The unreliability of our gut: Intuitions in negotiation

The recent summit between President Trump and Kim Jong Un has brought the issue of intuition in negotiation to the fore. The North Korean dictator reportedly spent years planning for such a meeting, trusting little to his gut and everything to his analysis and preparation. President Trump, in contrast, is widely known to rely on his gut, for example by saying that he would simply intuit whether a deal with Kim was possible within the first minute.

Given these two divergent approaches, each with its own appeal, it’s probably worth considering the reliability of our intuitions in negotiations. Unfortunately, I’m here to suggest that they are not very reliable at all.

In the spirit of making life (if not world events) negotiable, consider the following five ways that our intuitions can fail us. Our intuitions often tell us…

  1. To avoid making the first offer. Seems intuitive to let the other party move first. That way, we can learn about their preferences and maybe get a great deal. Right? Well, often wrong. As I’ve suggested often before, if we do that, we miss the golden opportunity to focus the other party’s attention on our own goals and desires, making us counteroffers very much in line with our own thinking. Instead, we end up making offers very much in line with theirs.
  2. To deal with one issue at a time. Seems intuitive to agree on each issue in turn, and probably the easiest first. Right? Typically wrong again. If we do that, we treat each each issue as a competitive fight, losing the opportunity to link and trade issues. Accordingly, we leave ourselves with a tremendous problem when we come to the truly contentious issues, typically at the end.
  3. That if I want something, you don’t. Seems intuitive that two negotiators want two opposite things. Right? Wrong more often than you’d think. People do want the opposite of some things, typically money or other quantitative issues. But, as I’ve suggested often before, they often want the same thing on qualitative issues—or at least care less about some qualitative issues than others, paving the way for tradeoffs. Intuition fails us again, precluding the possibility of a win-win.
  4. To focus on our bottom line. Seems intuitive to focus on our bottom line, and especially whether the deal under discussion is better than said line. Right? Wrong or at least woefully incomplete. If we focus exclusively on our bottom line, chances are that we’ll settle for something just better than that line, which is often not very good at all. Instead, we need to focus on our target, only coming back to our bottom line when we need to, at the end.
  5. That everyone negotiates pretty in much the same way. Seems intuitive that everybody around the world pretty much thinks about and approaches negotiations the same that way we do. Right? No, totally wrong. Mountains of evidence now indicate that negotiators from different cultures very markedly in their strategies, interests, and the ethical or legal standards they bring to the table. Intuition fails us again, and this time with a bang.

So you see that, appealing as our gut may be, it’s not particularly reliable in negotiations. And now that we all understand as much, maybe we can collectively convince our political leaders.

Declaring yourself a negotiation superhero—By considering your plan B

Worried about an upcoming negotiation? Dreading the back-and-forth? The fast ones your counterpart is sure to pull when you’re not looking? Well, don’t fear: here’s a research-based suggestion that can make negotiations negotiable: actively thinking about your BATNA.

I’ve repeatedly discussed the importance of BATNA: your Best Alternative to Negotiated Agreement, or simply your Plan B. As noted by me and countless other negotiation researchers, having and knowing and improving your BATNA lets you walk away from an unproductive negotiation. Less appreciated, I think, is the way that actively thinking about your BATNA before a negotiation can steel you for some upcoming bargaining—at least when your BATNA is decently attractive.

To see what I mean, imagine you’re about to talk to a flooring contractor who is likely to quote you an unattractive price. Imagine further that you have another decent quote in-hand, and you’d like to get your flooring upgraded but really don’t need to. You detest negotiation in general—and especially with pushy salespeople. Accordingly, you’re dreading the upcoming interaction and secretly hoping he calls to cancel.

In this situation, most people are so consumed with worry that they simply forget about their BATNA. Somewhere in the back of their brains, they know that they can always walk away from an overly pushy contractor, but they don’t actively focus on the fact that this guy is just one minor blip in a long list of potential next steps.

But why not?

Why not stop, forget about the pushy contractor, and refocus on the fact that you don’t really need this guy’s flooring, or really any flooring at all? Thinking like that, you’ll realize that it’s the pushy contractor who should be nervous: It’s he who stands to lose a large chunk of change if you don’t like his proposal—he who’d better fear the formidable you and your ability to bolt. Thinking like that, you can confidently place your hands on your hips, puff out your chest, and declare yourself a negotiation superhero.

So the next time you’re fearing an upcoming negotiation, stop thinking about it! And refocus on the fact that you don’t really need it, that you have a plan B.

It’s a powerful strategy but comes with two obvious caveats: First, it obviously falls flat if your BATNA is bad. If your foot is falling through to the basement and all alternative quotes are unbearably expensive, it clearly won’t really help to consider them (though we often vastly overestimate the unattractiveness of our alternatives). Second, it’s not a great idea to keep thinking about your BATNA when the guy actually appears at your doorstep. Instead, as noted elsewhere, you should shift your attention toward your target when negotiating and only return to your BATNA at the end.

So let this be the beginning of the end of your negotiation fears! Our alternatives are often far better than we think, if we really think about them—and we should.

Preparing to negotiate? Use your “BRAIN”!

Most people know to prepare before a negotiation. If not, then negotiation instructors like me frequently remind them. So the problem is not a lack of awareness about the need to prepare. It’s the lack of a framework describing what to prepare. What exactly should negotiators ponder before arriving at the bargaining table?

Since knowing what to prepare is pretty much a prerequisite for preparing itself, and preparing itself a prerequisite for a negotiable life, let me suggest you use your BRAIN (via the following acronym):

  • BATNA. All good preparation starts with a consideration of alternatives—specifically a negotiator’s next-best alternative if the current negotiation fails (i.e., their Best Alternative to Negotiated Agreement or BATNA). Otherwise, they’ll never know how much power they have or how far to push the envelope.
  • Reservation price. Great negotiators transition directly from their BATNA to their bottom line, walk away point, reservation price. Otherwise, they don’t really have the foggiest idea whether to get to yes or get to no and go with their BATNA.
  • Aspirations. BATNAs and reservation prices are great, but negotiators who spend too much time pondering their alternatives or minimally acceptable agreements (i.e., their reservation prices) tend to get them. To get something better, great negotiators also define their goals, targets, aspirations—actively considering what they really want when their counterpart demurs.
  • Interests. The acronym might as well stop there (and consider the acronym if it did), but the preceding letters alone tend to elicit a very competitive negotiation. Great negotiators know that spending the whole time competing to attain their aspirations, clear their reservation price, or avoid their BATNA results in a competitive scramble over the crumbs of a very small pie. Instead, they know they need to identify and find creative ways of fulfilling both negotiators’ overall objectives (i.e., their interests), and thereby “grow the pie.”
  • Negotiation counterpart. So why not BRAI then? Because that makes very little sense as a word and even less sense as a preparation strategy—the latter because it completely omits the other party. Negotiators who BRAI, and most negotiators do, fail to anticipate their counterpart’s situation and thus find it immensely hard to understand or respect that situation while negotiating. So great negotiators repeat the preceding letters for their counterpart, taking a wild albeit educated guess as to their counterpart’s BATNA, reservation price, aspirations, and interests.

So the next time you sit down to prepare for a negotiation, don’t just use your mind—use your BRAIN! Doing so can’t spell the difference between a smart negotiation outcome and an outcome that everyone deems dumb.

To negotiate or let it go?

My posts have consistently highlighted our many everyday opportunities to negotiate—the fact that negotiations surround us, and that negotiating makes life negotiable. But if you buy that advice, which I believe and hope you do, then you should immediately spot a challenge. Most of us have many ways to spend our time—too many, in fact, for the 24 hours in each day. So, if we ever hope to sleep, we need to identify the situations that would most benefit from a negotiation—and the situations to just let go.

When to negotiate? It’s a tough question with many possible answers—see, for example, my earlier post on gratitude. And it’s especially tough for a negotiation professor, whose natural inclination is to say “whenever possible.” But that’s not realistic when you’ve got a lot of potential negotiations on your hands—when you’re buying and selling a house, for example, as I am now. The costs and complexities of: electrical repairs, roofing upgrades, plumbing repairs, termite inspections, radon mitigation systems, flooring updates, chimney service, painting service, cleaning service, closing costs. These are a small smattering of the many potential negotiation opportunities I’ve spotted in the last week.

Realistically, when we’re all this busy, we all have to choose. And ultimately, we’ll all have to use our best judgment. But here three guidelines I’ve found myself using, in hopes that they aid your judgment too. You might want to negotiate if:

  • The likely benefit of negotiating outweighs the likely time cost. Practically-speaking, this means that big-ticket items are more likely candidates for negotiation than mundane items. Of course, that conclusion depends on the value of your time. Whatever that value, you probably shouldn’t negotiate if there’s no hope of at least recouping it.
  • Negotiating would send a neutral or even positive signal. Sometimes, negotiations are expected: title companies are well-acquainted with buyers and sellers shopping around, for example. Other times, negotiations are admired: many employers are impressed by desired candidate taking their needs seriously. So, you should probably negotiate if it’s part of the “game.” If not–if negotiating would send an adverse signal–you should probably refer to the criteria above and below, making the decision on that basis.
  • You’ve come close to your goal. If you set a stretch goal and achieved an outcome that satisfies it, you might as well savor your success and plan your next negotiation. If you didn’t set or achieve a stretch goal–and especially if you achieved an outcome equal to or worse than your bottom line–it’s probably well-worth your time to try and right the ship.

If these rules seem a little too simple for the complexities of real life, that’s because they are. Deciding when to negotiate requires judgment, wisdom, and maturity in addition to simple rules-of-thumb. But hopefully they at least help you to wade through the murkiness of real life, as they have with the murkiness in mine!

Three responses to a perilous question: What’s your bottom line?

The world is full of people who want to know your “bottom line.” Real estate agents are immensely curious about “your budget.” Car salesmen are sure to ask how much you can afford, in total or each month. That company you hope to work for? They’d love to know your minimum salary requirements.

These are all attempts to ascertain your bottom line, i.e., your reservation price (RP). Though not necessarily malevolent, these are questions that you probably shouldn’t answer, at least not directly. If you do, you’re likely to get an outcome that’s just barely better. So if you admit your minimum salary requirements are $30,000, what’s your probable salary? Somewhere around $30,001.

But suggesting you shouldn’t reveal your RP, as I did in the linked article above, is not the same as saying what you should do. Indeed, I’ve found that having some readymade responses to this omnipresent question can make life substantially more negotiable. So here are three strategies for responding to RP questions, along with some advantages and drawbacks.

  1. Don’t answer: Perhaps the most straightforward way of answering the question is not answering it. Everyone gets a little distracted now and then, and the moments after the RP question might be a great time for you to take an immense interest in the sunroof on this car or the tinted windows on that one. If the questioner takes the bait, this strategy can effectively avoid the issue. And it’s a good “strategy” if no other strategy comes to mind. The downside, of course, is that they’ll likely ask again. And this strategy is unlikely to work twice.
  2. Respond with your target: My favorite strategy is to answer a different question. They asked about your RP, but there’s no law saying you can’t answer about your goal, i.e., your target. So when the real estate agent asks your budget, you can certainly tell them what you’re hoping to achieve. And when they scoff and grumble about how hard that will be, well, that’s great…it means you’ve motivated them. So the upside of this strategy is that it motivates the other side and actually provides them with useful information. But the downside is that the agent may then avoid showing you a few houses that you would actually consider. So if you use this strategy with a real estate agent, combine it with some judicious Trulia searches on your own.
  3. Ask theirs: Experienced negotiators know that it can be morally “squishy” to ask about a counterpart’s RP. But they often ask anyway since so many people answer. So it’s worth considering the most aggressive response to the RP question, which is to ask about theirs. When the car dealer asks what kind of a monthly payment you can afford, for example, you might ask the minimum price for which they’d sell you the car. They probably won’t answer, but they probably will start respecting you and stop asking RP questions. That’s the upside, but the downside is that this strategy can create some momentary hostility that you’ll have to overcome.

There are certainly other approaches, and the right one certainly depends on the context. So you wouldn’t want to aggressively ask a future employer about their own RP, for example. Combined with your own good judgment, though, these strategies can be immensely useful for responding to other people’s immense interest in your RP.

Have you used any of these strategies—or others—to deal with the RP question?

I need more money! Five topics to ponder before requesting a raise

“By failing to prepare, you are preparing to fail.”

–Ben Franklin

 

Despite that supposedly low inflation rate, everyone’s cost of living seems to constantly go up. With rising costs come the need for a rising income. Increasing your income, in turn, often requires you to request a raise.

Asking the boss for more money is tough! But Ben Franklin’s advice makes even the toughest challenges negotiable.

Although Ben’s quote did not appear in one of his negotiation blogs, it might as well have appeared there: preparation is probably the single-biggest predictor of negotiation success and failure, especially in important and complicated negotiations like raise requests. The real question, then, is what to prepare—what things to think about in the heart-pounding moments before the request?

Well, imagine yourself palpitating at your desk, two hours before the raise meeting. Before this or any other important negotiation, always consider the following five issues:

    • Your interests. Why do you want a salary increase? “Because I need more money!” you’re thinking, as well as, “What a stupid question!” Truth-be-told, it’s often far from a stupid question. To see why, force yourself to ask yourself “why” again. Why do you need more money? Are you planning to buy something big? Struggling to pay your bills? Saving up for school? All of these are common reasons to request a raise, but each has very different implications for the types of solutions that might satisfy you. If you’re planning to buy a house next year, an end-of-year bonus might help, but if you can’t pay your electric bill right now, an end-of-year bonus won’t do you much good. If you’re saving for school, your company’s educational reimbursement policy is probably more relevant than your paycheck.
    • Their interests. What’s likely to motivate your boss? When she initially demurs, why? Is this year’s budget already gone? Would paying you more create inequity? Is she just demurring to demur? Again, knowing why means knowing what solutions might work. If she doesn’t have any money right now, maybe she will at the beginning of next fiscal year. If it’s inequity she fears, maybe offering to assume more responsibility would make a raise more palatable. If she’s demurring to demur, maybe you should just justify your request.
    • Your reservation price. What’s the worst outcome you would accept? This of course depends on your best alternative to your current job. If you don’t have one or haven’t thought about what it might be, then you’d have to accept almost anything (or nothing) in the way of a raise. But if you have an attractive, high-paying job offer burning a hole in your personal inbox, you should set an aggressive minimum for your current company and accept nothing less.
    • Their reservation price. What’s the most they’re likely to give? This of course depends on their best alternative to you. If they could step out the front door and sneeze on somebody with your skillset, then they’re sure to act like Scrooge. But if finding another “you” would take months or years of aggressive recruiting, then they’re likely to say yes to anything reasonable you request. Most importantly, if the most they’re willing to give is less than the least you’re willing to accept, you’d better start looking for another job and/or come up with a creative way to satisfy your interests that doesn’t involve a salary increase.
    • Your target. What’s the best salary you could realistically expect? That number should be much closer to their reservation price than yours. And since their reservation price is a number that they would be willing to give, they will not be offended when you focus on it and use it to make a first offer during the negotiation, which is generally what I’d advise you to do.

 

The bottom line: in this and any important negotiation, listen to Ben Franklin. What do you think about while preparing for an important negotiation?

 

PS If you like what you’re reading and would like to learn more, I’m teaching an open-enrollment course on Strategic Negotiations in November. I hope to see you there! http://carey.jhu.edu/academics/executive-education.

Bedtime bargaining: Getting your child to sleep without sacrificing your sanity

Children are remarkable bargainers, especially as their bedtime approaches. And the outcome is critical indeed, as a bad bedtime bargain not only guarantees a crabby morning; it also leaves parents frustrated in the face of their own weakness.

Willing an unwilling child to bed is tough. But it’s negotiable!

Today I’ll discuss a seemingly trivial but actually essential strategy for any negotiation: managing the focus of your attention. So imagine that tomorrow’s a big day at preschool. To be fresh, you’d love Suzie to snooze by 7:30 (your target); to be honest, you’re willing to settle for 8:00 (your reservation price). Most nights, Suzie’s reasonably cooperative; tonight, she must have downed a Red Bull.

We’ve already talked about making the first offer, and making it a little more aggressively than your target. So you might tell Suzie that 7:15 is the right time to drift into dreamland. But the question is what time you THINK about—in your own head—as the bedtime bargaining unfolds. Do you focus on your target or your reservation price?

If that seems trivial, consider negotiation research suggesting that it’s anything but—that the number in your head is actually a great predictor of the number that you ultimately obtain. So what do you think (quite literally) in the bedtime negotiation—should you focus on your target (7:30) or your reservation price (8:00) while Suzie pleads her case?

Definitely your target. Research shows that negotiators who think about their target are much more likely to achieve it than negotiators who let their mind wander back to their bottom line. So despite Suzie’s protestations, and despite any concessions you might make to appease her, you should continue to imagine a giant, neon, flashing 7:30 sign in your head—focusing on that time and trying to attain it. File away that other, later time—whatever it was—in the back of your brain.

But don’t forget it! Because there comes a point when remembering your reservation price is crucial: at the end of the negotiation. To see why, imagine that Suzie’s hard bargaining has resulted in a final offer of 7:45. Is that an offer you can accept? Without comparing it against your reservation price, there’s no way to know. Being earlier than 8:00, 7:45 sounds acceptable (if not ideal).

But there’s another, equally critical reason to recall your reservation price: to evaluate how you’ve done. Sitting on the sofa, with Suzie thankfully asleep, how would you evaluate a 7:45 agreement? Quite negatively, if you were comparing it against your target, but very positively if you were comparing it against your reservation price. So it’s also important to remember your reservation price AFTER the negotiation, in order to relish in the additional 15 minutes that your own hard bargaining attained.

So the general point is this: Before a negotiation, define your reservation price and target. During a negotiation, focus on your target and temporarily forget your reservation price. Only when evaluating a potential final agreement or an actual final agreement should you recall your reservation price, forgetting your target and focusing on the future.

What do you “think” about this strategy?