Don’t let your bias skew your negotiation agreement!

Two years ago on Super Bowl Sunday, my friend was visiting Toronto for the first time. She was only staying for one night and I really wanted to ensure she enjoys her visit. Watching Super Bowl (except the half time show) is not something I usually do but since she is a sports fan, I called my friends to ask where is the best place to watch the game. My friends suggested Real Sports (which has many large screens) is the best choice but advised me that it is impossible to get a table at 6 pm of Super Bowl Sunday without prior reservations. They almost discouraged me from going but I did not let their opinion impact my attempt to negotiate for a table and we went to try our chances anyway. When I shared the low possibility of getting a table with my friend, she said she is happy to just stand and watch the game anywhere. Based on the information I shared with her, her expectations were lowered and she was willing to settle for much less than our original plan which was dinner at the best place to watch the game!

We did go to Real Sports and we watched the game sitting down at a table on the first row and had a lovely dinner!

The extreme starting point impacts your expectations and your approach to reach an agreement. It can skew your negotiation outcome.

There are many cognitive biases that will influence your negotiation process and outcome. Here are three negotiation biases that you must be aware of to be an effective negotiator.

1)      Anchoring effect

One of the most common biases in negotiation is anchoring effect. What anchoring effect refers to is when the negotiation outcome is highly influenced by the opening offer. For instance, you may have a budget in mind to purchase a product. When you walk into the store and the salesperson gives you a price much higher than your budget, it is likely for you to doubt yourself and end up overpaying for the product or at least go higher than your budget.

How to overcome this effect?

In the absence of information, anchoring bias will for sure move the negotiation range and agreement. If you are purchasing a product for which you do not have any prior knowledge of the price, the first price you hear will set your expectations. To manage this, you need to get as much information as possible prior to attempting to purchase. In the absence of prior information, you must ask the right questions to understand the rationale for the given price and validate it by asking for more information and asking different questions to assess the validity of the information you receive.

If one does have prior knowledge about the fair value of a product and service, an out of range opening offer can break the trust and result in no agreement at all. Imagine if you know the average price of a service is $100 and the person you are considering for providing the service quotes you for $1500. How likely are you to proceed?

2)      Framing

Depending on how information is framed to us, we perceive and process it differently to draw conclusions and ultimately make decisions.

Part of the motivation to negotiate is to ensure that we reach an optimal agreement and have gained the most value. So naturally, everyone likes to know they have reached the best agreement possible.

Think about a scenario where you take your car in for service. Which response will make you more content?

1. This service will take two days.
2. I can complete the service in only two days for you!

The first scenario makes two days sound longer than the second scenario. While in reality for both situations it will take two days to service your car, the way the second phrase is framed seems like you are getting a better deal and will have the service completed in just two days as opposed to more days.

The reality of the situation does not change but how the situation is framed for you will have an impact on how you feel about the situation and how likely you are to accept the offer. Most people in the first scenario will ask if this can be done faster.

Now imagine if you were told:

This service usually takes a week to be completed but you are lucky that we are not as busy this week and I can complete this for you in only two days!

You will accept this offer immediately and feel you got a great deal! To be an effective negotiator, analyze how information is being framed to ensure you are making your decisions based on reality and not your perception.

3) Fixed-pie bias

The myth of fixed pie has been one of the biggest negotiation challenges. Some may believe that the interests of different individuals would be the opposite of each other during negotiation. For such their focus will be to take as much as they can take to prevent the other person taking a bigger piece of the pie.

This is not a true statement.

One person’s gain does not always equal to the other person’s loss.

Effective negotiation is about finding the optimal agreement where the collective gain is at the highest. To do this, you need to ask questions about what each person’s interests are and share your own interest. This exchange of information will allow you to have a better negotiation. To reach an optimal agreement:

1)      First identify the common interest and reach an agreement for mutual benefit,

2)      Then identify the optimal exchange points where one party's gain has the least cost to the other party and

3)      Last claim value for issues that parties’ interests are in opposition

Most negotiations do not have a fixed pie that everyone just takes as much as they can. There is always opportunity to expand the pie and increase everyone’s gain from the negotiation!

Managing your cognitive bias is essential to becoming an effective negotiator.