How can you test the validity and reliability of the signals and screens in a negotiation?

1 What are signals and screens?

Signals and screens are tools that negotiators use to convey and verify information in a situation of asymmetric information, where one party knows more than the other. Signals are actions or messages that are intended to reveal something about the sender's type, such as their quality, motivation, or reservation price. Screens are actions or messages that are intended to elicit information from the receiver, such as their willingness to pay, credibility, or commitment. For example, a seller may signal their high quality by offering a warranty or a testimonial, while a buyer may screen the seller's quality by asking for a sample or a reference.

2 How to test the validity of signals and screens?

The validity of signals and screens depends on how costly and observable they are. Costly signals and screens are those that involve a sacrifice or a risk for the sender or the receiver, such as money, time, or reputation. Observable signals and screens are those that can be easily verified or measured by the other party, such as certificates, contracts, or feedback. The more costly and observable a signal or a screen is, the more likely it is to be valid and credible. For example, a high-quality seller may be willing to offer a refund policy or a performance guarantee, while a low-quality seller may not. A buyer may be more convinced by a seller's signal if they can see the product or service in action, rather than just hear about it.

3 How to test the reliability of signals and screens?

The reliability of signals and screens depends on how consistent and coherent they are. Consistent signals and screens are those that match the sender's or the receiver's behavior and reputation, such as their past actions, words, or outcomes. Coherent signals and screens are those that align with the sender's or the receiver's incentives and interests, such as their goals, values, or constraints. The more consistent and coherent a signal or a screen is, the more likely it is to be reliable and trustworthy. For example, a seller may be more credible if they have a positive track record or a good reputation in the market, rather than a new or unknown entrant. A buyer may be more trustworthy if they have a clear and realistic budget or a genuine need for the product or service, rather than a vague or unrealistic demand.

4 How to use signals and screens effectively?

To use signals and screens effectively, you need to understand your own and the other party's information, preferences, and strategies. Additionally, you must adapt your signals and screens to the context and the stage of the negotiation. To help with this, consider identifying your own strengths and weaknesses, as well as the other party's information gaps and uncertainties. Choose signals and screens that are costly and observable, yet consistent and coherent. Additionally, adjust your signals and screens according to the feedback and the outcome. For example, if you receive a positive response, increase your signals or screens; if you reach an agreement, confirm your signals or screens.

5 What are the benefits and risks of signaling and screening?

Signaling and screening can have both benefits and risks for negotiators. For instance, they can reduce information asymmetry and uncertainty, increase transparency and trust, and enhance bargaining power and leverage. This can lead to improved outcomes and satisfaction, as well as create value and opportunities, fostering cooperation and collaboration. On the other hand, signaling and screening can be costly and risky, exposing negotiators to exploitation or manipulation. Additionally, they may be ineffective or misleading, causing confusion or misunderstanding, as well as creating conflict and competition that can damage relationships and reputation.

6 How to avoid common pitfalls of signaling and screening?

Signaling and screening are not foolproof or flawless and can be affected by various factors, such as biases, emotions, expectations, or norms. To avoid common pitfalls of signaling and screening, you need to be aware of the challenges such as overconfidence or underconfidence, anchoring or framing, reciprocity or retaliation, conformity or differentiation, and honesty or deception. Overestimating or underestimating your own or the other party's signals or screens can lead to acting too boldly or too cautiously. Additionally, you may be influenced by the first or the last signals or screens and ignore other relevant information. Furthermore, you may feel obliged to match or counter the other party's signals or screens, which can lead to losing sight of your own interests or goals. Moreover, you may feel pressured to follow or deviate from the other party's or industry's signals or screens, which could compromise your own identity or value. Lastly, you may be truthful in your own signals or screens but expect dishonesty from the other party.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?