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Cognitive Biases in Negotiation

4. What are some common examples of cognitive biases in negotiation?

• Erroneous fixed-pie beliefs – Negotiators often assume that all negotiations are distributive in nature. That is, the interest at stake is finite or a fixed sum and the counter-party’s interests are directly and completely opposed to one’s own. This erroneous perception leaves no ability for integrative settlements and mutually beneficial trade-offs. Negotiators assume interests are incompatible, that impasse is likely, and that issues are settled one by one rather than as packages. Negotiators thus fail to work to create additional value in the negotiation.

• False conflict (also called illusory conflict) – A situation in which conflict does not exist between people, yet they erroneously perceive the presence of conflict. The “lose-lose” effect is the tendency for negotiators to settle for outcomes that both prefer less than some other readily available outcome. Parties can avoid lose-lose agreements by being aware of the fixed-pie perception and avoiding making premature concessions

• Irrational escalation of commitment – Individuals tend to look backwards to allow prior actions to influence future conduct. An “escalation of commitment” is the tendency for an individual to make decisions that stick with a failing course of action. Escalation of commitment is due in part to biases in individual perception and judgment. If a course of action is failing, the resources invested should not influence a decision to invest additional resources when the probability of success is low.

• Overconfidence – This is the tendency of negotiators to believe that their ability to be correct or accurate is greater than is actually true. Overconfidence has a double-edged effect. It can solidify the degree to which negotiators support positions or options that are incorrect or inappropriate. It can also lead negotiators to discount the worth or validity of the judgments of others. This, in effect, shuts down other parties as sources of information, interests, and options necessary for a successful integrative negotiation.

• Egocentrism – This bias, a type of “tunnel vision”, is a high degree of self-focus in any situation or interaction. An egocentric individual will focus primarily on her own interests and objectives with little concern for those of other parties. This tendency is characterized by an inability to empathize or an unwillingness to entertain the views or interests of others. An individual can develop an egocentric output based upon cognitive heuristics (biases), poor inter-social development, or informational disparity (availability and recognition).

• Self-serving biases – People often explain another person’s behavior by making attributions, either to the person or the situation. Perceptual biases are often exacerbated by the actor-observer effect in which people tend to attribute their own behavior to situational factors but attribute other’s behaviors to personal factors. Self-serving biases effect the negotiation process in a number of ways, such as: the perception of greater use of constructive tactics than the other party; less accurate in estimating the other’s preferred outcomes; and influences perception of fairness in a negotiation context.

• Issue framing bias – A frame is a perspective or point of view that people use when they gather information and solve problems. The positive/negative framing process is important because the same offer can elicit markedly different courses of action depending on how it is framed in gain–loss terms.

• Information availability bias – Availability bias operates when information that is presented in vivid, colorful, or attention-getting ways becomes easy to recall, and thus also becomes central and critical in evaluating events and options. The availability of information also affects negotiation through the use of established search patterns.

• The winner’s curse – This is the tendency of negotiators, particularly in an auction setting, to settle quickly on an item and then subsequently feel discomfort about a negotiation win that comes too easily.

• Endowment effect – The endowment effect is the tendency to overvalue something you own or believe you possess. The endowment effect can lead to inflated estimations of value that interfere with reaching a good deal.

• Reactive devaluation – Reactive devaluation is the process of devaluing the other party’s concessions simply because the other party made them. Reactive devaluation leads negotiators to minimize the magnitude of a concession made by a disliked other; reduce their willingness to respond with a concession of equal size; or seek even more from the other party once a concession has been made.

Misperceptions and cognitive biases typically arise out of conscious awareness as negotiators gather and process information. The best way to manage the negative consequences of misperception is to be aware that they occur.

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