Summary: Mental Errors

There are numerous mental errors that a party can commit during negotiations. Hereafter they are presented together with remedies.

ESCALATION

Irrational escalation is continuing a previously selected course of action beyond what rational analysis would recommend. This happens to otherwise level-headed businesspeople when they get into difficult and competitive negotiations. Even a good strategy will produce a bad result if it is escalated beyond a point where it no longer makes sense.

Possible reasons for such behavior:

• Their egos cannot abide losing. If they shoot over the top, that is what would be reasonable, they point to future synergies or other nebulous values as justification for their behavior.
• Auctions and other bidding contests that pit individuals against each other encourage irrational behaviors. 
• A principal/agent problem is at work. In general the business-people who spend to win beyond the point of rationality do so with OPM (other people’s money). They would not spend it differently if it was their own. 

 Remedies:

• Get a firm to handle your alternatives to the deal before you negotiate. Money that you don’t throw away for an over-priced deal you’ll have it at your disposal for other investments.
• Be very objective and empirical in setting a price beyond which good sense dictates walking away. Agreement by many people regarding the price will reduce the temptation to escalate. 
• Set clear breakpoints where to stop.
• If during the negotiation ne information suggests raising the walk-away price apply objectivity in recalculation that walk-away price. 
• Concerning the principal/agent problem the best solution is to align the negotiator’s rewards with the economic interest of shareholders.

PARTISAN PERCEPTION

This is a psychological phenomenon that causes people to perceive the world with a bias in their own favor or toward their won point of view. Effective negotiation know how to stand outside a situation and see it objectively thus avoiding partisan perceptions.

Try to put yourself in the other side’s position, pose the issue to colleagues and solicit their opinions or try to pose the problem as it appears to you and ask how the other party view it. Another technique for reducing partisans perceptions is for the opposing sides to reverse their roles.

If any of these suggestions fail, bring in a neutral third party or expert to provide unbiased guidance.

IRRATIONAL EXPECTATIONS

Agreement is hard to find if one or more parties have expectations that cannot be fulfilled. This eliminates any zone of possible agreement. Such a situation can be remedied in two ways:

1. Education dialogue: the other side explains and shows why the expectations are irrational.
2. New information: provide information that convinces the other side that these expectations are well founded.

It is important to bring expectations in line with fact-based reality.

OVER CONFIDENCE

While confidence is a good thing during negotiations, overconfidence encourages us to overestimate our own strengths and underestimate those of our rivals. We observe such overconfidence in business and interpersonal disputes where one or both parties reject settlement in favor of litigation („we are very confident that the court will find in our favor. The lawyers say that we have a very strong case.“)

Overconfidence can blindside you to dangers and opportunities. It is reinforced by a related mental error know as groupthink. This is the result of convergence of thinking around a norm and driven by social psychological pressures instead of objectivity.

Some symptoms of groupthink: illusion of invulnerability exists, leaders are insulated from contradictory evidence, members accept confining data only, those with divergent views are censure and alternatives are not considered.

A solution to groupthink is to empower a team of bright and respected people to find an objectively represented the relevant data.

UNCHECKED EMOTIONS

Business partnership dissolutions involve tremendous anger and personal vitriol. Huge damage is caused when negotiators allow their emotions to get out of control.

Solutions might be to agree to a cooling-off period or to enlist an objective moderator.

Anger and irrational behavior are often triggered by an offense to one party’s sense of fairness.