1. In Chapter one your text author states that most people are ineffective negotiators who fall prey to some very common traps. What are these traps and why do we fall into them? Describe your own experiences with the common traps and the reasons for them. Where do you see yourself in these behaviors?
According to textbook author Leigh Thompson (2015), most people are ineffective negotiators because they fall into four very common traps: “Leaving money on the table, settling for too little, walking away from the table and settling for term that are worse than your best alternative” (pp. 5-6). Very often, we fall prey to these traps for underlying reasons of which we are not even aware. Thompson (2015) describes these reasons as biases, beginning with egocentrism, which basically means that we have a tendency to believe that our experiences will make us better at negotiating than they actually do. There is also a confirmation bias. Those that demonstrate a confirmation bias tend to seek information that confirms what they already believe to be true. The third tendency of a poor negotiator is the urge to satisfice. Satisficing means that the negotiator settles for something less than what he/she might otherwise receive. And finally, the most interesting of all is the self-reinforcing incompetence which is the unfortunate tendency for the negotiator to not understand his own lack of ability and consequently, to fail to understand his own poor performance.
My experience with these common traps is frequent since I am often in a state of negotiation with team members, vendors and donors. The trap that most resonated with me and my work is what Thompson (2015) describes as “leaving money on the table”. It happens most frequently with donors since it feels harder to be firm with someone and negotiate when they are in the position of power to give the money or not based on how happy they are with their relationship with the organization or the desired use of the money. It’s often the case that a donor wants to support something that our organization does not consider a priority, or the donor wants to support the project at a level that requires us to commit additional resources that we would not otherwise commit to the project. In those cases, it’s up to me to negotiate with the donor to try to move them to another project or help them understand the challenges with the gift as they are determined to give it. Though leaving money on the table seems like the most regular trap I fall in to, at various times I feel as if I’ve fallen into every one of the common traps and it’s often due to the underlying need to satisfice – to walk away with something for the benefit of the organization, even if it’s not exactly what we’d like to have.
2. Differentiate between the following terms: BATNA, Reservation Point, and Target Point.
A Target Point is the negotiator’s ideal outcome; what he ultimately wants from the negotiation should all go well. This ideal outcome differs from the BATNA which is defined as the Best AlternativeTo a Negotiated Agreement (Thompson, 2015). So, the BATNA is not the ideal outcome but is an alternative that is also acceptable. The Reservation Point comes into play when you have achieved your BATNA but still have another alternative on the table to consider. The Reservation Point is the quantification of what makes the BATNA acceptable and further, what would make the alternative better than the BATNA (Thompson, 2015).
3. Differentiate between a focal point and sunk costs. How do these negatively impact negotiations?
Focal points are distractions or arbitrary facts or figures that misdirect the negotiator and keep him from focusing on the salient reservation point. Negotiators get hung up on these focal points and fail to understand that they really have no legitimate impact on the negotiation. Sunk costs are monies that are spent or invested early on and cannot be recouped regardless of the outcome of the negotiation. Thompson (2015) describes both focal points and sunk costs as distracting to negotiators because negotiators have a tendency to fixate on them and give them meaning and importance when they really should not have any relevance to the negotiation at all. Sunk costs in particular can have this affect since people can get hung up on the money they invested in the beginning and seek to recoup that money through the negotiation. In both cases, focal points and sunk costs distract the negotiator from identifying his true reservation point and basing his negotiations on achieving that outcome.
4. Differentiate between the endowment effect, violations of the sure thing principle and counterfactual thinking. Describe a situation where you or someone you know exhibited each.
The endowment effect is based on the principle that buyers and sellers have different valuations for objects. If someone owns an object and feels a sense of loss in selling the item, the person may want to sell it for more than a buyer is willing to spend. The seller is endowed by his perceived value of the item and the sense of loss he feels in selling the item leads him to a higher reservation point and the desire to sell the item for more to compensate for the loss he will feel when he relinquishes it (Thompson 2015). The higher price is a function of risk aversion to the feeling of loss. I’ve seen the endowment effect recently as my husband and I have been working with my mother-in-law to sell her possessions and home to move her into a retirement community. Her perceived value for many of the items in her home was much higher than the actual value due to emotional and historical context. To her, many of the possessions were either priceless or should be sold at a high price because of what she originally paid for it forty years ago or the memories associated with the item. Her reservation point was unnaturally high due to sentimentality.
Author Thompson (2015) explains counterfactual thinking as important to whether or not a person feels regret at a particular outcome. A person who regrets an outcome is often focusing on “what might have been but did not occur” (p. 24). This counterfactual thinking undermines a person’s satisfaction with a particular outcome because they convince themselves that another, more favorable outcome was possible. My husband recently listed his childhood home for sale and within 12 hours, had received an offer on the house that was $1,000 higher than the asking price. His immediate thought was that he should have listed it higher and maybe he could have gotten more money. This feeling persisted even though all of the research and realtor advice indicated the price was right and the final sale price exceeded any original expectation he had for what he would get for the house.
Violations of the sure things principle is a reason that people often delay or avoid making a decision that should be obvious because the reason for making the decision is unclear. If some part of the decision-making process is nebulous, even though it ultimately won’t change the outcome of the decision, then people have a hard time committing to the decision. My middle daughter had decided she wanted to move to Austin, Texas and applied to a physical therapy grad school program there. She also had a back-up plan to go temporarily to a community college in a physical therapy assistant program if she didn’t get into the grad school program immediately. Either way, she said she was going to Austin and yet she refused to go and look for apartments until she heard word from the PT program that she’d been accepted.
5. Where do you see yourself with regard to risk aversion as applied to negotiations in this chapter? Where do you see yourself with regard to confidence in negotiations as described in the text? Give examples to support each.
Most of my negotiations take place in the context of my work and because of this, I think I often fall prey to risk aversion because I am not the sole person that will suffer the consequences if I fail to maximize the negotiation. For instance, I am responsible for contractual negotiations for multi-year strategic partner relationships and the outcomes of those negotiations have a significant effect on our organization’s bottom line. It’s not often that I feel that I/we can walk away from a negotiation if the outcome is not ideal because we are not willing to take the loss, or we don’t have a viable BATNA with which the entire leadership is comfortable. However, this is not always the case and in situations where I fully understand our position and there are acceptable BATNA identified, I have confidence in my ability to negotiate terms that are beneficial to my organization. I recently worked on a renewal agreement for a multi-year partnership that included an increase in annual dollars, a change in delivery terms and the exclusion of items that were formerly part of the agreement. The negotiations were aided on our side by the fact that we had identified a solid alternative in case we couldn’t come to terms. This allowed us to enter the negotiation with much more confidence and less willingness to leave money on the table.