatcouldleadtowar.Butbothsideswerealsoaware that irrationality might prevail. As Soviet chairman Nikita Khrushchevwroteinaletter toPresidentJohnF.Kennedyduringthecrisis,“If indeedwarshouldbreakout, then itwouldnotbe inourpower to stop it, for such is thelogicofwar.”

Acutely aware that both sides were armed and ready to launch nuclearweapons,PresidentKennedyreflectedonthegrowingsentimentamongmanyofhis advisers that a toughmilitary response against Cuba was the best option.Kennedyinsteadchosethelessaggressiveoptionofinstitutinganavalblockade

ofCuba,explainingtohisadvisersthat“thegreatdangerandriskinallofthisisamiscalculation—amistake in judgment.”More belligerent actions, Kennedyargued,wouldlikelydrivetheconflicttoapointofnoreturn:“Itisn’tthefirststepthatconcernsme,butbothsidesescalatingtothefourthandfifthstep—andwedon’tgotothesixthbecausethereisnoonearoundtodoso.”AccordingtoRobertKennedy,“thePresidentbelievedfromthestartthattheSovietChairmanwas a rational, intelligent man who, if given sufficient time and shown ourdetermination,wouldalterhisposition.Buttherewasalwaysthechanceoferror,of mistake, miscalculation, or misunderstanding, and President Kennedy wascommittedtodoingeverythingpossibletolessenthatchanceonourside.”

But clear communication and rigorous analysis would not be sufficient toresolvethecrisis.Therewasalsothematterofpersonalegosandnationalpride.The entire world was watching, and neither Kennedy nor Khrushchev couldaffordtobeseenasweakbyhiscitizens,politicalopponents,mediaanalysts,ortheinternationalcommunityatlarge.RobertKennedyrecalledadiscussionthattook place between the president and his advisers one evening: “Neither sidewantedwaroverCuba,weagreed,butitwaspossiblethateithersidecouldtakea step that—for reasons of ‘security’ or ‘pride’ or ‘face’—would require aresponsebytheotherside,which,inturn,forthesamereasonsofsecurity,pride,orface,wouldbringaboutacounter-responseandeventuallyanescalationintoarmedconflict.”

Therewaseveryreasonforthesituationtospiralentirelyoutofcontrol.How,then,were the twosidesable tonegotiateapeaceful settlement?According toRobertKennedy, itwasthenegotiationgeniusofhisbrother,PresidentJohnF.Kennedy,thatsavedtheworldfromnuclearwar:PresidentKennedymadeithistopprioritytounderstandaswellaspossibletheinterests,needs,constraints,andperspective of the other side. “The final lesson of the Cuban missile crisis,”wrote Robert Kennedy, “is the importance of placing ourselves in the othercountry’sshoes.Duringthecrisis,PresidentKennedyspentmoretimetryingtodetermine the effect of a particular course of action on Khrushchev or theRussiansthanonanyotherphaseofwhathewasdoing.Whatguidedallofhisdeliberations was an effort not to disgrace Khrushchev, not to humiliate theSovietUnion,nottohavethemfeeltheywouldhavetoescalatetheirresponsebecausetheirnationalsecurityornationalinterestssocommittedthem.”

Thefinaldeal,negotiatedheavily throughbackchannels inaneffort tohelpthepartiessaveface,wasthis:theSovietUnionwouldremovethemissilesfrom

Cuba; in return, the United States would pledge not to invade Cuba and toremove American missiles from Turkey (which were seen as a threat by theSovietUnion).Outofaconcernforhowthislatterconcessionwouldbejudgedbythepublic,RobertKennedyinsistedtoSovietambassadorDobryninthattheremovalofmissilesfromTurkeycouldnotbeseenasaquid-pro-quoconcessionfortheremovalofmissilesfromCuba.Asaresult,thiselementofthedealwasnotmadepublicforyears.

In retrospect, the outcome of this crisis seems unremarkable: both partiesremoved their offendingmissiles and the conflict deescalated. But it is worthasking:whatwouldhavehappenedifPresidentKennedy,insteadoffocusingsointentlyonKhrushchev’sneedsandinterests,hadinsteadlistenedtohismilitaryadvisers,mostofwhomstronglysupportedairstrikesagainstCubarather thanthelessaggressiveblockadeoption?Considerthefollowing.DuringtheCubanMissileCrisis,U.S.intelligencereportsconcludedthatwhileCubahadmissilescapableofcarryingnuclearwarheads,ithadnoactualnuclearwarheads.Itwasonly years later that the truth—previously known only to theCubans and theSoviet Union—was made public: at the time of the crisis, Cuba had enoughnuclearwarheads to obliterate the eastern seaboard of theUnited States—andtheyhadtheauthorityandintenttousethesewarheadsiftheywereattacked.Inotherwords, theunremarkableoutcomeof theCubanMissileCrisiswasbynomeansassured.If,insteadofnegotiatingwithhisenemy,PresidentKennedyhadchosentoacttough,flexU.S.militarymuscle,andfollowtheadviceofhistopbrass, his decisions would have resulted in the deaths of tens of millions ofAmericans.

Throughout this book, we have encouraged you to try to understand theinterests, needs, constraints, and concerns of the other side and to work withyourcounterparts tocreatevalue.Butwhathappenswhen this seemsvirtuallyimpossible?Whathappenswhenyourcounterpartisyour“enemy,”unwillingorunable to work with you to reach a mutually agreeable outcome? It is worthremembering at such moments that President Kennedy confronted,simultaneously,theveryworstofwhatispossiblewhennegotiationsturnugly—irrationality,distrust,anger, threats,andego—andsucceedednonetheless.Herewewillconsidereachofthesefivefactorsand,indoingso,provideyouwithasetofprinciplesandstrategiesthatyoucanleveragewhenyourownnegotiationsturnugly.

DEALINGWITHIRRATIONALITY

“Allofthestrategiesyouhavedescribedworkwhenyou’redealingwithpeoplewhowill listentoreason,”anexasperatedexecutivestudentremarkedrecently.“But the people I deal with are completely irrational. How can you possiblynegotiatewithsomeonewhoisirrational?”Astheexecutive’squestionreveals,negotiators often struggle with the task of trying to negotiate with thosewhobehaverecklessly,strategizepoorly,andactinwaysthatseemtocontradicttheirownself-interest;anywould-benegotiationgeniusneeds tounderstandhowtodealwiththeseobstacles.

Our advice is this: be very careful before labeling someone “irrational.”Whenever our students or clients tell us about their “irrational” or “crazy”counterparts,weworkwiththemtocarefullyconsiderwhethertheothersideistruly irrational.Almost always, the answer isno. Inmost cases, behavior thatappearstobeirrationalhasarational—albeithidden—cause.Here,wewillsharethe three most common reasons that negotiators erroneously judge others asirrational.2Wewill also describe the dangers of doing so and explain how toavoidmakingsuchmistakes.

MISTAKE1:THEYARENOTIRRATIONAL;THEYAREUNINFORMED

An executive (who is one ofDeepak’s students)was recently involved in adisputewithanex-employee.Theemployeeclaimedthathewasowed$130,000insalescommissionsfortheworkhehaddonepriortobeingfiredfromthefirma fewmonths earlier.The executive, on theotherhand, claimed the employeewas owed nothing—in fact, he insisted the employee had been overpaid by$25,000.

Whatwasthereasonforthisdiscrepancy?Atthetimetheemployeewasfired,thecompany’saccountswereamess;recordshadbeenkeptpoorly.Sincethen,the firm had hired a new accountant and updated all of the records. Theserecordsnowclearlyrevealedthattheemployee’sclaimwasentirelyillegitimate;ifanyonehadaclaimtomake,itwasthefirm.Theexecutivewasuninterestedingoingtocourttorecoupthe$25,000thatthefirmwasowedandwantedtodropthematterentirely.

Theexecutivecalledtheemployeeandtoldhimwhattheaccountingrecordsrevealed;healsoofferedtosendacopyoftherecords.Hethenmadeitclearthathis case was airtight, but offered to forgive the $25,000 overpayment if theemployeeagreedtoforgohisgroundlesssuitaswell.Theemployee’sresponse:

“Noway.Idon’tneedtoseetherecords.I’llseeyouincourt!”

TheCEOwasveryconfused.Therewasnowayfor theemployee towin incourt.Whywashebehavingsoirrationally?

Deepaksuggestedtotheexecutivethattheproblemwasprobablynotthattheemployeewasirrational,butthathelackedcredibleinformation.Theexecutivewasconvincedthattheemployeewouldlosethecourtbattle,butitwaspossiblethattheemployeewasstillconfidentthathewouldwinthecasebecausehedidnot trust the executive or the firm’s record keeping.How could the executiveeducate the employee regarding his prospects for winning in court? Deepakadvised him to have an objective third party, specifically a professionalaccountingfirm,conductanauditoftherecordspertinenttothisdisputeandtomailtheresultstotheemployee.(Thiswouldbefarlessexpensivethangoingtocourt.) Having this information would diminish the employee’s perceivedlikelihoodofwinningincourtandmakelitigationalessattractiveoption.Whatwastheresult?Theemployeedroppedthesuit.

WhenDeepakwasingraduateschool,aneconomicsprofessorbeganthefirstday of class with the following statement: “I want you all to remembersomething—you are not stupid, you are just ignorant. If youwere stupid, wecouldnotdomuchaboutit.Butignorancewecanfix.”Thisinsightisasrelevanttonegotiators as it is to graduate students.Often,when theother side appearsirrational,theyareinfactuninformed.Ifyoucanhelpeducateorinformthem—abouttheirtrueinterests,theconsequencesoftheiractions,thestrengthofyourBATNA,andsoon—thereisastronglikelihoodtheywillmakebetterdecisions.Forexample,ifsomeonesaysnotoanofferthatyouknowisinherbestinterest,donotassumesheisirrational.Instead,worktoensurethatsheunderstandswhytheofferisinherbestinterest.Shemaysimplyhavemisunderstoodorignoredacrucialpieceofinformation.

MISTAKE2:THEYARENOTIRRATIONAL;THEYHAVEHIDDENCONSTRAINTS

In 2005, the U.S. government passed legislation to increase food aid tocountries that were in dire need of such assistance. There was much supportamong politicians and activists for this initiative. Not surprisingly, however,there were also certain special-interest groups that opposed this legislation.Here’s whatwas surprising: one of the groups that voiced opposition was aconsortium of nonprofit organizations whose mission it was to lobby for anincrease infoodaid todisadvantagedcountries!Whatexplainssuchseemingly

irrationalandself-defeatingbehavior?Whywouldthisgroupopposelegislationthatachievespreciselywhatitpurportstowant?

The answer lies not in understanding the group’s interests, but inunderstanding its constraints. In order to increase the amount of food sent todisadvantagedcountries,theconsortiumhadinthepastpartneredwithAmericanfarmers to lobby the U.S. government jointly for greater aid. Why did thefarmers join in this campaign? Because when the U.S. government increasedfood aid, it bought more food from American farmers. As a result, both thefarmersandthenonprofitsgotwhattheywanted.

This case, however, was different. Mindful of escalating budget deficits,Congress had decided that the only way to increase foreign food aid was topurchase the food more cheaply—not from American farmers, but fromdevelopingcountries.Whatwouldappeartobeadoublewinforthenonprofits(increased food aid and increased support for poor farmers in developingcountries) instead created a predicament. If the nonprofits supported thelegislation,theywouldbeseveringtieswiththeirlongstandingcoalitionpartner,the American farmer. Instead, the nonprofits decided that their long-terminterestswerebestservedbyopposingthelegislation.Thismaystillseemlikeaquestionabledecisiononmoral,ethical,orothergrounds,butitseemsirrationalonlywhenweoverlookthehiddenconstraintsfacingthenonprofits.

The problemof hidden constraints is present inmany negotiations.When afirm loses a star employee because it refuses to raise her salary to match acompetitor’shigheroffer,thefirmisnotnecessarilybehavingirrationally;itmayinsteadbeconstrainedbyanHRpolicy that restricts it fromcreatinghugepaydifferentialsinthefirm.

Similarly, when your counterpart seems unwilling to make even small,reasonable concessions that could seal the deal, youmight tell yourself he’s afool, or you might try to discover howmuch authority he has to negotiate acomprehensive,value-maximizingdeal. Ifhe isheavilyconstrained,youmighttrytonegotiatewithsomeonewhohasgreaterdealmakingauthority.

In negotiation, a wide variety of possible constraints exists. The other sidemay be constrained by advice from her lawyers, by the fear of setting adangerous precedent, by promises she has made to other parties, by timepressure,andsoon.Negotiationgeniusestrytodiscovertheseconstraints—and

tohelpotherpartiesovercomethem—ratherthandismissingothersasirrational.

MISTAKE3:THEYARENOTIRRATIONAL;THEYHAVEHIDDENINTERESTS

Someyearsago,agroupofmanagersdecided topromoteLeslie,oneof thefirm’sadministrativeassistants.Lesliehadworkedfor the firmfor thirtyyearsand was only two years away from retirement. She had performed wellthroughouthercareerandhadreceivedsalaryincreasescommensuratewithherperformance.Becauseshewasalreadyatthetopofhersalarybracket,itwasnotpossibleforthemanagerstopayhermoremoney;norwasshescheduledforaformal performance appraisal. Rather, the managers simply wanted to dosomethingniceforLeslie,sotheydecidedtosurpriseherwithapromotion.Herjob responsibilitieswouldnotchange,but thenew titlewouldgivehergreaterstatusandprestige.

Whensheheardofthepromotion,Lesliewasdelighted.Sheunderstoodthathersalaryorjobresponsibilitieswouldnotincrease,butthatwasfinewithher.

Soonafterreceivingthepromotion,however,Leslielearnedthatshewasnowamong the lowest-paid employees with her job title. She also began to feeluneasyabouthavinga“fake”jobpromotion—shewasdoingnomoreworkandreceivingnomorepay than sheused to, and thismadeher feel self-consciouswithhercoworkers.Sheaskedforaraiseandvoicedherwillingness toacceptmoreresponsibilities,butwasquicklydenied.

Within a fewweeks of her promotion,Leslie decided that shewould ratherquit her job than be treated this poorly. By doing so, she lost two years ofcompensationandalsotookahitinherretirementbenefits.Themanagers,whohad only the best of intentions, were left asking themselves, “Why did shebehavesoirrationally?”

What themanagers failed to appreciatewas thatmoneyand statuswerenottheonlyissuesofinteresttoLeslie.Shealsocaredaboutperceptionsoffairnessandequity.Themanagersfelttheyhadgivenhermorethansheevendeserved.Butinfailingtoseehowtheirdecisionwouldplayoutinthefuture,theycreatedasituationinwhichLesliefeltundervalued,phony,andembarrassed.

Moregenerally,peoplewillsometimesrejectyourofferbecausetheythinkitisunfair,becausetheydon’tlikeyou,orforotherreasonsthathavenothingtodowiththeobviousmeritsofyourproposal.Thesepeoplearenotirrational;they

aresimplyfulfillingneedsandintereststhatyoumaynotfullyappreciate.Whenothers appear irrational, negotiation geniuses do not write them off as crazy.Instead,theyinvestigate:“Whatmightbemotivatinghertoactthisway?Whatareallofherinterests?”

BUTWHATIFTHEYREALLYAREIRRATIONAL?

If your counterpart truly is irrational—in other words, he is determined toworkagainstwhatis inhisbest interest—thenyouroptionswillbefewer.Youcantrytopushthroughanagreementdespitehisirrationality,youcantryto“goaroundhim”bynegotiatingwithsomeoneelsewithauthoritywhoseemsmorewillingtolistentoreason(suchashisbossorcolleague),oryoumaydecidetopursueyourBATNAbecausehisirrationalityhaseliminatedallhopeofcreatingvalue. You might also leverage the various strategies for confronting yourcounterpart’sbiasesthatwehaveoutlinedinChapters4–6.

But we suggest—again—that you reconsider your assessment. Negotiatorswhoarequicktolabeltheotherparty“irrational”dosoatgreatpotentialcosttothemselves.Whenyouusethe“irrational”label,youlimityouroptions,becausethere is notmuchyou can say to someonewhoyou truly believe is unable toreason,uninterestedinfulfillingherowninterests,andincapableofnegotiatingeffectively. Your options greatly increase when you recognize that the otherparty is not irrational, but simply uninformed, constrained, or focused oninterests that you did not anticipate. And as you know, themore options youhave,themoreeffectivelyyouwillnegotiate.

DEALINGWITHDISTRUST

Some years ago, a dispute arose between a U.S. manufacturer of electronicequipmentandoneof its foreigndistributors.Each side felt that theotherhadrenegedon its responsibilities,andbothwere ready togo tocourt tosettle thematter.Notsurprisingly,thetwosideshadverydifferentperspectivesregardingwhathadgonewrong.

Themanufacturerclaimedthatthedistributorhadfailedtomeetitsminimumpurchase-order requirement for a key product and that the distributor did nothave enough distribution channels in place to fulfill its contractualresponsibilities.Themanufacturersimplywantedtobepaidfortheequipmentithad already delivered and to terminate its agreementwith the distributor. Themanufacturer claimed that it could no longer trust the distributor and wanted

nothingmorethantoendtheirrelationship.

Meanwhile, the distributor claimed that, within months of signing theiragreement, themanufacturerhad introducedanewand improvedmodelof thesame product and had refused to offer the distributor rights to sell it. By allindications, thedistributorclaimed, theentireagreementhadbeenaschemetodump old, obsolete models in the distributor’s region. In doing so, themanufacturer had defrauded the distributor. The distributor was demandingmillionsofdollarsinreparation.It,too,feltthatthebreachoftrustwassoseverethattherewasnowaytorevivetherelationship.

As it turns out, the story has a happy ending. The two sides opted formediationratherthanlitigation.Withthemediator’sassistance,theywereabletoreach an agreement that pleased both sides and that avoided a lengthy courtbattle.

Whatwas the agreement? Instead of ending their relationship and decidingwhichpartywouldpaytheotherforabreachofcontract,thetwosidesagreedtocontinuetheirrelationshipwitharestructuringoftheirexistingagreement.Themanufacturer agreed to give the distributor the right to distribute the newequipment (including the exclusive right to distribute in some parts of theregion),andbothsidesdroppedtheirfinancialclaims.

When we present this case to our executive students, many of them aresurprisedthateitherofthetwopartieswouldbewillingtoagreetosuchadeal.Themostimportantelementofanyrelationshipistrust,theseexecutivesargue;because the twosideshad lost trust ineachother, itwasunwise tonegotiateacontinuanceoftherelationship.Whenweasktheexecutivestoelaborateonthisperspective,theyoftenmakeoneormoreofthefollowingstatements:

•“Ifthereisnotrust,youwillgetnothingdone.”

•“Whydoadealwithsomeoneyoudon’ttrust?It’snotworththerisk.”

•“Ifthey’veexploitedyourtrustbefore,theywilldoitagain.”

Weagreewiththesentimentcapturedineachofthesestatements:indeed,trust

isessential inrelationships;hence, it isacritical ingredient innegotiation.Butwedisagreewith thebelief that trust cannotbe regained.More fundamentally,we disagreewith the belief that you should end a negotiation (or terminate arelationship) the moment you think that the other side is untrustworthy.Negotiationgeniusesconsiderdistrusttobeamajorobstacletonegotiation.Butbeforetheyabandonhopeofregainingthetrustthathasbeenlost,theyworktorebuildit.

The first step in rebuilding trust is to diagnose the distrust that exists.Negotiators often think of trust as one-dimensional: either your counterpart is“trustworthy”orsheisnot.Butconsider that therearemanydifferentkindsoftrust.3Forexample,youwilltrustyoursurgeonprimarilyonthebasisofwhetherhe or she has the competence to perform a surgery on you, but youwill trustyourspousemoreonthebasisofwhetherheorsheishonestwithyou.Similarly,there aremany dimensions alongwhichwemight trust our business partners,lawyers,employees,children,friends,andsoon.Itisalsothecasethatwecantrust someone on one dimension (“my lawyer is very competent”) but not onanother (“my lawyer is sometimes dishonest”).When this happens, youmustdecidewhichdimensionof trust ismostcritical to therelationship.Ifsomeonecannotbetrustedonthecriticaldimension,youmusteitherfixthetrustproblemorconsideryouralternativestodealingwithher.

Twobroadcategoriesofdistrustarerelevanttomanynegotiations:distrustofanother’scharacteranddistrustofanother’scompetence.4Considerthat,inthemanufacturer-distributor dispute, both sides distrusted each other—but fordifferent reasons. The manufacturer believed that the distributor wasincompetent: it did not have the infrastructure or know-how to sell theequipmentitwaslicensedtodistribute.Meanwhile,thedistributor’sdistrustwasmoreanissueofcharacter:onlyadishonestandunethicalcompanywoulddumpoutdatedequipmentinhisregionandhideinformationregardingnewermodelsduringtheinitialnegotiation.

Once you have diagnosed the source of distrust, you can identify the stepsneededtoregainit.Howmightthedistributorandthemanufacturerregaintrustineachother?Becauseeachsideisdealingwithadifferenttypeofdistrust,theprocess will be different for each of them. In the case of the distributor, itsmanagementmustdemonstratetothemanufacturerthattheircompanyisinfactcompetent.Howmighttheydothis?Theymightinvitethemanufacturertovisittheirregiontoseethedistributionchannelsfirsthand,theymightshowpurchase-

orderdatathatconfirmtheirabilitytoachievehighsales,ortheymightprovidereasonablejustificationsastowhytheirinitialorderdidnotmeettheminimumpurchasingagreement.

Meanwhile, to gain the trust of the distributor, the manufacturer’smanagementmustdemonstrate that theyarehonestandethical.Theymightdothis by explaining to the distributor that it is common practice in the UnitedStates not to reveal information regarding products in development—thoughtheynowunderstandthatthispracticemaybeviewednegativelyinsomeothercountries.Themanufacturermightalsooffer toextendapeaceoffering(in theform of financial or other considerations) as an apology for unintendedwrongdoing.Finally,themanufacturer’sdecisiontoallowthedistributortosellthe new product may in itself help overcome the perception that themanufacturerintendedtoexploitthedistributorallalong.

Ifthetwosidesinthisnegotiation—orinanynegotiation—areabletoidentifyandeliminate the sourceofdistrust, trust canclearlybe rebuilt.Unfortunately,negotiators are often dismissive of this possibility. Instead, once they havelabeled the other party “untrustworthy,” they look only for information thatconfirmsthisbelief.Moreover,whentheyarethemselvesdistrusted,theyoftenbecome defensive or angry rather than focused on trying to systematicallyeliminate this perception.Negotiationgeniusesunderstand thatwhen theothersidesays(orimplies)thatyouareuntrustworthy,itistimetoinvestigate:“Whydoeshethinkso?Whatwouldittaketoovercomethisperception?”

DEALINGWITHANGER

A few years ago, Deepak was shooting pool at a bar with a friend and twostrangers. Suddenly, a group of about eight college students stormed into theroom.Theythrewapoolstickontothetable,disruptingthegame,andstartedtoscreamandcurse.Needlesstosay,Deepakandhisfriendweretakenaback.Thetwostrangerswhowereplayingwiththemimmediatelychargedattheleaderofthegangofstudents.Inamatterofseconds,thefriendlygameofeightballhadbecomeashovingmatch.Afightwasabouttobreakout—anditwasnotatallclearwhy.

Trying to stop the fight,Deepakandhis friendwedged themselvesbetweenthetwomaincombatants.Itsoonbecameobviousthatthecollegestudentswereupset because they believed that,moments earlier, someone atDeepak’s table

haddisruptedtheirgameintheadjacentroom.Deepakknewthiswasnottrue,but the accusation only fueled the rage on both sides. Deepak and his friendwanted to clear up the misunderstanding, but the situation was getting morephysicalbythemoment.ItwouldhavebeenquiteeasyforDeepakandhisfriendto simply walk away—by now, the fight was entirely between the collegestudentsandthetwostrangers—butthatdidnotseemliketherightthingtodo.

Once it became clear that the provocateurs were unwilling to consider thesituationamisunderstanding,Deepaktriedadifferentapproach.“Okay,”hesaidto the leader of the college students. “We understand that you think someone‘messed with you.’ But what do you think needs to happen now to avoid afight?”

Theleader lookedatDeepakjust longenoughtoanswer.“Idon’tknow,butyou guysmessed up our game, so it’s a bit late to apologize,” he said beforerejoiningthefray.

Deepakdecidedtotryagain:“Okay,butnowyou’vemessedupourgameaswell—soaren’tweeven?”

“No,we’renoteven,”thestudentshouted.“Youstartedit!”

“Isee.Well,let’ssaysomeoneinthisroomdidstartsomething,”Deepaksaid.“Canyouimaginesomethingthatcouldhappennowthatwouldmakeyouprefernottofight?Whatwouldthatlooklike?Whatwouldyouratherbedoing?”

The leader was in disbelief, but took a moment to consider the question.“Well,I’dratherbeplayingpool,”heanswered,“butwe’regoingtohavetostartawholenewgame.”

“Andhowmuchwillthatcost?”askedDeepak.

“Onedollar,”thestudentresponded.

Deepaktookadollarbilloutofhiswalletandhandedittotheleader.“Howaboutit?Yournextgameisonme.”

Theleadersmiledasheslowlyreachedforthedollar.“Youknow,that’sverycool,”hesaid.“That’sreallyveryniceofyou.”Hespentthenextfewminutescalmingdownhisfriends,andthenescortedthemoutoftheroom.Thefightwas

avoided,nobloodwasspilled,andnoboneswerebroken.All it tookwasonedollar.

Asthisstoryshows,negotiatorsoftenconfrontcounterpartswhoareangryorupset.Andwhilewemaythinkthattheseemotionsareentirelyunjustified,thisdoes not change the fact that the angry party thinks that his or her anger iswarranted.

Howdoyou typically handle such situations?While another person’s angermayevokeyourown,manyofus recognize that this is not themost effectiveresponse to someone’s emotional outburst. Instead, there is obvious merit intrying todefuse theother side’sangerand refocusattentionon the substantiveissues at hand. But defusing someone’s anger is often easier said than done.Mostnegotiatorsdonothaveasystematicway todealwith theangerof thosewithwhomtheyarenegotiating.Furthermore,seeminglyunjustifiedangerofteneruptswhenyou least expect it.What shouldyoudowhen this happens?Thefollowing strategies will enhance your ability to handle angry negotiators inwaysthatsalvagethedealandtherelationship.

STRATEGY1:SEEKTOUNDERSTANDWHYTHEYAREANGRY

Whenyournegotiationcounterpartisangry,youmustfirstfindoutwhy.Theanswerwillpointyoutowardanappropriatestrategyforhandlingthesituation.Forexample,iftheotherpartyisangrybecausesheismisinformed,thesolutionistoinformher;ifsheisangrybecauseshefeelsdisrespected,thesolutionistorespecther;ifsheisangrybecauseshemisheardwhatyousaid,thesolutionistoclarifyyourintentions,andsoon.Justbecauseyouknowthatyourcounterparthasno reason tobeupsetdoesnotmean that she knows this. In thepool halldispute,forexample,thestudents’angerwasexplicable(althoughitwasstillanoverreaction) once they made clear that they thought they had been attackedfirst.Consistentwith the approachwehaveunderscored throughout thisbook,thebestwaytodealwithemotionsyoudonotfullyunderstandistoinvestigatetheirsource.

STRATEGY2:GIVEVOICETOTHEIRANGER

Most negotiators recognize that anger is usually counterproductive. As aresult,whendealingwithsomeonewhohaslosthistemper,mostnegotiatorsarelikely to do whatever they can to suppress his expression of anger. “Gettingangrywillgetusnowhere,”youmightbetemptedtosay,or,“We’renotgoingto

sithereandlistentoyoushout,”or,“It’sineveryone’sbestinterestifyoucalmdown.”

These are all reasonable statements, but they overlook an important fact. Ifyoudonotgiveanangrynegotiatortheopportunitytovoicehisfrustration,hewill likely become evenmore angry—or, at the very least, resentful. Amuchbetter approach is to encourage people to voice their anger and to help youunderstanditssource.Youmightsay,forexample,“Icanseethatyou’reangry,andIwanttounderstandwhythatis.Tellmewhat’sonyourmind.”Thekeyistogivelegitimacytotheotherperson’sfeelings.Youcan(andshould)questionthe legitimacyofwhathebelieves,butyoushouldnotwaste timequestioningthelegitimacyofaperson’sangergivenwhathebelievestobetrue.

STRATEGY3:SIDESTEPTHEEMOTION

Some years ago, Deepak’smartial arts instructor gave him some importantadvice regarding how to block a kick or a punch: “The best block isdon’tbethere.”Inotherwords,whenyoutrytostopsomeone’sphysicalattackwithyourownphysicalmaneuver(ablock),youarepittingpoweragainstpower—andthestronger partywill have an advantage.But if you can sidestep the attack, youwillavoidthehit,retainyourbalance,andremainincontrolofthesituation.

Thesameistruewhenitcomestoemotioninnegotiation.Whentheothersideisangry,donotallowyourself tobe the targetby taking itpersonally. Instead,understandthatherangerisanaturalconsequenceofherbeliefs.Ifshebelieveddifferently,shewouldnotbeangry.Thebestthingforyoutodo,then,istokeepyour composure and help her change her beliefs. Sidestepping emotions iscertainlynoteasy—especiallywhentheothersideislaunchingpersonalattacksandseems intentonprovokinga response.Toaid insidestepping theemotion,askyourselfthefollowingquestions:

•IfIwereinherposition,wouldIbeactingthesameway?

•Isthisgenuineemotion,orisitatacticaimedatintimidatingme?

•Isthishowshebehaveswitheverybody?

Ifyoucanconcludethattheirangerisnaturalgivenwheretheystand,orthatthey are simply acting tough tomanipulate you, or that this is how they treateveryone,youwill find it easier to sidestep the attack andmaintain controlofyourownemotions.

STRATEGY4:HELPTHEMFOCUSONTHEIRTRUEUNDERLYINGINTERESTS

ThemostdifficultpartofDeepak’spoolhallnegotiationwasnotfiguringouttheotherparty’sunderlyinginterests(whichweretoplaypoolandnotloseface).Rather, it was making the other party’s underlying interests salient to them.Anger prevents people from staying focused on the substantive issues aboutwhichtheycaredeeply.Yourtaskistohelptheangrynegotiatorshiftattentionawayfromthoseelementsthatfueledhisangerandtowardthoseelementsthatwouldfulfillhisinterests.Tryaskingquestionssuchasthese:

•“Whatwouldyouliketoseehappennow?”

•“Whatwouldyouratherbedoing?”

•“Whatwouldhelpusputthisbehindus?”

•“Isthereanythingelseyouwouldliketodiscussorclarifybeforewereturntothesubstantiveissuesyouhighlightedearlier?”

All of these questions facilitate a transition away from anger and towardinterests.

DEALINGWITHTHREATSANDULTIMATUMS

Deepak has a client, the CEO of a large agricultural firm, who was recentlynegotiatingwithalargecommercialbankforamultimillion-dollarlineofcredit.Because theCEOhadpersonalconnectionswithadirectorat thebank,hedidnot bother to procure competing bids from other banks. After months ofnegotiations, the deal was structured and both sides were ready to sign theagreement. Before this could happen, however, the CEO discovered during aconversationwithanindustryexpertthatthebankwascharginghiscompanyarisk-adjustedratethatwassignificantlyhigherthanwhatotherbankswouldhavecharged.TheCEOwasboth surprisedandupset.Hadhis “friend”at thebank

takenadvantageofhim?Evenifthiswasthecase,itwasnotclearwhethertheCEOcouldthreatentogotothebank’scompetitors;thisoptionhadbeenviablesomemonths ago, but now the company needed the line of credit very soon.Restarting theentirenegotiationprocesswithanotherbankcouldbeextremelycostly.

TheCEOcalledthebankdirector,sharedwhathehadlearned,andproposedarevision of the terms of the agreement. Upon hearing the CEO’s proposedrevision,thedirectorbecameveryangry.Inparticular,hewas“veryturnedoff”bythesuggestionthattheCEOwantedto“renege”ontheirverbalagreement.Inalonge-mailthatfollowedtheconversation,thedirectorbeganbywriting:“Myflexibility on pricing is none.” If this was unacceptable to the CEO, hecontinued, then they “should have serious discussions” regarding the types ofproprietary information the CEO was barred from sharing with the bank’scompetitors.Thethreatwasimplicit,butclear:“Wecannotmoveonthisissue.Youarewelcometogotoourcompetitors.”

TheCEOapproachedDeepakforadviceonhowtorespondtothedirector’se-mail. He had a variety of questions:Was this a “true ultimatum” or simply anegotiation“tactic”?Shouldhecontinuetopushforabetterpricingstructure,orshould he instead ask for smaller concessions on other, less thorny issues?Shouldhebeforcefulorpleasant?Shouldhecontinuetoappearupset,orshouldhe appear calm and in control? Deepak’s advice, described below, leveragedthreestrategiesfordealingwiththreatsandultimatumsinnegotiation.

STRATEGY1:IGNORETHETHREAT

DeepakbeganbyadvisingtheCEOtocompletelyignoretheultimatum(“Myflexibility on pricing is none”)—to pretend that this statement had never beenmade. Instead, the CEO should respond to the less harshly written, moresubstantiveelementsofthee-mail,whichreferredto“relianceonmarketrates,”“competitive pricing,” and “structuring fees that reflect the market standard.”Specifically,hetoldtheCEOtothankthedirectorforagreeingtothinkaboutthedeal from the perspective ofwhat is consistentwith prevailingmarket rates—andtomakenomentionofthedirector’sallegedinflexibilityonpricing.Why?Ifthedirectorissuedtheultimatumoutoffrustration,ignorance,orthedesiretosaveface, theworst thingfortheCEOtodowouldbetodrawattentiontotheultimatum and make it more difficult for the director to back away from hisstatementinthefuture.Itwouldbemuchbettertoignoretheultimatumandgive

thedirector space to retreat from it in theensuingdaysandweeks. It isworthpointingoutthatthisadviceissoundeveniftheultimatumisreal—thatis,eveniftheothersideistrulyunwillingorunabletoofferyouanymoreconcessions.If this is thecase,andyouhaveignoredtheirultimatum,restassuredthat theywillmentionittoyouagain.

PresidentKennedy used a similar strategy during theCubanMissileCrisis.During the height of the crisis, he received two different (and somewhatcontradictory)messagesfromKhrushchevwithinthespanoftwenty-fourhours.One of them (the “hard” message) was very aggressive; in it, KhrushchevdemandedtheremovalofU.S.missilesfromTurkeyinexchangefortheremovalof Soviet missiles from Cuba. In the “soft” message, which was much lessantagonistic,KhrushchevofferedtoremovethemissilesfromCubainexchangefortheUnitedStatesendingtheblockadeandpromisingthattherewouldbenoattackonCuba.AsKennedy’s advisersdiscussedhow to craft a response thatwould address all of the issues contained in both messages, Robert Kennedysuggestedadifferent approach: ignore thehardmessage.RobertKennedywasamongthosewhobelievedthat thehardmessage(whichwastheonlyonethatwassentpublicly)wasdesignedmoretohelpKhrushchevsavefaceintheworldcommunity than it was to promote substantive discussions. Ignoring the hardmessage—whosetermstheU.S.governmentcouldnotimmediatelyaccept—andinsteadagreeingtothetermsofthesoftmessage,RobertKennedyargued,wouldbeamuchmoreproductivestrategy.

Moregenerally,itispossibletoignoretheotherside’sultimatumevenwhenitincludesnosoftmessage.Consider thefollowingultimatum:“This isour finaloffer: take it or leave it.”Howmightyou respond to this statementwhile stillignoringtheultimatum?Considerthefollowingviableresponses:

•“Itseemsprettyclearthatyoufinditdifficulttomakefurtherconcessionsontheissueswe’vebeendiscussing.Isuggestwefocusonotheraspectsofthedealandcomebacktothispointonceallotherelementsareonthetable.”

•“Icanseethatyoufullybelievethatyouhavealreadyconcededasmuchasshouldbenecessarytoclosethedeal.Asitturnsout,wefeeltheexactsamewayregardingourconcessions.Hopefully,thismeansthatweareclosetoreachinganagreement.Solet’skeepworking.”

•“Icanunderstandyourfrustration.Webothknowthereisadealtobemade,andyetwecan’tseemtofindit.Canyouhelpmebetterunderstandyourperspective?Whydoyouthinkwe’renotthereyet?”

Notice thateachof theseresponses ignores the“take itor leave it”demand.Instead,theresponsesareaimedatsofteningtheotherside’sstatementsothatitwillnotbeabarrierinthefutureif,infact,itispossibleforthemtomakefurtherconcessions.

STRATEGY2:NEUTRALIZEANYADDITIONALTHREATSTHEYMIGHTBETEMPTEDTOMAKE

Returningtothebanknegotiationstory,DeepaknextadvisedtheCEOtopre-empt(totheextentpossible)anyadditionalthreatsthedirectormightbetemptedto make. He did so by helping the CEO anticipate the threats andcounterarguments that his draft e-mail reply would generate, and thenencouraged him to respond comprehensively to these potential reactions. Forexample,onepotentialresponsebythedirectorwouldbetothreaten(implicitly)to drag out the negotiations, knowing that the prospect of lengthy discussionswouldlikelyforcetheCEOtocapitulate.Anticipatingthis,DeepakadvisedtheCEOtoincludethefollowingtextinthee-mail:“Weunderstandthatthesenewissuesmay cause delays in structuring and implementing a final agreement. Ifyoualsoanticipatesuchdelays,wesuggestinvolvingotherseniorbankofficialsin this process from the very start.”Why might this statement neutralize thedirector’spotentialthreat?BecausetheCEOknewthattheinvolvementofseniorbank officials would make the director lose credibility at his bank, aconsequencehewouldbehighlymotivatedtoavoid.

Pre-empting theother side’s aggression is also a useful tacticwhenyou aredealing notwith threats, butwith their legitimate complaints or concerns. Forexample, the director may have been genuinely concerned that having torestructure the deal at this late stage in the negotiation would cause himembarrassment,ashewouldbeforcedtotellhisbossthatthedealwouldbringin lessmoney thanhehadearlierannounced. Insuch instances,youcanmakeyour ownposition stronger if you are able to voice the other side’s legitimatecomplaints or concerns for them, rather than waiting for them to raise theseissues.Forexample,youmightsay:“Weunderstandthatcorporatepoliticsandother institutionalhurdlessometimesmakeitdifficult tomakeevenreasonablechangestoadealthislateinthegame.Butwewouldliketoworkwithyoutofigureoutwaystomakethishappen.Wealsofeel—andhopethatyouagree—that the most important issue continues to be reaching an agreement that isconsistentwith prevailingmarket rates.”Whenyou are the first to voice their

concerns,youlessenthedegreeofantagonismwithwhichtheycanargueagainstyou.Theymaystillfightback,buttheywillbeinnopositiontosuggestthatyouare concerned only about yourself, or that you don’t understand theirperspective.

STRATEGY3:IFYOUDON’TFINDTHETHREATTOBECREDIBLE,LETTHEMKNOW

Ifthedirector’sthreathadbeencredible—ifhewouldhavetrulypreferred“nodeal” to a change in pricing—then the CEO would have had little room tomaneuver. Often, however, a threat is not credible—you know they will notfollowthroughonit—butitisstillimpossibletoentirelyignoreorpre-emptit.Howshouldyourespond? Inaspositivea toneaspossible, signal to theothersidethat,becauseyouunderstandtheirconstraintsandtheirinterests,youdon’tfind the threat tobecredible.Consider, forexample,howtheCEOcouldhaverespondedtothebankdirector’sthreattowalkawayfromthedeal:

Signal1:Yourconstraintswillnotallowyoutofollowthroughonthisthreat:“Finally,withregardtotheinterestrate:wefeelcomfortableinknowingthatyouwill,asalways,followyourbank’spolicyofpricingriskaccordingtomarketstandards.Thisgivesusconfidencethat,asyourunthenumbersandlookat thedata,youwill findways to lower the rateyouhavequoted.Asyou’vementioned in thepast,thisisoneofthebenefitsofworkingwithalargebanklikeyours:attheendoftheday,wedon’thavetoargueaboutwhatisfair—wecanalltakealookatthemarket.”

Signal2:Yourinterestswillnotallowyoutofollowthroughonthisthreat:“Itisobviousthattherearesomediscrepanciesonhowwearecalculatingriskinthiscase.Butweknowthat, likeus,youhavebeenworkingonthisdealformanymonthsnowandwillnotwanttoseeitunraveloveroneissue.Solet’sworkonresolvingthisinawaythatisagreeabletoallpartiesinvolved.”

Bothoftheseresponsesarefriendlyandgracious,butbothmakeitcleartothedirector that you do not perceive his threat (whether veiled or explicit) to becredible.

DEALINGWITHTHENEEDTOSAVEFACE

Whenyouhaveexposedthefactthattheotherside’sthreatisnotcredible,thattheirangerisbaseless,orthattheirlackoftrustinyouisunfounded,youhaveeveryreasontocelebrate:youwererightandtheywerewrong.Butyouarenotin the clear yet. Unless the other side is able to save face—that is, to avoidembarrassment or humiliation—they may be very reluctant to change theirperspective or their behavior. Instead, they may act in ways that help them

preservetheirdignityorsalvagetheirego,butthatdestroyvalue.

Negotiationgeniuseswillnotonlygive theircounterparts theopportunity tosaveface,theywillhelpthemtosaveface.“Aboveall,whiledefendingourownvitalinterests,”PresidentKennedysaidinaspeechatAmericanUniversitysoonaftertheCubanMissileCrisis,“nuclearpowersmustavertthoseconfrontationswhichbringanadversarytothechoiceofeitherahumiliatingdefeatoranuclearwar.”5Inyournegotiations,thestakeswillnotbenearlyashigh.ButifPresidentKennedy was worried that someone would enter a nuclear war to avoidhumiliation,considerhowmuchmorelikelyit is thatsomeonewillwalkawayfromthousandsormillionsofdollarsinordertosaveface.

Suppose you are negotiating the purchase of a product or service, and theseller tells you: “There’s no way for us to lower our price—this is our finaloffer.”Later,itbecomescleartobothofyouthatshewillhavetolowerherpricein order for you to make the purchase. Here are some ways to help thiscounterpartsaveface:

•“I’mgladIwasabletofindwaystocompensateyouforalowerprice,becauseIknowyoucouldnothavelowereditotherwise.”

•“Irealizethatyouaredoingmeafavorbyreducingthepricebeyondwhatisnormallypossible,andIgreatlyappreciateit.”

•“We’refortunatethatwewereabletogetpastthediscussionofprice,inwhichyouhadalreadyconcededallyoucould.Instead,wewereabletofocusoncreatingapackagedealthatpleasedusboth.”

Eachoftheseresponsesreducesthelikelihoodthattheothersidewillsticktoherultimatum,becauseeachgivesheralegitimate,face-savingwaytoframeherdecision tochangecourse.Often,yourcounterpartswill find theirownway tojustifybackingawayfromtheiroriginalclaims;iftheycan’t,ithelpsifyoucangive them a story to tell themselves—and to others whomight question theirdecision to back down. It is worth pointing out, however, that each of theseresponses would be less necessary if, from the start, you had followed thestrategyofignoringtheirultimatumaltogether.

Itisalsoworthkeepinginmindthatit’snotonlyyourcounterpartwhohasa

strong need to save face. You are just as likely to sabotage your self-interestwhen pursuing it would make you lose face. So when you’re involved in adisagreementordispute,don’tplaceyouregoontheline.Thismeansrefrainingfrom making empty threats or ultimatums. It also means carefully thinkingthrough the implications of calling someone a liar, lashing out in anger, orstaking a firm claim on a position that you may one day have to abandon.Negotiationgeniusesavoidthesebehaviorsandinsteadfocusonalternativesthatserve the same purpose, but that entail less risk. Instead of calling someone aliar,askhimtosubstantiatehisclaims.Insteadoflashingoutinanger,tellyourcounterpartwhyyouareupset.Andinsteadofswearingthatyouwillneverbackofffromaparticularposition,anchoraggressivelyandprovideajustificationfortheanchor.

WHATLOOKSGOODVERSUSWHATWORKSWELL

Many of the strategies and tactics we have presented for dealing with toughnegotiationsituationsarenotthekindyouwouldseeinaHollywoodmovie.Inamovie (and, regrettably, in some negotiation texts), the protagonist fights firewithfire,slamshisfistonthetable,anddoesn’tbackdownfromafight.Thesetactics look good on the big screen, but most of them do not work well inpractice.Negotiationgeniusesapproach“ugly”negotiations the sameway thattheyapproach“beautiful”ones—withaninvestigativeapproachthatfocusesoneach side’s underlying interests. We will end with another sage quote fromDeepak’s martial arts instructor: “If you’re in danger, don’t throw a spinningback-kicktotheirface.Instead,attacktheirkneecap.Thekicktothefacelooksgood,but thekick to thekneewill saveyour life.”Thesameprincipleapplieshere:savethehistrionicsforthestage,andbringyournegotiationgeniustothebargainingtable.

CHAPTER13

WhenNottoNegotiate

This story takesplaceonApril 1, 2005—yes, onAprilFool’sDay—but asstrange as it may seem, this tale is entirely factual. It started with a Harvardeconomics professorwhowanted to procure somemanure (yes, you read thatcorrectly). For years, this professor (who is not one of the authors) had beendriving to a piece of farmland located about tenmiles fromhismillion-dollarhome,shovelingmanureintohistruck,andcartingitbacktouseinhisgarden.Of course, taking something from someone else’s property without theirknowledgeandwithoutpaymentisillegal—evenwhenthethingyou’retakingismanure.Thereissomeevidencetosuggestthattheprofessorwasunawarethathehadbeenbreakingthelawforalltheseyears.Nonetheless,itwasveryclearto him on that night, April 1, 2005, that he was in big trouble. One of thefarmhandsspottedtheprofessorashetriedtoexitthepropertywiththemanureinhistruckandpromptlyblockedtheprofessor’spathwithhisowntruck.Thefarmhand,whowasalso thenephewof thepropertyowner,wasclearlyupset.Thefarmhandthreatenedtocall thepolice,andtheprofessorhadto thinkfast.Hehad two clear options: he could rely onhis people skills (apologize, pleadignorance,promisetomakeamends,etcetera),orhecouldrelyonhistrainingasaneconomist.Hechosetodothelatter.

Valuingthemanureinhistruckatnomorethan$20,theprofessorofferedthefarmhand$20.Thefarmhandbecamemoreupset.Believinghehadjustofferedthe farmhand more than his reservation value, the professor was probablysurprised; nonetheless he upped his offer to $40. In response, the farmhandcalled the police. The professor was charged with trespassing, larceny, andmaliciousdestructionof property (yes,we are still talking aboutmanure).Butthese chargeswould soon become the least of the professor’s concerns. Oncenewsoftheeventbecamepublic,itspreadquicklythroughlocal,national,andinternational media channels. Even Jay Leno joked about the Harvardprofessor’smisadventureinhisTonightShowmonologue.

Where did the professor gowrong?Obviously, he erred in not recognizing

thathewasstealingthemanure.Evenworse,heoverlookedallofthesignsthathewasnot inaposition tonegotiatehiswayoutof trouble.Hadtheprofessorconsidered howweak his BATNAwas (“If there is no deal, I will face legalhassles and public ridicule”) and how strong the farmhand’sBATNAwas (“Ifthere is no deal, hewill call the police”), hemight have decidednot to try tohaggle. Furthermore, seeing howupset the farmhandwas, the professormighthaverealizedthathis“negotiation”mightappeartobeabribeandonlyfuelthefire.Finally,evenafterdeciding thatamonetaryofferingwouldhelpsettle thematter,whywouldtheprofessoroffersolittle?Giventhestakes,thestrengthofthe farmhand’sBATNA,andhisheightenedemotions, amuchbetter approachwouldhavebeen to apologize, plead ignorance, andask the farmhand what itmighttaketomakeamendsfortheunfortunatesituation.Instead,theprofessordecidedtonegotiate—andthat’swhenthemanurereallyhitthefan.

This book is designed to help you improve your negotiation skills and giveyouthetoolsyouneedtoachievebetteroutcomesforyourselfandforthepeopleyou care about. Though titled “WhenNot to Negotiate,” even this chapter isaimed at expanding your negotiation ability, because one critical aspect ofexpertiseinanydomainisrecognizingyourlimits.Uponreadingthisbook,youmaybetemptedtostarttryingoutyournewfoundnegotiationskillseverywhere—all the time and on everyone—to see if you can get others to dowhat youwant.

Ouradvice:slowdown.Recognizethatthe“softer”aspectsofwhatyouhavelearned(listening,understanding,empathizing,andsoon)aresomeofthemostwidelyapplicabletoolsyoucanleverage,especiallyinsensitivesituationswhereadrenaline-driven tactics might only make matters worse. Becoming anegotiation genius is amatter of not only knowinghow to negotiate, but alsoknowingwhentonegotiate.

Specifically, negotiation may not be the best option: when the costs ofnegotiationexceedtheamountyoustandtogain,whenyourBATNAstinks(andeveryoneknowsit),whennegotiationwouldsendthewrongsignaltotheotherparty, when the potential harm to the relationship exceeds the expected valuefromthenegotiation,whennegotiatingisculturallyinappropriate,orwhenyourBATNA beats the other side’s best possible offer. This chapter will help youbetterunderstand—andbetterstrategizein—eachofthesesituations.

WHENTIMEISMONEY

Many years ago, Max was teaching a course on negotiation in Bangkok,Thailand. The students, naturally, were curious to know whether Max couldnegotiate in the real world or whether he simply knew the topic from anacademic perspective. So each class began the sameway.Oneof the studentswould ask Max where he went the previous evening and then ask the keyquestion: “How much did you pay the taxi driver to get back to the facultydorms?”Atthetime,inThailand,onewouldroutinelynegotiatethepriceoftheridewiththetaxidriverbeforegettingintothecar.ThestudentscouldthenjudgewhetherMaxpaid the rate that localswouldpayorwhether hepaid thepricereservedforforeigners—andfor those lackingstrongnegotiationskills.Bytheendofthefirstweek,Maxunderstoodthelocaltaximarketquitewellandwasabletoimpresshisstudentsregularlywithhisabilitytonegotiateagoodrate.

ThenMarla,Max’swife,arrived inThailand.On theeveningofherarrival,MaxandMarlatookalongwalkacrosstowntoanicerestaurant.Afterdinner,justoutsidetherestaurant,Maxhailedataxiand,inhispoorThai,toldthedriverthedestination.Thedriver asked for70baht ($2.80 at the time),whichwas averyhighprice.Maxcounteredwith30baht($1.20), the lowestpossiblepriceforalocaltaxirideandthepriceMaxhadpaidafewdaysearlierforasimilarride.Thedriverquicklydroppedhispriceto50baht;Maxrepeatedhisofferof30 baht. The driver came down to 40 baht.Max stuck to 30 baht. The driverdecidedtopursuehisBATNAanddroveaway.

Max hailed another taxi and shared the destination with the driver. Thedriver’sresponsewas50baht—amuchmorereasonablefirstofferthantheonemadebythepreviousdriver.Maxcounteredwithanofferof30baht.Thedrivercamedownto40baht,atwhichpointMaxrepeatedhis30bahtoffer.Againthedriverdroveaway.

Atthispoint,Marla,exhaustedfromhertripacrosstheglobe,askedMaxwhatwasgoingon.Heexplainedthat thedriversweredemanding$1.60for thecabrideandthatheknewhecouldnegotiatethepricedownto$1.20.Marlawasnotonlyunimpressed,butalsoratherannoyed.Sheofferedto“chipin”40centsifthatwould seal thedeal andget her home.Maxwanted to explain that itwasimportantforhimtogetadealthatwouldimpresshisclassthenextday,buthedecidednottopushit.Instead,helearnedanimportantlesson.Hehadnotonlybeen ignoring the value of his own time but, more important, the value ofMarla’stime.

Itiscommonfornegotiatorstobecomesofocusedon“gettingagooddeal”or“winning”thattheyfailtoconsiderthevalueofthetimetheyarespending(orwasting)inpursuitoffairnessorvictory.Indoingso,theyoftenwastetimeontrivial negotiations that could be better spent consummating more importantdeals, completingother tasks,or simply relaxing.Manynegotiatorsclaim theyare extremely busy people who are constantly short on time—yet these samepeopledoaverypoorjobofprioritizingtheirtime.Ifyoutendtoclaimthatyouhaveverylittlefreetime,considerwhereyoureffortwouldprovidethehighestpayoff. Then focus more on improving your performance in these criticalnegotiationsand lesson trivialnegotiations,suchas those thatwouldgiveyouonlyanominaldiscountonanalreadyacceptablestartingprice.

Unfortunately,makingthischangeisnotassimpleasrecognizingthattimeisa limited resource that should not be wasted. You also need to recognize themanywaysinwhichyouhavebeenconditionedtomakethesekindsofmistakesandworkhardtochangeyourhabits.Forexample,considerthat,acrosscultures,people are conditioned to look for thebestdeal, tonotwastemoney, to avoidpenaltiesandfines,andtofinisheverythingontheirdinnerplate.What’swrongwithsuchadvice?

Usuallythereisnothingwrongwithfollowingtheserules,butsometimestheymotivateus tomake irrationaldecisions thatdestroyvalue.Deepakdiscoveredthisoneeveningwhenhiswife,Shikha,askedhimtoreturntheDVDtheyhadrentedthepreviousevening.TheDVDwasduebackbeforemidnight;ifitwasnot returned on time, they would have to pay a fine. The problem was thatDeepakhappenedtobesittingverycomfortablyinthelivingroom.Hehadnodesire togetup,getdressed,anddrive twomiles to return themovie.Deepakexplained thathewouldprefer to return themovie the followingdaywhenhedrovebythevideostoreonthewaytowork,andthathecouldlivewiththe$3fine.Shikhasawthingsdifferently.ShewasunimpressedbyDeepak’spositiononthematter,whichshecharacterizedas“beinglazy.”

Deepaksuggestedthattheylookatthesituationinadifferentlight.“Supposethere was no DVD or penalty involved,” he said. “Instead, imagine there’ssomeonestandingoutsidethevideostore,handingout$3toanyonewhocomesby.Wouldyouwantme togetup,getdressed,anddrive twomiles topickupthat$3?Noway!Soifitisn’tworthgoingouttherefor$3inthatsituation,therereallyisn’tanyreasonformetogonow.”

Shikha agreed with Deepak’s argument, but as always, she improved hisanalysis. “Fromnowon,” she said, “perhapswe shouldplan ahead so thatwedon’t find ourselves in situations where we have to choose between wastingmoneyandwastingtime.”Infact,shepointedout,Deepakcouldhavereturnedthe DVD on the way to work thatmorning, avoided the penalty, enjoyed theeveninginthelivingroom,andeliminatedtheneedforthisentireconversation.But,accordingtoDeepak,thatwouldnothavebeennearlyasfun—orinsightful.

Asthisstoryreveals,weareoftentemptedtounderestimatethevalueofourtimebecausewearemisapplyingseeminglyreasonableadvice(e.g.,getthebestdeal, don’t acceptwhat is unfair, avoid penalties, and so on). Furthermore, asShikha’s solution to the DVD problem reveals, it is often possible to makerational decisions and at the same time avoid unpleasant trade-offs if one haspreparedeffectivelyfromthestart.

WHENYOURBATNASTINKS—ANDEVERYONEKNOWSIT

In our jobs as professors at the Harvard Business School, second-year MBAstudentsoftenvisitusseekingadviceonnegotiatingtheirjoboffers.Quiteoften,thestudentssitdownanddescribetheexcellentofferthattheyhavereceived—great company, great location, great boss, and great initial assignment. Wecongratulatethemonobtainingtheofferandaskhowwecanhelp.Theyexplainthattheofferisjustabitlowononeissue—salary.Itseemsthatmanyoftheirfriendshavebeenofferedmoremoneybyotherfirms.

Atthispoint,weaskthequestiontheylearnedtoexpectfromusduringtheirfirst-year course on negotiation: “What’s your BATNA?What other offers doyou have?” They often complain that negotiating would be easy—and theywouldn’t need our advice—if they had multiple offers. The problem, theyexplain, is that they only have one offer and that the prospective employerknowsthis(orwillsoonknow,becausethestudentwillnotlieaboutit).

Howshouldthesestudentsnegotiateforahighersalary?Whiletheadvicewegivevariesbysituation,onepieceofadvicethatwecommonlyoffer—basedonDeepak’sstoryinChapter11—comesasabitofasurprisetoourstudents:Theyshould call their future employer, express their enthusiasm regarding thecompanyandtheoffer,andacceptthejob.Then,afteraccepting,theyshouldasktheir new boss for a favor: “Would youmind looking at some data regardingstartingsalariesofMBAstudentswhohavegraduatedfromHBS?I’dlikeyouto

considerwhetherasomewhathigherstartingsalarymightbebothpossibleandfairer.” Finally, they should clarify that they have already accepted the offerregardless of whether the salary changes or not—what happens in the salarynegotiationwillnotaffecttheirdecisiontojointhefirm.

Ourstudentscommonlyprotest that theywould lose toomuchpower in thenegotiationby accepting first. “Whatpower areyou referring to?”weask. “Ifyoutrytonegotiatewithyournewemployer,andyourBATNAistoremainonthejobmarketwithoutanoffer,andtheemployerknowsthattheyhavealreadygiven you something higher than your reservation value, then you have littlepower to begin with.” In such a situation, you may not want to play the“negotiation”game.Youmaybemuchbetteroffplayingadifferentgame—forexample, the game called “fairness,” or the one called “could youplease helpme?”More generally, you may want to avoid negotiating when a reasonableanalysis suggests that you will lose the negotiation game but may win someother type of game. In particular, when your BATNA stinks, their BATNA isfine,andallofthisinformationiscommonknowledge,youmaywanttosimplysayyesinthenegotiationandthenchangethegame.

Doesthisadvicework?ThinkbacktohowDeepaknegotiatedajobofferwithhispreferredemployer.His strategywas to accept theofferbeforenegotiatingandthentocreateanenvironmentwherethemanagingpartnerlikedhim,wantedto help him, and could findways to justify a salary increase.The result: a 10percent increase in starting salary after both the HR department and themanagingpartnerhadsaidthatsalarieswerenonnegotiable.

WHENNEGOTIATINGSENDSTHEWRONGSIGNAL

Steve,aseniormanagerinahighlyprofitableaccountingfirm,wassurprisedonemorning when he received a phone call from the president of his company.“Whatcouldhepossiblywantwithme?”wonderedSteve,whohadneverbeforemetorspokenwiththepresident.ThepresidenttoldStevethathewasplanningtomakealotofchangesintheorganizationandthatoneoftheprimarychangeswouldinvolverestructuringtheexecutiveteam:somepeoplewouldbeleaving,and somenewbloodwould be brought in.The president askedSteve tomeetwithhimthefollowingdayforabriefconversation.Thenextday,onlyminutesinto their conversation, the president offeredSteve a new job at the executivelevel,apromotionthatwouldmovehimupthreelevelsintheorganization.

Mostemployeesofmostorganizationswouldbeabsolutelythrilledtoreceivesuch an opportunity. But this situation was different. In his current position,Stevewas not only earning a high salary, butwas also amember of a highlycovetedbonuspoolthatusuallytripledhisannualsalary.Thenewjob,whileatthe executive level,might enduppayinghimconsiderably less.Thepresidenthad not discussed compensation, and Steve wondered whether the presidenthimselfknewwhathissalarywouldbe in thenewposition.Stevewasexcitedabout thenewjob,butwasextremelyworriedabout theprospectofseeinghiscompensation cut in half, or worse! What to do? Should he ask whatcompensationhewouldreceive?Shouldheanchorthenegotiationbyrevealinghowmuchcompensationhewascurrentlyreceivingandtheninvitearesponse?Should he ask for more time to make the decision and then try to obtainadditionalinformationfromothersources?Shouldhesimplyacceptorrejecttheofferasitstood?

Theremaybenosingle“right”approach to this situation.But let’sconsiderwhatStevedidand,moreimportant,whyhedidit.

Basedonhowquicklythecompanypresidentmadetheofferandbasedonthefact that the president waited to make the offer until they were face-to-face,Steve gathered that the president wanted a quick decision. Furthermore, thepresidenthadchosennottobringupthetopicofcompensation.Steveinterpretedthis to mean one of two things: either the president was confident that thecompensation would be sufficient, or he was purposefully avoiding the topicbecausehedidnotwantSteve’sdecisiontobemotivatedprimarilybyfinancialconsiderations. Given the emphasis the president kept placing on “building anew team with a shared vision,” Steve reasoned that the latter was almostcertainly true. If so, perhaps the worst thing to do would be to bring upcompensation.

Stevecametotheconclusionthatthiswasnotthetimetonegotiate.Foronething,evenifthecompensationwasverylow,hemightbeinabetterpositiontonegotiateahighersalaryafterhehadprovenhimselfinthenewrole.Hemightregret his decision not to negotiate if hewas unable to negotiate an adequatesalary later,buthecouldstomach the risk.More important, trying tonegotiateunderthecurrentcircumstanceswouldsendthewrongsignal—thathewasmoreinterested inmoney than inbeingapartof the leadership teamandhelping toreshapetheorganization.

Steve told the president that,while some aspects of the jobwere obviouslystillunclear,hesharedhisvisionandwasexcitedtojointheteam.Headded:“Ifullytrustyoutohelpmakemytransitionintothisnewrolebothsuccessfulandmutuallyrewarding.”

Later, some of Steve’s colleagues told him that he should have negotiatedcompensation—thathewasinagreatpositiontodosobecausethepresidenthadclearlysoughthimout.

Steve’s response? “Maybe I could have tried to negotiate a stellarcompensationpackage,andmaybeI’llregretnothavingnegotiatedwhenIhadthechance.ButI’mabsolutelycertainthatIsentexactlytherightsignals—thatIamateamplayer,thatItrustthepresident,andthatIamnotsolelymotivatedbydollars and cents—to a powerful person with whom I expect to have a closelong-termrelationship.”

What eventually transpired?After he received thepromotion,Steve’s salarywascutinhalf—buthewasgivenenoughinbonuses,stockoptions,andscopeforfutureadvancementthathisannualcompensationeffectivelydoubled.

As the reasoning behind Steve’s decision reveals, the decision to negotiatealways sends some signal. Typically, the signal you are sending when youinitiateanegotiationisthatyourequiremoreinvaluebeforeyoucanagreetoadeal.And,typically,thisisafinesignaltosend.However,insomesituations,thesignalyousendwhenyoudecidetonegotiateis thatyoudonottrust theothersideorthatyouaremoreconcernedaboutwhatyouwillgetfromthedealthanyouareabouttherelationship,orabouttherationaleforthedealitself.

If your decision to negotiate will send the “wrong” signal, you have threeoptions.

1. Negotiate anyway. You might decide that what you stand to gain fromnegotiationoutweighsthecostsofsendingthewrongsignal.

2.Changethesignal.Youmighttrytoactivelymanagethewayinwhichtheotherpartywillperceiveyourdecision tonegotiate.Forexample,Stevemight

haveinitiatedadiscussionofcompensationasfollows:“Iamveryexcitedaboutthe offer and hope to play a role in transforming this organization. I alsoappreciateyourtrustinme.BeforeIsignon,Idohavesomequestions.I’msurethat’s no surprise. Would it be possible for you to give me some moreinformation regarding my role, responsibilities, and compensation? Regardingcompensation—Idon’twantyoutogetthewrongidea.Iamnotfixatedonthedollars and cents. But it is something that anyone with three young childrenneedstoatleastconsider.Isthissomethingthatwecandiscuss?”Insayingthis,Stevemighthavemadeitlesslikelythatlaunchingacompensationnegotiationwouldupsetoroffendthepresident.

3.Decidenottonegotiate.Ifyouthinkthatthecostofsendinganegativesignalistoohighandthatitwillbedifficulttochangethesignal,youmaywanttodecide,asStevedid,thatthisisnotthetimetonegotiate.

WHENRELATIONSHIPSMIGHTSUFFER

Sharon andMarkpurchased apieceof land andproceededwith their plans tobuildtheirdreamhouse.Thehome’sconstructionwouldstretchtheirbudget,buttheycarefullyplannedaway tobuildat the lowestpricepossible.Fortunately,SharonandMarkhadattendedaseminaradvertisedintheirlocalnewspaperon“gettingthepriceyoudeserve.”Theirinstructorhadtoldthemthatthemorebidsthey sought, the lower their price would be. Accordingly, they took theirarchitectural plans to eight different builders and were delighted when onebuilder came inwith a surprisingly lowbid—a full 10 percent lower than thesecond-lowestbid.

Thenegotiationcourseseemedtobepayingoff.Ifthebuilderisthisdesperatefor projects, Sharon and Mark speculated, perhaps he will accept furtherconcessions.Inface-to-facenegotiations,theypushedforalowerprice.Atfirst,thebuilderresisted.ButwhenSharonandMarkofferedtosignthecontractthatday,setadepositcheckonthetable(anothertrickpickedupinthenegotiationclass), and then threatened to go elsewhere, the builder had to reconsider.Hethoughtabouthisdesiretokeephiscrewemployedandagreedtolowerthepricebyanother3percent,shakinghisheadandgrumblingaboutwhetheranyprofitremained.SharonandMarkseemedtohavenegotiatedthebestpricetheycouldhave hoped to obtain—the lowest bidder’s reservation value! Their happiness

kept themfromnoticing thefact that thebuilderfelt trappedandwasunhappywithhowthenegotiationhadunfolded.

After the contractwas signed, Sharon andMark’s architect came upwith anumber of changes, all of which they thought looked great. They took theseseeminglysmall“changeorders”tothebuilderandwereshockedbythepricesthat the builder demanded to accommodate the alteredwork plan. Sharon andMark pushed hard for lower prices, but this time the builder refused tomakeconcessions.Their excellent initial price continued to rise, duenotonly to thechangeorders,butalsotoanincreaseinlumbercosts(thecontracthadacost-of-lumber adjustment). Many difficult conversations took place between thebuilder,who remainedgrumpyabout his profitmargin, andSharon andMark,whowerefrustratedbythepriceincreases.

Whenthebuildertoldthemthatthehousewouldmostlikelybecompletedinthree months, Sharon and Mark sold their condo and set a closing date thatcoincidedwith theexpectedcompletiondateof thehouse.However, thehousewas not completed on time, and Sharon andMark were forced to move intotemporaryhousing.Again andagain, theydiscussed their need for completionwith the builder,who repeatedly blamed the delays on subcontractors. SharonandMarkcheckedthecontractandfoundnoclausedealingwithdelays.

Afternineweeksintemporaryhousing,SharonandMarkfinallymovedintotheirsupposed“dreamhouse.”Atfirsttheywerepleasedwiththehouse.Butthelongertheylivedinit,themoreproblemstheyencountered:oneoftheheatingsystemsfailedduringthewinter,twooftheapplianceswereunreliable,someofthecarpentrywasn’tfinished,andcracksstartedtoemergeinthedrywall.Someoftheseitemswereunderwarranty;somewerenot.Thebuilderdidnotquicklyattend even to those items thatwere underwarranty; after all, he had alreadybeenfullypaidforhiswork.“IknowthatI’mobligatedtofixthecracksinthedrywall,”thebuildersaidduringoneheatedconversationwithSharon,“butI’mnotobligatedtodoitatyourconvenience.”

Ultimately, Sharon andMark regretted that they had ever decided to buildtheirdreamhouse.Theircondohadbeenfinefortheirneeds,andalotlessofahassle.

Whywas thebuildingproject suchadisaster?SharonandMarkgotagreatprice forahouse that theyeventuallydidnotwant.They focusedongettinga

lowpriceattheexpenseofotherimportantissues,suchastimelycompletionandquality construction. Most important, they pushed for a price that, whiledesirable, destroyed their relationship with the other party.When Sharon andMarkreceivedthebuilder’slowbid,theyprobablyshouldhaveaccepteditandthen negotiated “friendlier” issues, such as how to deal with change orders,whether to add a small lateness penalty and a small timeliness bonus to thecontract, and so on. Sharon andMark did a good job negotiating the price oftheirhomeconstruction,buttheywouldhavedoneamuchbetterjobnegotiatingtheir overall outcome had they avoided negotiating the builder down to hisreservationvalue.

As we think about how Sharon and Mark should have handled theirnegotiation, it isworthrecalling(fromChapter1)what transpiredwhenAlbertEinstein was “negotiating” his job offer with Princeton University. Einsteinrequestedanannualsalaryof$3,000,andPrincetonrespondedbyofferingtopayhim $15,000 annually. Princeton’s decision to offer Einstein an appropriatewage,ratherthanaccepting(orhagglingover)hislowbid,wastherightonetomake—and not simply because the other party was Albert Einstein.Organizationsoftenfaceachoicebetweenpayingemployeesthebareminimumrequiredtoattractandretainthemandpayinga“fairer”ormoregenerouswage.Ethical considerations aside, organizations (and consumers like Sharon andMark) will generally benefit by taking a long-term perspective that entailsbuildingareputationforfairnessandforcontributingtothewell-beingoftheirnegotiationcounterparts.

WHENNEGOTIATINGISCULTURALLYINAPPROPRIATE

Let’srevisitMax’staxinegotiationsinThailandandseehowthesemightwork—ornotwork—onceMax returns toBoston. Imagine thatMax returns to theUnited States, walks out of the airport terminal, and waits in line for a taxi.Whenhistaxiarrives,MaxasksthedriverhowmuchitwillcostforaridetohishomeinCambridge.Thedriversaysthathewillgobywhatthemeterregisters,but estimates that it will be close to $20. As other travelers wait impatientlybehindhim,Maxbeginstohaggle.Heoffers$10.ThetaxidriverswearsatMaxand calls the attendant responsible formanaging the taxi stand. The attendantpullsMax aside and tells him that he is holding up the line andwill have toeithertaketheridenoworfindadifferentwaytogethome.

Should Max be surprised that this negotiation failed? Of course not. Nor

should he be surprised if he next went to a grocery store and was unable toengagetheclerkinanegotiationoverthepriceofabottleofwater.Someofthebehaviors that Max found to be perfectly acceptable in Thailand would belaughable, even offensive, back home in the United States. It is worthmentioningthatwehavehadstudentstellusoccasionallyabouttheirsuccessinnegotiatingseeminglynonnegotiableitems(suchasthepriceofacupofcoffeeat Starbucks). Youmight also recall how Shikha, Deepak’swife, successfullynegotiated with a taxi driver in Boston (as described in Chapter 3). But veryoften,suchnegotiationswillfailbecausetheyarenotculturallyappropriate.

Withinourownculture,wetendtoknowwhichbehaviorsareconsistentwithsocialnormsandwhicharenot.Ourknowledgeofourownculturetellsuswhattimeweshouldshowupforapartythat“startsat7P.M.,”whetheritisacceptabletoburpafteramealortoshowthesolesofourshoes,andcountlessotherrulesof conduct. Our understanding of our own culture also tells us when it isappropriate to negotiate—and when it is not. Unfortunately, we often violatesuchnormsinothercultures.IfMax,wheninBangkok,hadsimplyacceptedthe70 baht offer from the taxi driver, he not only would have overpaid, but hewouldhavealsogiventhedriverafunnystory(abouttheignorantforeigner)thathe could share with his friends. As another example, consider that in somecultures and contexts, it may be acceptable to anchor aggressively and thennegotiate down to a mutually agreeable price; in others, your willingness toretreatfromyouroriginal,justifiedanchormaysignaltotheotherpartythatyouwereinitiallylyingorbeinggreedy.

How can you knowwhether it is okay to negotiate in a particular culture?How should you initiate negotiations in a different culture? The first step inansweringthesequestionsisalwayspreparation.Beforeyoutravel,elicitadvicefromotherswhohavedonebusinessinthatcultureorwhoarefromthatculture.Learnasmuchasyoucan, includingwhat isand isnotappropriate tosayanddiscuss,howandwhentoinitiatesubstantivediscussions,howtobuildrapportandtrust,howtomanagestatusandrespectissues,andhowaggressivelypeoplecanbeexpectedtoanchor.Themoreyouknowgoingin,thebetterpreparedyouwillbetonegotiateeffectively.

Even ifyouarenotculturallysophisticated,all isnot lost. Imagine thatyoufindyourself having tonegotiate in a foreign landwhereyouknowvery littleaboutthelocalcultureorsocialnorms.Whatshouldyoudo?Asktobeeducated.Most people in most parts of the world will not be offended by—and will

probablyappreciate—astatementsuchasthefollowing:

As you know,we have not done business in this country before. That’s one of the reasonswe arethrilledtohavethisopportunitytomeetwithyouanddiscussissuesofmutualinterest.However,thisalsomeans thatwemaynot alwaysknow thecorrectway to articulateor conveycertain ideas.Wehopeyouwill be forgiving ifwe sayor do something that seems awkward.We assure you thatwemeannodisrespectandthat,whilewemaystumbleoccasionally,wearefastlearners.Perhapsyouarefeelingsimilaranxiety, inwhichcasewecanassureyou thatweunderstandyourgood intentions. Ithinkweallstandtobenefitifeveryonefeelscomfortablediscussingissuesopenly,askingquestions,andbeingpatient.Ihopethatyouagree.We’reexcitedabouttheopportunitywehavenotonlytodobusinesswithyou,butalsotolearnaboutyourculture.

Howwouldyourespondifsomeonewithwhomyouwerenegotiatingmadethis statement? Inall likelihood,youwouldwelcome their sentimentsand feelmore relaxedandcomfortableyourself.Unfortunately,whennegotiatingcross-culturally,manypeopleinsteaddecideto“fakeit,”relyonculturalstereotypes,or ignore the cultural element altogether. None of these strategies beats theinvestigative approach that we first introduced in Chapter 3: when you don’tknowsomething,trytolearnit.

WHENYOURBATNABEATSTHEIRBESTPOSSIBLEOFFER

In1981,RogerFisherandWilliamUrypublishedashortbookentitledGettingtoYES:NegotiatingAgreementWithoutGivingIn.Asyoumayknow,thebookbecame a best seller and transformed the practice of negotiation. Previously,mostwriting on the topic of negotiation focused on protecting “what’s yours”and getting as much of “what’s theirs” as possible—an approach that manypeoplewould describe as “win-lose” negotiation. By contrast,Getting to YESencouragedagreementandexaltedthepursuitof“win-win”deals.

Overall,GettingtoYEShashadaverypositiveimpactonsociety.Butamongsome of its enthusiasts, the book seems to have created too strong of a biastoward always “getting to yes.” The amazing success ofGetting to YES hascontributed to the perception that an impasse, or “no deal,” is equivalent to afailed negotiation. But sometimes in negotiation, you should not get to yes!Sometimes your BATNA is better than any offer your current negotiationcounterpartcanmake,and“nodeal”isthebestoutcomethattwofullyrationalnegotiatorscanhopetoachieve.Inthesecases,thebestyoucandoistogetto“no”asefficientlyaspossible.Howwillyouknowwhen“nodeal” is thebestoutcome?Lookforthefollowingsigns:

•Youhavetoldthemaboutyourotheroffers,andtheyareunabletomatchorbeatthevaluethatthesealternativesoffertoyou.

•Insteadoftryingtomeetyourneeds,theyaretryinghardtoconvinceyouthatyourinterestsarenotwhatyouthinktheyare.

•Theyseemmoreinterestedinstretchingoutthenegotiationthaninexchanginginformation,buildingarelationship,orstructuringanagreement.

•Despiteyourbestefforts,theywillnotansweranyofyourquestions;norwilltheyaskaboutyourneedsorinterests.

Insuchsituations,thereisnovirtueinnegotiatingforthesakeofnegotiatingornegotiatingwellpastthetimeitshouldtakeforyoutodiscoverthatnoZOPAexists. When there is no ZOPA, there should be no deal. In such situations,insteadof“gettingtoyes,”exerciseyourBATNA.

CAN’TAGENIUSNEGOTIATEEVERYTHING?

As we have stressed throughout this book, more often than not, negotiatingallows you to create value above and beyond your alternatives to reachingagreement. But it is worth keeping in mind that not every aspect of life is anegotiation. By considering the context of the negotiation, the relationshipsinvolved, andyouralternativesaway from the table,youwillbecomeadeptatidentifyingwhen to negotiate,when to accept a dealwithout negotiating, andwhen tosimplywalkaway.Somenegotiation“experts”will tellyou that“youcannegotiateanything.”Perhapsyoucan—butthatdoesnotmeanyoushould.Often,therearebetterthingstodothannegotiate.Negotiationgeniusesareabletorecognizeandleveragethesealternatives.

CHAPTER14

ThePathtoGenius

Someyearsago,oneofussatinonanMBAnegotiationclassthatwastaughtbyawell-knownnegotiationprofessor.Itwasthelastdayofthesemester-longcourse,andtheprofessorkeptreferringtohisstudentsas“negotiationexperts”(forinstance,“nowthatyouarenegotiationexperts,”andsoon).Wefoundthisquite disturbing. These studentswere not experts—certainly not yet. Some ofthemmightneverbecomenegotiationexperts.Andyetthelastdayofthecoursewasbeingcelebratedasthelaststepinthelearningprocess.Incontrast,weholdno such illusions. Rather, we believe that reading this book is your first steptowardbecominganegotiationgenius—orexpert.

RecallthedistinctionwemadeinChapter6betweenexperienceandexpertise.Experienceiswhatyougainwhenyouengageinaparticularbehavior(suchasnegotiation)manytimes.Expertiseiswhatyougainwhenyouareabletoinfuseyour experience with a “strategic conceptualization” of what you are doing.1Unfortunately,manypeople confuse these two ideas andmistakenly think thattheirvastexperienceinnegotiationqualifiesthemasexperts.

Oneofourexecutive students recently toldus thathedidn’t expect to learnmuch from a course on negotiation. He had accumulated many years ofnegotiationexperienceandhad“seenitall.”Insupportofhisargumentforthesupremacyofexperience,heevenquotedBenjaminFranklin:“Experience isadearteacher.”Unfortunatelyforthestudent(andhisprospectsforlearning),hehadmisunderstood Franklin’s point.When he used the word “dear,” Franklinmeantitasasynonymfor“expensive,”not“precious.”ThisbecomesclearwhenyouconsiderFranklin’s full statement:“Experience isadear teacher,but foolswill learn at no other.” Yes, experience is an extremely important part ofbecominganegotiationgenius,butitisnotsufficient.

Thestudentswhoseprofessortoldthemtheywereexperts,thedealmakerwhocame touswith twentyyearsofnegotiatingexperience,andyou,allhaveonethingincommon:whenitcomestonegotiation,youdosomethingswell,youdo

some things poorly, and the best way for you to become a more effectivenegotiator—indeed, a negotiation genius—is to think more deeply andanalytically about the framework we have developed. Only by leveragingexperienceandinsightwillyoutrulyachieveexpertise.

WHICHSTORYWILLYOUTELL?

Try to remembera recentnegotiation inwhichyou reachedanagreement,butgotaprettylousydeal.Nowimaginethatyoucomplainedabouttheoutcometoyour boss, colleague, friend, or spouse.Howdid you account for your result?Herearesomecommonexplanationsthatwehaveheardfromnegotiators.

•“Theotherpartysaidthattheyhadabetterofferfromthecompetition.TherewasnothingmorethatIcoulddo.”

•“Themarketmovedagainstus.”

•“Therewasnotenoughtimetopushforabetterdeal.”

Andherearesomeexplanationsthatwerarelyhear:

•“Ididn’tpreparesystematically.”

•“Ourteamwasnotwell-coordinated.”

•“Ididn’tcollecttheinformationthatIneededpriortothenegotiation.”

•“IblurtedoutanofferbeforeIthoughtitthrough.”

Thedifferencebetweenthe twolists iscrucial.Thefirstconsistsofexternalattributions. The failurewas due to factors beyond your control. The problemwas with the situation, not with what you did or did not do. In contrast, thesecondlistconsistsofinternalattributionsforthefailure—therewerethingsyoucouldhavedonedifferentlytoachieveabetteroutcome.Whenwethinkofoursuccesses,weareveryquicktoattributethemtofactorswithinourcontrol.But

whenwethinkoffailures,weusuallyfindwaysofexternalizingtheblame.

Thegood news is that these typesof external attributionsmay salvageyourreputationwithyourboss.Theywillalsomakeyoufeelbetteraboutthe“fact”thatthebaddealwasn’tyourfaultandthatyoudidthebestyoucould.Thebadnews is that the poor outcomeprobablywas at least partially your fault; thus,youarenotbeingentirelyhonestwithyourselforwithothers.Mostoften,whenyougetalousydeal,itisbecauseyouwereinadifficultsituationandyoudidnothandleitaswellasyoucouldhave.Nowforthereallybadnews:whenyouattributeyourfailurestoexternalfactors,youmakeitverydifficulttolearnfromyourexperienceandimproveasanegotiator.

Asanegotiator,youfaceachoice:doyouwanttofeelgoodaboutyourselfordoyouwanttolearn?Becauseyouhavereachedthelastchapterofthisbook,wepresume the latter. If so, your goal is to findways to integrate the principles,strategies,andtacticspresentedinthisbookintoyourlife.Weendbysuggestingsomewaysfordoingso.

PERFECTCANBETHEENEMYOFGOOD

Ithasbeensaid that“perfect is theenemyofgood,”aprinciple thatapplies topersonalchangeinmanyareas.Ifyoutrytodotoomuch,toosoon,youwillbeoverwhelmed.For example, youmaywant to try tomemorize all of the ideasand strategies you found useful in this book so that youwill be prepared foreverypossibleeventualityinyournextnegotiation.Ifyoutrytodothis,youwillinevitablyfallshortofyourexpectations—andofyourpotential.

In addition to recognizing the virtues of incremental (rather than hurried)progress, you must anticipate the various obstacles to change that you willundoubtedlyface.Youmayfinditdifficulttotrynewideasorstrategiesbecauseyouareriskaverseorbecauseyoufindthestatusquotobecomforting.Oryoumayfinditdifficulttochangeyourwayswheneveryonearoundyouexpectsyoutobelieve certain things andbehave a certainway. It is alsopossible that yousimplywon’thavethetimenecessarytodevotetochange.Recognizethatalloftheseobstacles—andothers thatyoumight thinkof—are typical.Yourneed toconfront theseobstaclesdoesnotsayanythingaboutyouoryourprospectsforeffectivechange;itsimplymeansthatyouarehuman.Thisunderstandingmaygiveyousomerelief,butitdoesnotsolveyourproblem.Howcanyouovercomecommonobstaclestochangeandeffectivelyleveragetheideasinthisbook?

Herearesomepracticalsteps thatyoucanfollowto transitionfromreadingabout key negotiation ideas and strategies to changing how you actuallynegotiate:

1.Reviewthebook(oranynotesyoumayhavetakenasyouread)andmakealistofallofthestrategiesandtacticsthatyouwouldliketotryinyourownnegotiations.Onceyouhavedonethis,identifywhichitemsonthelistrequirefurthercontemplationandwhichonesyoucanuseimmediately.

2.Amongthoseideasthatyouwishtocontemplatefurther,identifyonekeyconceptthatyouwillspendtimeworkingonintheweekahead.Setasidesometimeinyourscheduletothinkmoredeeplyaboutthisidea.Howmightyouapplyittoyournegotiations?Whatareitsstrengths?Whatareitsweaknesses?Howmightyouintegratetheprincipleintoyourwayofthinking?Dothesameforalloftheotherideasyouwouldliketocontemplatefurther:tackleoneideaeachweek.Ifyouhavethetimetoexploremoreideasinaparticularweek,additemstoyourweeklylist.

3.Identifyotherpeople,suchasfriendsandcolleagues,withwhomyouwouldliketodiscussparticularnegotiationstrategies.Askthemtoplaydevil’sadvocatetoyourproposeduseofastrategyandtocritiqueyourgameplan.Tryingoutnewnegotiationstrategiesonsupportivefriendsorcolleagueswillnotonlygiveyoutheconfidencetotransferyournewskillstoimportantnegotiations,butwillalsohelpyouidentifymistakesyoumayhaveoverlooked.

4.Forthosestrategiesthatyouarereadytoimplementimmediately,thinkaboutyourcurrent(orupcoming)negotiations.Writedownwhichspecificstrategiesandtacticsyouwouldliketoemployineachnegotiation.Toavoid“shootingfromthehip”whenyougettothebargainingtable,youshouldalsoplanhowexactlyyouwillimplementthesestrategies.

5.Afteryournegotiations,thinkaboutotherstrategiesthatyoucouldhaveappliedbutdidnot.Thinkabouthowyoumightdosointhefuture.

6.Everysooften,revisitthebooktoseeifthereareotherideas,strategies,ortacticsthatseemrelevanttoyourcurrentorupcomingnegotiations.

CREATINGTHERIGHTENVIRONMENTFORGENIUS

AnexecutivestudentwhorunsamidsizecompanycamebacktovisitDeepakayearaftertakinghiscourseonnegotiation.Theexecutivehadbeensoenergizedby thecoursematerial thathewantedallofhisemployees to learnandmasterthestrategiesdiscussedinclass.Duringthecourseofthepastyear,hereported,hehadputforthalotofefforttoeducatehisemployees.Unfortunately,hehadachievedverymixedresults.Hedescribedtheproblem:

“Inmycompany,wehavetwodivisions: the‘Openers’andthe‘Closers.’It is thejobofOpenerstobringinpotentialclients.Oncethepotentialclientissufficientlyinterestedinwhatwehavetooffer,theyarepassedon to theClosers. It is theClosers’ job to close thedeal.When I tried to teachmy

employeesaboutinvestigativenegotiation,creatingandclaimingvalue,etc.,astrangethinghappened.The Openers got the message quickly. They were excited to leverage these new ideas in theirnegotiationswithpotentialclients.ButtheClosers—theydidn’tgetit.TheylookedatmeasifIwastalkingcompletenonsense.Andtheywentbacktotheirjobsanddidn’tchangeathing.Theycontinuetoclaimverylittlevalueandtodowhateverittakestosignthedeal.Theyseemtohavenosenseofthemeritsofvaluecreation,orofthepotentialforvalueclaiming!”

The executive wondered aloud whether the problem was that he wasrecruitingmoreopen-mindedpeopleasOpenersandmoreclosed-mindedpeopleasClosers.Deepakrespondedbyaskingwhether,inhisfirm,thesetwodivisionswereactuallyreferredtoas“Openers”and“Closers.”“Yes,”theexecutivesaid.“Why,then,”askedDeepak,“areyousosurprisedthatyourClosersareclosingdeals for you?” The executivewas not surewhat hemeant, soDeepak askedanotherquestion:“WhatdoyouthinkClosersaremostafraidofdoingin theirjobs?”Theexecutivethoughtforamoment,thenresponded:“Losingthedeal.”Deepak asked if therewere any incentive systems in place to rewardClosers.Therewere:theirbonusesweretiedtothenumberofdealstheyclosed.

Thatwas theproblem.Theseemployeeswerebeing told(literally) that theirjobwastoclosethedeal.Theywerealsobeingrewardedfinanciallyonthebasisofclosingthedeal.YettheexecutivewassurprisedwhentheClosersignoredhissuggestionthattheyshouldtrytoclaimasmuchvalueaspossible.Whywouldtheydoanythingthatmightrisklosingthedeal?

Thisproblemiscommon.Often,we—orouremployeesandcoworkers—haveboththeanalyticabilitytolearnnewskillsandthedesiretochangeourbehavior,yet we are constrained by the culture or incentive systems that exist in ourorganizations.Fortheideasinthisbooktotakeshapeintherealworld,youneedto take steps to remove these constraints. Ifyouare in apositionof authority,assess the culture and incentive systems that govern your team, division, ororganization. If you determine that these systems will stifle the changes youhopewilltakerootinthenegotiationbehaviorsofyouremployeesorcolleagues,work to facilitatechange. Ifyouarenot inapositionofauthority,butcanseehow your organization’s culture or incentive system is creating a barrier tochange,considertakingituponyourselftoeducatethosewhocandosomethingaboutit.

THEDISAPPEARINGCIRCLE

WhenexecutivesandMBAstudentsfirstenrollinacourseonnegotiation,they

typicallyarrivewithassumptionsabout the“things thatarenegotiable” in life.Usually, in their minds, a small circle of negotiable things exists: buying orsellingahouse,acar,orabusiness;hagglingwithastreetvendor;negotiatingsalarywithanemployer;andperhapslittleelse.Theylookforwardto learninghowtobemoreeffectiveinthesenegotiations.Butasthecourseprogresses,andwe discuss different strategies and tactics for negotiating in awide variety ofcontexts,theircircleofnegotiablethingsbeginstogrow.Moreandmoreissues,conflicts, and situations seem negotiable. Students often report that this is anempoweringfeeling.Butwheredoesitend?Howlargeisthecirclereally?

Thosewhoreflectdeeplyontheideaspresentedintheirnegotiationcourse—or the ideas presented in this book—in themonths andyears that follow theirclassroom (or reading) experience discover that, eventually, the circle growsinfinitelylarge;thatis,itsimplydisappears.Therearenolonger“thingsthatarenegotiable”and“thingsthatarenotnegotiable.”Instead,theydiscoverthattheyhavelearnedasetofbasicprinciplesforhumaninteraction.Theseprinciplesarenotaboutbuying,selling,craftingdeals,reachingagreements,overcomingbias,andsoon.Thoseactivitiesaremereapplicationsofmorefundamentalprinciplesfor successfully engaging with other people who, like you, are usually well-intentionedhumanbeingswhohavedifferentinterestsandperspectives.

A negotiation genius is someone for whom the circle has disappeared—forher, the ideas and principles are what matter, and these are ingrained in herapproach to dealing with all types of human interaction. For a negotiationgenius,applyingtheideasinthisbookduringacomplexbusinesstransactionisnodifferentfromapplyingtheideaswhenhavingaconversationwithaspouse,afriend,oranemployee.Investigativenegotiationprinciplesareasapplicabletoalegal dispute as they are to a spat with a coworker; influence tactics can beusefullyappliednotonlytothesaleofyourbusinessservices,butalsoinyournegotiationswithyourchildren.

NEGOTIATIONGENIUSISACHIEVABLE

Weendwithanobservationregardinggenius.Themistakeistothinkthatsomepeople are born geniuses (Einstein, Mozart, Michael Jordan, et cetera), andothersofusarenot.Infact,geniusisoftenacombinationofnaturalabilityandalotofhardwork.But,youwillargue,noamountofhardworkwillturnyouintoMichael Jordan or Mozart or Einstein. You are probably correct—you areunlikely to have the “rawmaterials” needed for their achievements.The good

news is that you do have the raw materials needed to become a negotiationgenius—almost everyonedoes.Negotiationgenius is about human interaction,and theonly rawmaterial youneed to achieve it is the ability to changeyourbeliefs,assumptions,andperspective.Youhavethisability.Ifyounowputforththe effort to implement what you have learned, then you will become anegotiationgenius—someonewhofindsiteasytoachievebrilliantresultsinalltypesofnegotiations.Wehopeyouwillputforththiseffort.Wehopethisbookmotivatesyoutodosoandguidesyoualongthepath.

GLOSSARY

analogicalreasoning:Theprocessof learningbycomparingandcontrastingsimilar lessons from twodifferentepisodesorevents.

anchor: A number, such as a first offer, that focuses negotiator attention and expectations and helpsresolveuncertainty.

behavioraldecisionresearch:Anareaofresearchthatfocusesonthesystematicwaysthatthehumanmind deviates from rationality; has led to scientific revolutions in fields such as economics,psychology,finance,law,medicine,marketing,andnegotiation.

bestalternativetoanegotiatedagreement(BATNA):Thecourseofactionanegotiatorwillpursueifandwhenthecurrentnegotiationisunsuccessful(i.e.,endsinimpasse).

bounded awareness: The systematic failure to see readily available information that is relevant to adecisionbutisnottheobjectoffocus.

cognitivebiases:Thesystematicmistakesthatnegotiatorsmakebecauseofthewayinwhichtheirmindsoperate.

competitivearousal:Anemotionalstatethatresultsfromheightenedperceptionsofrivalry,andthatcancreateinnegotiatorsthedesireto“winatanycost.”

contingencycontract:Aprovisioninanagreementthatleavesspecificelementsofthedealunresolveduntilaparticularsourceofuncertaintyisresolvedinthefuture.Suchprovisionsallowbothsidesinthenegotiationto“bet”ontheirdifferingbeliefsregardingtheprobabilityofafutureevent.

contingent concessions: In negotiation, concessions that are explicitly tied to specific actions by theotherparty.Thesearephrasedinaquid-pro-quomannertoclarifythatconcessionswillonlybemadeiftheotherpartydoestheirpart.

contrasteffect:Thetendencytojudgethemagnitudeofsomethingbasednotonitsabsoluteorobjectivesize,butinsteadonhowitappearsrelativetoa(perhapsarbitrary)pointofreference.

co-opetition: Situations in which a party has the incentive to cooperate with another party on somefronts,whilecompetingwiththesamepartyonotherfronts.

de-biasing strategies: The steps a negotiator takes to reduce his or her naturally occurring decisionbiases.

distinctvalueproposition:Thehostofassetsthatyournegotiationcounterpartvaluesandthatyoucanprovidemoreeffectivelyorcheaplythanyourcompetitors.

door-in-the-facestrategy(DITF):Thetechniqueofincreasingothers’willingnesstocomplywithyourrequestbyfirstaskingthemtoagreetoanevenmoreextremerequestthattheyarealmostcertaintoreject.

egocentrism:Thetendencyforourperceptionsandexpectationstobebiasedinaself-servingmanner.

fixed-piebias:Negotiatorsoftenfailtocreatevaluebecausetheyassume“whateverisgoodforthemisbadforus”thatis,theybelievethereisa“fixedpie”ofvalueorresourcesevenwhenitispossibletoincreasethesizeofthepie.

foot-in-the-door strategy (FITD): A strategy of influence that is based on the premise that thewillingnessofotherstoagreewithonerequestleadstoanincreasedcommitmentontheirparttoagreewithadditionalrequeststhatnaturallyfollowfromtheinitialrequest.

framing effects: The common tendency for negotiators to treat risks involving perceived gainsdifferentlyfromrisksinvolvingperceivedlosses.

haggling:Theiterativegive-and-takethatoccursaftereachpartyhasmadeitsinitialoffer.

illusionofsuperiority:Abiasthatcausespeopletoviewthemselvesasbetterthanothersonavarietyofdesirableattributes.

inattentionalblindness:Aphenomenoninwhichpeoplearefocusedsointentlyonaparticulartaskthattheyfailtoseeobviousinformationintheirenvironment.

incentivecompatible:Negotiatedclausesthatofferincentivesfortheotherpartytobehaveinwaysthatareconsistentwiththespiritofyouragreement.

informationasymmetry:Thefactthateachsideinthenegotiationisinevitablyawareoffactsanddatathattheothersidedoesnotknow.

insiderlens:Theperspectivenegotiatorstypicallyadoptwhentheyarepersonallyinvolvedinadecisionornegotiation.Theinsiderlensismoresusceptibletobias,andmorelikelytorelyonintuition,thantheoutsiderlens.

investigativenegotiation:Anegotiationmind-setandmethodologythatfocusesondiscoveringtheoftenhiddenorguardedinterests,priorities,needs,andconstraintsoftheotherparty.

irrationaloptimism:Apositiveillusionthat leadsmostofus tobelievethatourfutureswillbebetterandbrighterthanthoseofotherpeople.

learnedoptimism:Theperspectivethataperson’stendencytooverestimateherchancesofsuccessisalearned, functional attribute; theoretically, unrealistically high levels of optimism will motivatepersistenceinthefaceofrejection.

logrolling:Theactofmakingtrade-offsacrossissuesinanegotiation.Inparticular,logrollinginvolvesgivingtheothersidesomethingthattheyvaluerelativelymoreinreturnforreceivingsomethingthatyouvaluerelativelymore.

loss aversion: The tendency for people to bemoremotivated to avoid losses than they are to accruegains.

marginalutility:Thehappinessassociatedwithan incrementalchange incircumstances; forexample,howmuchhappieranegotiatoriswhenhereceivesanadditionalconcessionabovewhatwasalreadyreceivedorexpected.

motivationalbiases:Arangeofmisperceptionsresultingfromthecommonhumantendencytoviewtheworldthewaywewishitwereratherthanhowittrulyis.Inparticular,thedesiretoseeourselvesasfairer,kinder,morecompetent,moregenerous,moredeserving,andmorelikelytosucceedthanothers.

negotiauction:Atwo-stagebidding/negotiationprocessinwhichaninitialauctionnarrowsthefieldtothemostpromisingcandidates,whoaretheninvitedtoengageinone-on-onenegotiations.

nonrationalescalationofcommitment:Theactofcontinuingtopursueafailingcourseofactionbasedonthestrongpsychologicalneedtojustify(tooneselfortoothers)one’spriordecisionsandbehaviors.

non-zero-sum negotiation: A negotiation in which what one party gains is not associated with anequivalentlossfortheotherparty.Insuchnegotiations,thetotalvalueofthedealdependsonhowwellthepartiesemployvalue-creatingstrategies.

normofreciprocity:Thewidelyheldexpectationandunderstandingthatpartiesshouldrepayorrewardothers for their benevolent or helpful behaviors. In negotiation, the norm of reciprocity creates theexpectationthatbothsideswilltaketurnsmakingconcessions.

outsiderlens: The perspective negotiators typically adoptwhen they are not personally involved in adecisionornegotiation.Theoutsiderlensislesssusceptibletobias,andlesslikelytorelyonintuition,thantheinsiderlens.Theoutsiderlenshelpsnegotiatorstogeneralizeacrosssituationsandtoidentifyrelevantpatternsandlessons.

overconfidence: A bias that describes the tendency of negotiators to be more confident in theirassessmentsthanrealitysupports.

package reservation value: The “walk-away” value that you calculate using all of the issues in thenegotiation.This is theminimumtotalvalueyouwillneed toobtain in thenegotiation ifyouare toforgo your BATNA. It is often necessary to use a scoring system to help calculate your packagereservationvalue.

parasiticvaluecreation:Value creation that occurswhennegotiators at the table aremadebetter offbecausetheyhaveextractedvaluefrompartieswhoarenotatthebargainingtable.

Pareto-efficientagreement:Anagreementinwhichthereisnowaytomakeonepartybetteroffwithouthurtingatleastoneotherparty.

Paretoimprovements:Changestoadealthatmakeatleastonepersonbetteroffwithoutmakinganyoneworseoff.

positive illusions: Unrealistic positive beliefs regarding our abilities and our future. Such beliefs,arguably, contribute to our psychological andmaterialwell-beingbyprotecting our self-esteemandmotivatingustoperseverewhenfacedwithdifficulttasks.

post-settlementsettlements:Agreementsthatarenegotiatedaftertheinitialagreementissigned.Post-settlementsettlementsarepursuedinordertocreateadditionalvalue.

prisoners’dilemma:Acompetitivesituationinwhichbothplayersareindividuallybetteroffplayinganoncooperativestrategy,butcollectivelybetteroffplayingacooperativestrategy.

psychological biases: Systematic departures from rationality that can derail an otherwise soundnegotiationstrategy.

reactivedevaluation:Thetendencyofnegotiatorstodenigratethevalueofaconcessionorideasimplybecauseitwasmadebysomeonewhoisseenasanadversary.

referencegroupneglect:Thecommon—andharmful—failureofnegotiatorstoadequatelyconsiderthestrengthoftheopposition.

reference point: Any salient source of comparison. Reference points can affect the judgmentsnegotiatorsmakeregardingthevalueofaparticularissueoroffer.

reservationvalue:Anegotiator’s“walk-away”pointinanegotiation.Ifthevaluebeingofferedbytheothersideisequaltothenegotiator’sreservationvalue,thenegotiatorisindifferentbetweenacceptingtheofferandrejectingitinfavorofpursuinghis/herBATNA.

self-servingattributions:Thetendencytomakecausaljudgmentsinwaysthathelpthenegotiatorfeelgoodabouthim-orherself.

socialproof:Apsychologicalprinciplethatstateswhenthereisuncertaintyorambiguityregardingtheappropriatecourseofaction,peoplelooktothebehaviorofsimilarothersforguidance.

stereotypetax:Thecostwebearwhenwebaseourdecisionsaboutothersonstereotypesratherthanonmoreusefulinformationaboutthemasindividuals.

stereotyping:Identifyingakeyfeaturethatisperceivedtodescribesomemembersofagroup,applyingthis description to allmembers of the group, and failing to notice the uniqueness of specific groupmembers.

targetprice:Theoutcomeanegotiatorhopestoachieveinthenegotiation.Thisisalsoreferredtoasanegotiator’saspirationlevel.

valuecreation:Theactof increasing the totalamountofvalue that isupforgrabs in thenegotiation.Thisisdone,forexample,whennegotiatorsidentifyeachother’sprioritiesandengageinlogrolling.

vividnessbias:Thetendencyofnegotiatorstofocustoomuchattentiononvividfeaturesofoffersandtooverlooklessvividconcernsthatmaynonethelesshaveastrongerimpactontheirsatisfaction.

want-selfversusshould-self:Theinternalnegotiationpeopleoftenfacebetweendoingwhattheywanttodoversusdoingwhattheythinktheyshoulddo.

winner’scurse:Situationsinwhichabidderwinsthedealbypayingmorethanthecommodityisworth,duetoafailuretoconsidertheinformationadvantageoftheotherparty.

zero-sumnegotiation:Anegotiationinwhichwhateveronepartygainsresultsinanequivalentlosstotheotherparty.Alsoreferredtoas“fixed-sumnegotiation”and“distributivenegotiation.”

zoneofpossibleagreement(ZOPA):The setofallpossibleoutcomes inanegotiation thatwouldbeacceptable to all parties. In a one-issue price negotiation, this is the space between the seller’sreservationvalueandthebuyer’sreservationvalue.

NOTES

CHAPTER1:CLAIMINGVALUEINNEGOTIATION

1 This story was recounted by David Lax and James Sebenius in their 1986 book The Manager asNegotiator:BargainingforCooperationandCompetitiveGain(publishedbyFreePress).

2 Adapted from D. Malhotra (2005). Hamilton Real Estate: Confidential Role Information for theExecutiveVPofPearlInvestments(SELLER).HarvardBusinessSchoolExercise905-053.Available,alongwith the Role Information for “Buyer” and a TeachingNote, fromHarvardBusiness SchoolPublishing.

3Fisher,R.,andUry,W.(1981).GettingtoYes.Boston:HoughtonMifflin.

4Northcraft,G.B.,andNeale,M.A.(1987).Experts,Amateurs,andRealEstate:AnAnchoring-and-AdjustmentPerspectiveonPropertyPricingDecisions.OrganizationalBehavior&HumanDecisionProcesses,39(1),84–97.

5Ibid.

6 Malhotra, D. (2004). Trust and Reciprocity Decision: The Differing Perspectives of Trustors andTrustedParties.OrganizationalBehaviorandHumanDecisionProcesses,94:61–73.

7Shell,R.G. (1999).Bargaining forAdvantage:Negotiation Strategies forReasonablePeople.NewYork:Viking.

8Galinsky,A.D.,Mussweiler,T.,andMedvec,V.H.(2002).DisconnectingOutcomesandEvaluations:TheRoleofNegotiatorFocus.JournalofPersonalityandSocialPsychology,83(5),1131–1140.

CHAPTER2:CREATINGVALUEINNEGOTIATION

1This statementwasmadebyRichardHolbrookeduring a panel discussion atHarvardUniversity inOctober2004.

2 Adapted from A. Tenbrunsel & M. Bazerman (2006). Moms.com Simulation and Teaching Note.(DisputeResolutionandResearchCenter,NorthwesternUniversity.)

3Valley,K.L.,Neale,M,A., andMannix,E.A. (1995).Friends,Lovers,Colleagues,Strangers:TheEffectsofRelationshipsontheProcessandOutcomeofDyadicNegotiations.ResearchonNegotiationinOrganizations,65–93,eds.R.J.Bies,R.J.Lewicki,B.H.Sheppard.Greenwich,CT:JAI.

4Raiffa,H.(1985).Post-SettlementSettlements.NegotiationJournal,1,9–12.

CHAPTER3:INVESTIGATIVENEGOTIATION

1 ABC News (2004, July 13). Nader Campaign Accepts Republican Donations. Fromhttp://abclocal.go.com/kgo/story?section=News&id=1873814.

2Brandenburger,A.M.,andNalebuff,B.J.(1996).Co-opetition.NewYork:Doubleday.

CHAPTER4:WHENRATIONALITYFAILS:BIASESOFTHEMIND

1Malhotra,D.,andHout,M.(2006).NegotiatingonThinIce:The2004–2005NHLDispute.HarvardBusinessSchoolCases:906-038and906-039.

2LaPointe,J.(2004,December27).Bettman’sVisionfortheNHLDidNotIncludeLaborStrife.NewYork Times, D1; (2005, January 10); Worst Managers: Gary Bettman, National Hockey League,BusinessWeek,76.

3LaPointe,Bettman’sVisionfortheNHLDidNotIncludeLaborStrife,op.cit.

4Cannella, S. (2005, February 17). Shameless and Pointless:Bettman,GoodenowDisgrace theNHLMorethanEver,SportsIllustratedonline.

5Hahn,A.(2005,July26).NHL:PlayersOKPact.Newsday,A86.

6Farber,M.(2005,February17).DownwiththeShip:WithSeasonSunk,Bettman,GoodenowShouldResign.SportsIllustratedonline.

7Originally cited by Ross, L., and Stillinger, C. (1991). Barriers to Conflict Resolution.NegotiationJournal,7(4),389–404.

8Bazerman,M.,Baron,J.,andShonk,K.(2001).“YouCan’tEnlargethePie”:SixBarrierstoEffectiveGovernment.NewYork:BasicBooks.

9Thompson,L.(2001).TheMindandHeartoftheNegotiator.UpperSaddleRiver,NJ:PrenticeHall.

10Stillinger,C.,Epelbaum,M.,Keltner,D.,andRoss,L.(1990).TheReactiveDevaluationBarrier toConflictResolution.Unpublishedmanuscript,StanfordUniversity.

11 Babcock, L., and Laschever, S. (2003).Women Don’t Ask: Negotiation and the Gender Divide.Princeton,NJ:PrincetonUniversityPress.

12Ku,G.,Malhotra,D.,andMurnighan,J.K.(2005)TowardsaCompetitiveArousalModelofDecisionMaking: A Study of Auction Fever in Live and Internet Auctions. Organizational Behavior andHumanDecisionProcesses,96(2),89–103.

13Sebenius,J.K.,andWheeler,M.A.(1994,October30).SportsStrikes:LettheGamesContinue.NewYorkTimes,3,9.

14 Tversky, A., & Kahneman, D. (1981). The Framing of Decisions and the Psychology of Choice.Science,211(4481),453–458.

CHAPTER5:WHENRATIONALITYFAILS:BIASESOFTHEHEART

1Homer(R.Lattimore,trans.)(1999).TheOdyssey.NewYork:HarperCollins.

2Schelling,T.C.(1984).ChoiceandConsequence:PerspectivesofanErrantEconomist.Cambridge,MA:HarvardUniversityPress,58.

3 Bazerman, M. H., Gibbons, R., Thompson, L. L., and Valley, K. L. (1998). Can NegotiatorsOutperform Game Theory? Debating Rationally: Nonrational Aspects in Organizational DecisionMaking.Halpern,J.J.,andStern,R.N.,eds.Ithaca,NY:ILR;O’Connor,K.M.,DeDreu,C.K.W.,Schroth,H.,Barry,B.,Lituchy,T.R.,andBazerman,M.H.(2002).WhatWeWanttoDoVersusWhatWeThinkWeShouldDo:AnEmpiricalInvestigationofIntrapersonalConflict.JournalofBehavioral

DecisionMaking,15(5),403–418.

4Loewenstein,G.(1996).OutofControl:VisceralInfluencesonBehavior.OrganizationalBehaviorandHumanDecisionProcesses,65(3),272–292.

5O’Connor,K.M.,DeDreu,C.K.W., Schroth,H.,Barry,B.,Lituchy,T.R., andBazerman,M.H.(2002).WhatWeWant toDoVersusWhatWeThinkWeShouldDo:AnEmpiricalInvestigationofIntrapersonalConflict.JournalofBehavioralDecisionMaking,15(5),403–418.

6U.S.News&WorldReport(2005,January30),52.Itisalsointerestingtonotethattheloserpayingthelegalexpensesofthewinneristhelawinsomepartsoftheworld;e.g.,inEngland.

7Bazerman,M.H., andNeale,M.A. (1982). ImprovingNegotiationEffectivenessUnderFinalOfferArbitration: The Role of Selection and Training. Journal of Applied Psychology, 67(5), 543–548;Babcock,L.,andLoewenstein,G.(1997).ExplainingBargainingImpasse:TheRoleofSelf-ServingBiases.JournalofEconomicPerspectives,11(1),109–126.

8Diekmann,K.A.,Samuels,S.M.,Ross,L.,&Bazerman,M.H.(1997).Self-InterestandFairnessinProblems of Resource Allocation: Allocators Versus Recipients. Journal of Personality and SocialPsychology,72(5),1061–1074.

9Harris,S. (1946).Banting’sMiracle:TheStoryof theDiscoveryof Insulin.Toronto: J.M.DentandSons.

10 Ross, M., and Sicoly, F. (1979). Egocentric Biases in Availability and Attribution. Journal ofPersonalityandSocialPsychology,37(3),322–336.

11Rawls,J.(1971).ATheoryofJustice.Cambridge,MA:HarvardUniversityPress.

12Taylor,S.E. (1989).Positive Illusions:CreativeSelf-Deceptionand theHealthyMind.NewYork:BasicBooks.

13Kramer,R.M.,Newton,E.,andPommerenke,P.L.(1993).Self-EnhancementBiasesandNegotiatorJudgment: Effects of Self-Esteem and Mood. Organizational Behavior and Human DecisionProcesses,56(1),110–133.Kramer,R.M.(1994).Self-EnhancingCognitionsandOrganizedConflict.Unpublishedmanuscript.

14Taylor,S.E.,andBrown,J.D.(1988).IllusionandWell-Being:ASocialPsychologicalPerspectiveonMentalHealth.PsychologicalBulletin, 103(2), 193–210; Bazerman,M. H. (2005). Judgment inManagerialDecisionMaking(6thed.).NewYork:JohnWiley&Sons.

15Seligman,M.E.P.(1991).LearnedOptimism.NewYork:PocketBooks.

16 Babcock, L., and Loewenstein, G. F. (1997). Explaining Bargaining Impasse: The Role of Self-Serving Biases. Journal of Economic Perspectives, 11(1), 109–126; Kramer, Self-EnhancingCognitionsandOrganizedConflict.

17Brewer,M.B. (1986). Ethnocentrism and ItsRole in IntergroupConflict. In S.Worchel&W.G.Austin (eds.), Psychology of Intergroup Relations. Chicago: Nelson Hall; Kramer, Self-EnhancingCognitionsandOrganizedConflict.

18Diekmann,K.A.,Samuels,S.M.,Ross,L.,andBazerman,M.H.(1997).Self-InterestandFairnessinProblems of Resource Allocation: Allocators Versus Recipients. Journal of Personality & SocialPsychology, 72(5), 1061–1074; Tenbrunsel, A. E. (1998). Misrepresentation and Expectations of

Misrepresentation in an Ethical Dilemma: The Role of Incentives and Temptation. Academy ofManagementJournal,41(3),330–339.

19Sorenson,T.C.(1965).Kennedy,NewYork:HarperandRow,322.

20Kramer,R.M.(1994).Self-EnhancingCognitionsandOrganizedConflict.Unpublishedmanuscript.

21 Salovey, P., and Rodin, J. (1984). Some Antecedents and Consequences of Social-ComparisonJealousy.JournalofPersonalityandSocialPsychology,47(4),780–792.

22Kramer,R.M.(1994).Self-EnhancingCognitionsandOrganizedConflict.Unpublishedmanuscript.

23 Malhotra, D., and Murnighan, J. K. (2002). The Effects of Contracts on Interpersonal Trust.AdministrativeScienceQuarterly,47(3),534–559.

24Medvec,V.H.,Madey,S.F.,andGilovich,T.(1995).WhenLessIsMore:CounterfactualThinkingandSatisfactionAmongOlympicMedalists.JournalofPersonality&SocialPsychology,69(4),603–610.

25 Larrick, R., and Boles, T. L. (1995). Avoiding Regret inDecisionswith Feedback:ANegotiationExample.Organizational Behavior andHumanDecision Processes, 63, 87-97; Kahneman, D., andMiller, D. T. (1986). Norm Theory: Comparing Reality to Its Alternatives. Psychological Review,93(2),136–153.

26Spranca,M.,Minsk,E.,andBaron, J. (1991).OmissionandCommission inJudgmentandChoice.JournalofExperimentalSocialPsychology,27(1),76–105.

CHAPTER6:NEGOTIATINGRATIONALLYINANIRRATIONALWORLD

1 Dawes, R. M. (1988). Rational Choice in an Uncertain World. New York: Harcourt, Brace, andJovanovich.

2Neale,M.A.,andNorthcraft,G.B.(1990).Experience,Expertise,andDecisionBiasinNegotiation:TheRoleofStrategicConceptualization.InB.H.Sheppard,M.H.Bazerman,andR.J.Lewicki(eds.),ResearchinNegotiationinOrganizations(vol.2).Greenwich,CT:JAIPress.

3 Stanovich,K.E., andWest,R. F. (2000). IndividualDifferences inReasoning: Implications for theRationalityDebate.BehavioralandBrainSciences,23,645–665.

4 Kahneman, D., and Frederick, S. (2002). Representativeness Revisited: Attribute Substitution inIntuitive Judgment. InT.Gilovich,D.Griffin, andD.Kahneman (eds.),Heuristics andBiases: ThePsychologyofIntuitiveJudgment.NewYork:CambridgeUniversityPress,49–81.

5Chugh,D.(2004).WhyMillisecondsMatter:SocietalandManagerialImplicationsofImplicitSocialCognition.SocialJusticeResearch,17(2),203–222.

6Ball, S.B.,Bazerman,M.H., andCarroll, J. S. (1991).AnEvaluation ofLearning in theBilateralWinner’sCurse.OrganizationalBehaviorandHumanDecisionProcesses,48(1),1–22.

7Loewenstein, J.,Thompson,L., andGentner,D. (2003).AnalogicalLearning inNegotiationTeams:ComparingCasesPromotesLearningandTransfer.AcademyofManagementLearningandEducation,2(2),119–127.

8Kahneman,D.,andLovallo,D.(1993).TimidChoicesandBoldForecasts:ACognitivePerspectiveon

RiskTaking.ManagementScience,39,17–31.

9Ibid.

10 Cooper, A.,Woo, C., and Dunkelberg,W. (1988). Entrepreneurs’ Perceived Chances for Success.JournalofBusinessVenturing,3,97–108.

11Kahneman,D.,andLovallo,D.(1993).TimidChoicesandBoldForecasts:ACognitivePerspectiveonRiskTaking.ManagementScience,39,17–31.

12Lewin,K.(1947).GroupDecisionandSocialChange.InT.M.NewcombandE.L.Hartley(eds.),ReadingsinSocialPsychology.NewYork:Holt,Rinehart,&Winston.

13Lewis,M.(2003).Moneyball:TheArtofWinninganUnfairGame.NewYork:W.W.Norton.

14Thaler,R.,andSunstein,C.(2003,September1).Who’sonFirst?TheNewRepublic,229,27.

15Bazerman,M.H.(2006).JudgmentinManagerialDecisionMaking(6thed.).NewYork:JohnWiley&Sons.

CHAPTER7:STRATEGIESOFINFLUENCE

1Cialdini,R.(1993).Influence:ScienceandPractice.NewYork:HarperCollins.

2Cialdini,R. (Summer2003).ThePowerofPersuasion:Putting theScienceof Influence toWork inFundraising.StanfordSocialInnovationReview,18–27.

3ThelateAmosTverskyandNobelLaureateDanielKahnemanfirstnotedthat“lossesloomlargerthangains”intheirworkon“prospecttheory”publishedin1979.Kahneman,D.andTversky,A.(March1979).ProspectTheory:AnAnalysisofDecisionUnderRisk.Econometrica47,263–292.

4Kalichman,S.C.,andColey,B.(1995).ContextFramingtoEnhanceHIV-Antibody-TestingMessagesTargetedtoAfricanAmericanWomen.HealthPsychology,14,247–254.

5Rothman,A.J.,Salovey,P.,Pronin,E.,Zullo,J.,andLefell,D.(1996).PriorHealthBeliefsModeratethePersuasivenessofGainandLossFramedMessages.Unpublishedrawdata.

6 Meyerowitz, B. E., and Chaiken, S. (1987). The Effect of Message Framing on Breast Self-Examination:Attitudes, Intentions,andBehavior.JournalofPersonalityandSocialPsychology,52,500–510.

7 In their seminalworkonprospect theory,AmosTverskyandDanielKahnemanexplained that suchpreferences result from theway inwhichweevaluate theprospectsofwinningor losing relative tosalientreferencepoints(suchasthestatusquo).Specifically,theyarguethatpeoplehavediminishingmarginal utility associated with gains and diminishing marginal disutility associated with losses.Kahneman,D.,andTversky,A.(March1979).ProspectTheory:AnAnalysisofDecisionUnderRisk.Econometrica,47,263–292.

8 Cialdini, R., Vincent, J., Lewis, S., Catalan, J., Wheeler, D., and Darby, B. (1975). ReciprocalConcessions Procedure for Inducing Compliance: The Door-in-the-Face Technique. Journal ofPersonalityandSocialPsychology,31,206–215.

9Taylor,T.,andBooth-Butterfield,S.(1993).GettingaFootintheDoorwithDrinkingandDriving:AFieldStudyofHealthyInfluence.CommunicationResearchReports,10,95–101.

10Burger,J.M.,andGuadagno,R.E.(2003).SelfConceptClarityandtheFoot-in-the-DoorProcedure.BasicandAppliedSocialPsychology,25,79–86.

11 Langer, E. J., Blank, A., and Chanowitz, B. (1978). The Mindlessness of Ostensibly ThoughtfulAction:TheRoleof“Placebic” Information in Interpersonal Interaction.Journal ofPersonality andSocialPsychology,36,635–642.

12Cialdini,R.B.(January2004).Everybody’sDoingIt.Negotiation,7.

13Festinger,L.(1954).ATheoryofSocialComparisonProcesses.HumanRelations,7,117–140.

14 James, J.M., andBolstein,R. (Winter1992).LargeMonetary IncentivesandTheirEffectonMailSurveyResponseRates.PublicOpinionQuarterly,56,442–453.

15Malhotra, D. (2004). Trust and Reciprocity Decisions: TheDiffering Perspectives of Trustors andTrustedParties.OrganizationalBehaviorandHumanDecisionProcesses,94,61–73.

16 Tversky, A., and Kahneman, D. (1981) The Framing of Decisions and the Rationality of Choice.Science,211,453–458.

17Thaler,R.(1985).MentalAccountingandConsumerChoice.MarketingScience,4,199–214.

18Bazerman,M.H.(2005).JudgmentinManagerialDecisionMaking,6thed.NewYork:JohnWiley&Sons.

CHAPTER8:BLINDSPOTSINNEGOTIATION

1Feder,B.(2006,January26).QuietEndtoBattleoftheBids.NewYorkTimes,C1.

2Feder,B.,andSorkin,A.R.(2005,November3).TroubledMakerofHeartDevicesMayLoseSuitor.NewYorkTimes,A1.

3Feder,B.(2006,January26).QuietEndtoBattleoftheBids.NewYorkTimes,C1.

4Meier,B.(2005,November10).GuidantIssuesDataonFaultyHeartDevices.NewYorkTimes,C5.

5Bajaj,V.(2005,December28).F.D.A.PutsRestrictionsonGuidant.NewYorkTimes,C1.

6Feder,B.,andSorkin,A.R.(2006,January18).BostonScientific,withAbbott’sHelp,RaisesBidforGuidant.NewYorkTimes,C1.

7Saul,S.(2006,January25).J&JPassesonRaisingGuidantBid.NewYorkTimes,C1;Feder,B.(2006,January26).QuietEndtoBattleoftheBids.NewYorkTimes,C1.

8Harris,G.,andFeder,B.(2006,January27).F.D.A.WarnsDeviceMakeroverSafety.NewYorkTimes,C1.

9Tully,S.(2006,October16).The(Second)WorstDealEver.Fortune,154(8).

10 Bazerman, M. H., and Chugh, D. (2006). DecisionsWithout Blinders.Harvard Business Review,84(1).

11(1995,November10).AmericanWon’tMakeFirstBidonUSAir.CharlestonDailyMail,C4.

12Akerlof, G. (1970). TheMarket for Lemons: Qualitative Uncertainty and theMarketMechanism.

QuarterlyJournalofEconomics,89,488–500.

13Ball,S.B.,Bazerman,M.H.,andCarroll, J.S. (1991).AnEvaluationofLearning in theBilateralWinner’sCurse.OrganizationalBehaviorandHumanDecisionProcesses,48(1),1–22.

14Bereby-Meyer,Y.,andGrosskopf,B.(2002).OvercomingtheWinner’sCurse:AnAdaptiveLearningPerspective. AOM Conflict Management Division 2002 meetings, No. 13496.http://ssrn.com/abstract=324201.

15Moore,D.A., andKim,T.G. (2003).Myopic Social Prediction and the SoloComparisonEffect.JournalofPersonalityandSocialPsychology,85(6),1121–1135.

16Camerer,C.,andLovallo,D.(1999).OverconfidenceandExcessEntry:AnExperimentalApproach.AmericanEconomicReview,306–318.

17 Fox, C. R., and Tversky, A. (1998). A Belief-Based Account of Decision Under Uncertainty.ManagementScience,44(7),879-895.

18Emphasisadded.Brahimi’scommentsweremadeduringapaneldiscussionattheHarvardBusinessSchoolinOctober2002.

19 Simons, D. J. (2003). Surprising Studies of Visual Awareness. [DVD]. Champaign, IL: VisCogProductions,http://www.viscog.com.

20Neisser,U.(1979).TheConceptofIntelligence.Intelligence,3(3),217–227.

CHAPTER9:CONFRONTINGLIESANDDECEPTION

1Gladwell,M.(2005).Blink:ThePowerofThinkingWithoutThinking.NewYork:Little,Brown.

2Ekman,P.(2002).TellingLies:CluestoDeceitintheMarketplace,Marriage,andPolitics.NewYork:W.W.Norton.

3Malhotra,D.(2004).SmartAlternativestoLyinginNegotiation.Negotiation,7(5).

CHAPTER10:RECOGNIZINGANDRESOLVINGETHICALDILEMMAS

1Banaji,M.R.,Bazerman,M.H.,andChugh,D.(December2003).How(Un)EthicalAreYou?HarvardBusinessReview.

2Indeed,inmoststates,aseller’sreal-estateagenthasaformalfiduciaryresponsibilitytotheseller.

3 Cain, D., Loewenstein, G., andMoore, D. (2005). TheDirt on Coming Clean: Perverse Effects ofDisclosingConflictsofInterest.JournalofLegalStudies,34,1–25.

4Greenwald,A.G.,McGhee,D.E.,andSchwartz,J.L.K.(1998).MeasuringIndividualDifferencesinImplicit Cognition: The Implicit Association Test. Journal of Personality and Social Psychology,74(6),1464–1480.

5Chugh,D.(2004).WhyMillisecondsMatter:SocietalandManagerialImplicationsofImplicitSocialCognition.SocialJusticeResearch,17(2),203–222.

6Gillespie, J. J.,andBazerman,M.H. (1997).Parasitic Integration:Win-WinAgreementsContainingLosers.NegotiationJournal,13(3),271–282.Weusetheterm“parasiticvaluecreation”synonymouslywithGillespieandBazerman’sterm“parasiticintegration.”

7 The administrative law judge ruled in favor of the pharmaceutical firms. An FTC bipartisan paneloverruled theadministrative judgebya5–0vote.They, in turn,wereoverruledbyanappealscourt.TheU.S.SupremeCourtrefusedtoheartheFTC’sappealoftheappellatecourtruling,helpingcreatetheblueprint forparasiticvaluecreation thathasbecomeevenmorecommon in thepharmaceuticalarena.

8 Murnighan, J. K. (1994). Game Theory and Organizational Behavior. In B. M. Staw and L. L.Cummings(eds.),ResearchinOrganizationalBehavior.Greenwich,CT:JAIPress.

9KimWade-Benzoni,AnnTenbrunsel,andMaxBazermandevelopedanexperimentalsimulationbasedon this class of problems in which participants played the roles of representatives of variouscommercialandrecreationalfishinggroupsmeetingforaconferencetodiscussthecrisis.Theyfoundthat the participants made self-serving interpretations of what was fair, and that these biasedinterpretationswereanexcellentpredictorofoverharvesting.

10Caruso,E.,Epley,N.,andBazerman,M.H.(2006).TheGood,theBadandtheUglyofPerspectiveTakinginGroups.InE.A.Mannix,M.A.Neale,andA.E.Tenbrunsel(eds.),ResearchonManagingGroupsandTeams:EthicsandGroups(vol.8).London:Elsevier.

11Chugh,D.(2004).WhyMillisecondsMatter:SocietalandManagerialImplicationsofImplicitSocialCognition.SocialJusticeResearch,17(2),203–222.

CHAPTER11:NEGOTIATINGFROMAPOSITIONOFWEAKNESS

1Subramanian,G.,andZeckhauser,R.(February2005).“Negotiauctions”:TakingaHybridApproachtotheSaleofHigh-ValueAssets.Negotiation.

2Bazerman,M.H.,andNeale,M.A.(1992).NegotiatingRationally.NewYork:FreePress.

CHAPTER12:WHENNEGOTIATIONSGETUGLY:DEALINGWITHIRRATIONALITY,DISTRUST,ANGER,THREATS,ANDEGO

1Kennedy,R.(1971).ThirteenDays:AMemoiroftheCubanMissileCrisis.NewYork:W.W.Norton.

2Malhotra,D.(2006).IsYourCounterpartIrrational…Really?Negotiation,9(3).

3Mayer,R.C.,Davis,J.H.,andSchoorman,F.D.(1995).AnIntegrativeModelofOrganizationalTrust.AcademyofManagementReview,20,709–734.

4 Dirks, K. T., and Ferrin, D. L. (2001). The Role of Interpersonal Trust in Organizational Settings.OrganizationScience,12,450–467.

5ThirteenDays,97.

CHAPTER14:THEPATHTOGENIUS

1Neale,M.A.,andNorthcraft,G.B.(1990).Experience,Expertise,andDecisionBiasinNegotiation:TheRoleofStrategicConceptualization.InB.H.Sheppard,M.H.Bazerman,andR.J.Lewicki(eds.),ResearchinNegotiationinOrganizations(vol.2).Greenwich,CT:JAIPress.

ACKNOWLEDGMENTS

Theauthors,andtheideasinthisbook,havebeenstronglyinfluencedbyourcolleagues.Wearereallygoodatfindingexcellentpeopleascolleagues.Manyofthesecolleaguesareorwerepartofthefacultyanddoctoralprogramsattwoexcellent institutions: Northwestern University and Harvard University—withlarge concentrations of colleagues in the Kellogg Graduate School ofManagement and theHarvardBusiness School, respectively.Both universitiesare leading centers for research and teaching in the area of negotiations andmanyoftheideasinthisbookweredevelopedby—orincollaborationwith—theexcellent scholarswe interactedwithwhile at these schools.FromourdaysatKellogg, we would like to acknowledge the insights of Sally Blount, JeanneBrett, Tina Diekmann, Craig Fox, Adam Galinsky, Dedre Gentner, AndyHoffman, Michael Jensen, Mark Kennedy, Laura Kray, Gillian Ku, TerriKurtzberg, Rick Larrick, BetaMannix, DougMedin, VictoriaMedvec, DavidMessick, DonMoore, KeithMurnighan,Maggie Neal, Tetsu Okumura, HollySchroth,Pri PradhanShah,HarrisSondak,AnnTenbrunsel,LeighThompson,Cathy Tinsley, Tom Tripp, Kimberly Wade-Benzoni, Mark Weber, and LauriWeingart.

At Harvard University, we are both fortunate to be professors in theNegotiations,Organizations,andMarketsUnitoftheHarvardBusinessSchool,where we have been surrounded by excellent colleagues who improve thequality of our work: Nava Ashraf, George Baker, Gregory Barron, YoellaBereby-Meyer,PeterColes,FrancescaGino,JerryGreen,BritGrosskopf,BrianHall,LorraineIdson,KathleenMcGinn,SimoneMoran,AlRoth,JimSebenius,RaviSingh,WilliamSimpson,GuhanSubramanian,AndyWasynczuk,MichaelWatkins,ToniWegner,andMichaelWheeler.

Wearealsobothassociatedwith theProgramonNegotiationat theHarvardLaw School, which has been a tremendous source of social and intellectualsupport.Ouraffiliationwith theProgramonNegotiation, avarietyofdoctoralprogramsatHarvard,andwithotherschoolsanddepartmentsat theuniversity,hasallowedustobenefitfromtheideasandinsightsofmanyothersduringourtime atHarvard, includingModupeAkinola,MahzarinBanaji, JohnBeshears,

Iris Bohnet, Hannah Riley Bowles, Daylian Cain, Eugene Caruso, HeatherCaruso,DollyChugh, LukeCoffman,Nick Epley, SteveGarcia,DanGilbert,Joshua Greene, Fiona Grieg, Susan Hackley, Karin Kassam, David Laibson,Jolie Martin, Mary Carol Mazza, Wendy Mendez, Katy Milkman, JasonMitchell,BobMnookin,SendhilMullainathan,NeeruPaharia,JeffPolzer,ToddRogers,BenShenoy,LarrySusskind,CarmitTadmor,MikeTushman,andDanWegner.

WealsohavelearnedagreatdealfromJonBaron,LindaBabcock,ArtBrief,JennLerner,GeorgeLoewenstein,BrianMcGrath,MadanPillutla,PhilTetlock,andmanyothercolleaguesandfriendswhomwewill laterbeembarrassedforforgetting.

We would also like to thank the thousands of executives from around theworldwho have been our students or clients. Some of your experiences havefound theirway into thisbook.Manyofyourproblems,questions, and storieshavemotivated the substanceof thisbook.Andall ofyouhave inspiredus towriteit.

Whenitcametothetaskofactuallywriting,wewereextremelyfortunatetohave absolutely fantastic editorial help.Katie Shonk,Max’s longtime researchassistant,spentcountlesshoursreading,editing,andcommentingoneveryword,sentence,andchapter.Herhelpwasinvaluable.Ourexcellentfacultyassistants,Alyssa Razook and Elizabeth Sweeny, proofread, fact-checked, and generallyfixedstuffinthebook.OureditoratBantam,ToniBurbank,knewexactlywhentopushus,andwhentotrustourjudgment.Theprocessofwritingthebookwasvastlyimprovedthankstoherassertiveness,enthusiasm,andcollegiality.

Finally,wewouldliketoacknowledgethesupportofourfamilies.Deepak’sparents, Chander and SudeshMalhotra, and his brother,ManuMalhotra, readmultiple drafts of the book and provided innumerable helpful suggestions.Deepak’swife,Shikha,notonlyreadandeditedeverypageofthebook,butalsoprovided theencouragementandsupportnecessary topush theproject throughtotheend.Max’sspouse,MarlaFelcher,alwaysprovidesathoroughcritiqueofallofMax’sideas,andrefineshisargumentsintheprocess.WewouldalsoliketothankShikhaandMarlaforclarifying—bybeingapartofourlives—thatthebestthingsinliferequirenonegotiation.

ABOUTTHEAUTHORS

DeepakMalhotra is anAssociateProfessor in theNegotiations,Organizations, andMarketsUnit at theHarvardBusinessSchool.DeepakteachesNegotiationcoursesintheMBAprogramandinawidevarietyofexecutiveprograms.

Deepak’s research focuses on negotiation strategy, trust development,international and ethnic dispute resolution, and the dynamics of competitiveescalation. His research has been published in top journals in the fields ofmanagement, psychology, and conflict resolution. Deepak has also wonnumerousawardsforbothhisteachingandhisresearch.

Deepak’s professional activities include training and consulting with firmsacross the globe in a multitude of industries, including banking, education,energy, financialmanagement, health care, hospitality, information technology,manufacturing, media, newspaper, nonprofits, pharmaceuticals, printing, realestate,retail,andtelecommunications.

FormoreinformationaboutDeepak,pleasegoto:http://pine.hbs.edu/external/facPersonalShow.do?pid=189290

Max H. Bazerman is the Jesse Isador Straus Professor of BusinessAdministration at the Harvard Business School. In addition, Max is formallyaffiliatedwiththeKennedySchoolofGovernment,thePsychologyDepartmentatHarvardUniversity,theInstituteforQuantitativeSocialSciences,theHarvardUniversityCenterontheEnvironment,andtheProgramonNegotiation.

Max’s research focuses on decision-making in negotiation, and improvingdecision-making inorganizations,nations,andsociety.He is theauthorof180researcharticlesandchapters,and theauthor,co-author,orco-editorof fifteenearlierbooks,includingJudgmentinManagerialDecisionMaking(2005,Wiley,now in its 6th edition),PredictableSurprises (2004,HarvardBusiness SchoolPress,withMichaelWatkins), andYouCan’t Enlarge the Pie: Six Barriers toEffectiveGovernment(2001,BasicBooks,withJonBaronandKatieShonk).Heis a member of the editorial boards of the American Behavioral Scientist,

Perspectives on Psychological Science, Journal of Management andGovernance, Mind and Society, Negotiations and Conflict ManagementResearch,andTheJournalofBehavioralFinance.Also,heisamemberoftheinternationaladvisoryboardoftheNegotiationJournal.

From2002to2005,Maxwasconsistentlynamedoneofthetopfortyauthors,speakers, and teachers of management by Executive Excellence. While atKellogg,hewasnamed“TeacheroftheYear”bytheExecutiveMastersProgramof the Kellogg School. In 2003, Max received the Everett MendelsohnExcellence inMentoringAwardfromHarvardUniversity’sGraduateSchoolofArts and Sciences. In 2006, Max received an honorary doctorate from theUniversityofLondon(LondonBusinessSchool),theKulp-WrightBookAwardfrom the American Risk and Insurance Association for Predictable Surprises(with Michael Watkins), and the Life Achievement Award from the AspenInstitute’sBusinessandSocietyProgram.

His former doctoral students have accepted positions at leading businessschools throughout the United States, including the Kellogg School atNorthwestern, the Fuqua School at Duke, the Johnson School at Cornell,Carnegie-MellonUniversity,theSternSchoolatNYU,StanfordUniversity,theUniversity of Chicago, Notre Dame, Columbia, and the Harvard BusinessSchool.

HisprofessionalactivitiesincludeprojectswithAbbott,Aetna,Alcar,Alcoa,Allstate, Ameritech, Amgen, Apex Partners, Asian Development Bank,AstraZeneca,AT&T,Aventis,BASF,Bayer,BectonDickinson,Biogen,BostonScientific, BP, Bristol-Meyers Squibb, Business Week, Celtic Insurance,Chevron, Chicago Tribune, City of Chicago,Deloitte and Touche,Dial, Ernstand Young, First Chicago, Gemini Consulting, General Motors, Harris Bank,HomeDepot,HyattHotels, IBM, JohnHancock, Johnson& Johnson,Kohler,KPMG, Lucent, The May Company, McKinsey, Merrill Lynch, Monitor,Motorola,NationalAssociationofBroadcasters,theNatureConservancy,Price-WaterhouseCoopers, R. P. Scherer, Sara Lee, Siemens, Sprint, Sulzermedica,Unicredito,UnionBank of Switzerland,Wilson SportingGoods,WorldBank,Xerox,YoungPresidentsOrganization,andZurichInsurance.Max’sconsulting,teaching,andlecturinghavespannedovertwenty-fivecountries.

FormoreinformationaboutMax,pleasegoto:http://people.hbs.edu/mbazerman/

NEGOTIATIONGENIUS

ABantamBook/October2007

PublishedbyBantamDell

ADivisionofRandomHouse,Inc.

NewYork,NewYork

Allrightsreserved.

Copyright©2007byDeepakMalhotraandMaxBazerman

BantamBooksisaregisteredtrademarkofRandomHouse,Inc.,andthecolophonisatrademarkofRandomHouse,Inc.

LibraryofCongressCataloging-in-PublicationDataMalhotra,Deepak,1975-

Negotiationgenius:howtoovercomeobstaclesandachievebrilliantresultsatthebargainingtableandbeyond/DeepakMalhotraandMaxBazerman.

p.cm.

1.Negotiationinbusiness.2.Negotiation.3.Miscommunication.4.Interpersonalcommunication—Moralandethicalaspects.5.Conflictmanagement.I.Bazerman,Max.H.II.Title.

HD58.6.M3520072007019718

658.4/05222

www.bantamdell.com

eISBN:978-0-553-90494-9

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