Prof. Mnookin was interviewed about his newly released book, “Bargaining with the Devil”.

Click on the picture below to watch a clip of the interview online.

Visit www.bargainingwiththedevil.com for even more information about the book.

How often have you heard a friend or colleague refer to a contract as being “in the bag,” only to find out later that the deal didn’t go through? There always turns out to be a good reason a negotiation fell apart. Yet the fact remains that most negotiators are overconfident about their chances of reaching agreement. A common cognitive bias, overconfidence causes us to have unrealistically high expectations of success, in negotiation and in many other aspects of life.

Major league baseball offers a graphic example of overconfidence in action. When a baseball team and a player disagree about compensation, a system exists that calls for the player and owner to submit final offers to an arbitrator. In final-offer arbitration, the arbitrator is required to weigh the offers and accept one position or the other; compromise is not allowed. For both owner and player, the goal is to come slightly closer than the opposition to the arbitrator’s perception of the appropriate compensation package.

Researchers Margaret Neale and Max H. Bazerman asked negotiators in a simulated final-offer arbitration to estimate the probability that an arbitrator would accept their offer. Because the arbitrator had to accept one of two offers in its entirety, the overall probability that a particular offer would be accepted was 50%. On average, negotiators estimated that their final offers had a 68% chance of being chosen by the arbitrator. They believed their offers were 18% more likely to be accepted than could actually be true. Such overconfidence diminishes incentives to compromise and often leads to disappointment at the bargaining table.

Objectivity is the key to reducing overconfidence. In arbitration, for example, the more objective your assessment of the opponent’s offer and the position of the arbitrator, the better equipped you’ll be to use this information strategically. Here are three ways to improve your objectivity and your negotiation performance:

1. Embrace uncertainty. As your objectivity increases, so will your uncertainty about your probability of success. Smart negotiators accept uncertainty as an integral part of decision making. By acknowledging your own uncertainty about the future and about the other side’s position, you’ll become more willing to propose and accept the type of compromises that lead to mutually beneficial agreements.
2. Enlist a third party. When you’re preparing for an important negotiation, seek out an objective critique of your plans from a disinterested adviser. You can hire a professional consultant, speak off the record with a colleague at another firm, or seek help from a friend whom you trust to be blunt and honest. Whether you’re paying the third party for his advice or not, it’s essential that he has no stake in your success.
3. Itemize your errors. Before any negotiation, seek out data that could lead you to revise your plans. Research the other party’s position, as well as people who have been in your shoes in the recent past. Don’t just look on the bright side—account for potential strikes against you as well. By facing up to your bargaining weaknesses, you’ll increase your odds of proposing an offer that’s acceptable to the other side. Once talks are under way, it will be much harder to update overconfident beliefs.

Do you really know what you want out of life? Most of us don’t, according to Timothy D. Wilson and Daniel T. Gilbert, psychology professors at the University of Virginia and Harvard University, respectively. The impact bias describes the common, systematic failure to predict what will make us truly happy. Wilson and Gilbert note that people dramatically overestimate how positive and negative events—from winning the lottery to suffering an amputation—will change their lives.

Vanderbilt University Law School professor Chris Guthrie and Cornell University business professor David Sally have offered a fascinating application of this affective forecasting research to negotiation. The models on which negotiation research are founded, Guthrie and Sally point out, are based on the assumption that negotiators know what they want; yet, most negotiators enter into talks without a realistic awareness of what outcome will make them happy.

Consider the case of a plaintiff who is eager to go to trial, anticipating a large financial award and the joy of beating the other side. Meanwhile, her lawyer may well understand that obtaining a smaller amount of money through a settlement is likely to bring his client greater value than the uncertain payoff of a trial. The lawyer also knows from experience that the satisfaction of winning will be short-lived.

Guthrie and Sally argue that, rather than simply following the client’s preferred path, the lawyer should steer her toward maximizing her long-term happiness. Because most people tend to be risk averse when it comes to gains, for instance, the lawyer might frame the out-of-court settlement as a guaranteed win. The lawyer might also encourage his client to take a cooling-off period to think about an offer. Why? Because the “cognitive load” associated with the heat of the moment is known to reduce the accuracy of affective forecasts.

In the summer of 1988, National Basketball Association (NBA) team owners and players were at loggerheads over their new contract. At midnight on June 30, the owners declared a lockout, halting preparations for the start of the 1998–99 NBA season. The players and owners negotiated for six long months, during which time the two sides collectively lost hundreds of millions of dollars.

In the end, it was a deadline that resolved the conflict. The team owners declared that if they didn’t reach an agreement with the players by January 7, 1999, they would cancel the rest of the season. In effect, the owners placed a final, arbitrary deadline on their participation in the negotiations; the chosen date had little significance to either side. Through public statements, the owners committed themselves to declaring an impasse if the deadline came and went. In the early-morning hours of January 6, the two sides agreed to contract terms that dramatically favored the owners.

We’re all familiar with stories of tough opponents who bargain for months without making progress, only to reach resolution in the final moments before the passage of a critical deadline. Without a deadline, negotiators are tempted to use stalling tactics, hoping to pressure the other side into giving in.

Despite the proven effectiveness of deadlines, they remain one of the most misunderstood negotiation strategies. Many negotiators hesitate to place a deadline on their talks. In his research, when professor Don Moore of Carnegie Mellon University asked people to predict the effect of deadlines on negotiations, even experienced negotiators predicted that the presence of a shared deadline would hurt them by forcing them to concede more quickly than they would like, thereby helping their opponents.

While there is some truth to these assumptions, it’s also true that deadlines increase pressure on the other party to reach an agreement. Negotiators who recognize that deadlines affect everyone equally can use them to defuse costly stalling tactics. For example, car salespeople sometimes try to draw out price negotiations, hoping the amount of time you’ve invested will increase your commitment to making the deal. To defuse this strategy, try beginning your negotiation for a new car by informing the salesperson that you have only an hour to make a possible deal.

Because deadlines put pressure on everyone, they can get talks moving again. Don’t be afraid to set deadlines and commit to them. Furthermore, when negotiators tell their opponents about an existing final deadline, they get better deals. Why? First, because both sides are more likely to work toward an agreement before the deadline passes, you reduce your risk of walking away with nothing. Second, when an opponent knows about your deadline, he’ll make concessions much more quickly. The NBA owners’ January 7 deadline would have been useless if they had kept it secret; the players’ union would have kept negotiating past the deadline.

In his new book, Bargaining with the Devil: When to Negotiate, When to Fight, Robert Mnookin, Chair of the Program on Negotiation at Harvard Law School, suggests a framework for analyzing the most difficult kinds of negotiation challenges so that you can avoid traps and make wise decisions.

Broadening the concept of “devils” beyond the political realm, Mnookin notes that “in private disputes, you may face devils of your own. A business partner has betrayed you and now wants to negotiate a better deal. A marriage is ending and a divorcing spouse is making extortionist demands. A competitor has stolen your intellectual property. You are furious. You may not see your adversary as evil, but your gut tells you to fight it out in court. To negotiate with this person would give him something he wants. It would reward him for his bad behavior. You want your rights vindicated, and the thought of negotiating with your adversary seems wrong.”

“This book is about these kinds of conflicts, which pose some of the most challenging questions in negotiation. A disputant must decide: Should I bargain with the Devil, or resist? By “bargain” I mean attempt to make a deal – try to resolve the conflict through negotiation – rather than fighting it out. By “Devil,” I mean an enemy who has intentionally harmed you in the past or appears willing to harm you in the future. Someone you don’t trust. An adversary whose behavior you may even see as evil.”

Join the Program on Negotiation to celebrate the publication of Robert Mnookin’s new book and to join in a discussion of the issues raised.

Event Date: Thursday February 4, 2010
Time: 5:30PM Reception, 6:00PM Presentation and Discussion
Location: Ropes Gray Room, 2nd Floor Pound Hall, Harvard Law School Campus, 1563 Massachusetts Ave., Cambridge, MA 02138

Click here for more information about the event.

To see the full interview, click here.

            Just before a meeting with her boss, Cindy peeks into his secretary’s office and whispers: “How’s his mood today?” When the secretary gives a thumb’s up, Cindy decides the time is right to ask for a big raise.

Intuitively, most of us wait until others are in a good mood before presenting controversial requests. Moreover, we try to keep this strategic thinking under wraps.

Researchers Eduardo B. Andrade and Teck Ho of the University of California at Berkeley bring new evidence to bear on this conventional wisdom. The researchers divided their study participants into pairs, randomly assigned them to roles, and asked the “proposers” to divide a pot of money between themselves and the “receivers.” Only two divisions were allowed: a “fair” 50-50 division or an “unfair” division—75% for the proposer and 25% for the receiver. If the receiver said yes, the subjects received the proposed split. If the receiver said no, neither subject received anything.

In a twist on this prototypical “ultimatum game,” Andrade and Ho manipulated the receivers’ moods. They tried to put half in a happy mood, in part by showing them a funny sitcom, and the other half in an angry mood, in part by showing them a disturbing movie clip.

The proposers were told which clip their receivers had watched. Some of these proposers knew that their receivers were unaware that they had this knowledge; these proposers made significantly more unfair offers to receivers in the happy condition than to receivers in the angry condition. Other proposers knew that their receivers were aware that they had this knowledge about the clips; these proposers did not make unfair offers significantly more often.

In plain English: Cindy is likely to feel comfortable negotiating aggressively with her boss—as long as she thinks he isn’t aware that she knows about his good mood. But suppose that the secretary announces, “I told her that you’re feeling great today!” when she ushers Cindy into the office. Now Cindy is likely to be inhibited from trying to take advantage of the boss’s expansive mood.

This research provides important defensive advice: discuss your positive feelings openly at the outset of talks.

Imagine that you and a colleague get into an argument about the layout of a final report in front of a coworker you both like. Now suppose the same argument occurs in front of someone your colleague likes but you do not or vice versa—in front of an ally who is your colleague’s foe. As it turns out, the presence of various team members during a negotiation with another teammate may affect your negotiating ability.

Information exchange. Negotiators in a team setting who distrust each other tend to withhold information even when information sharing is critical to the task at hand, Karen A. Jehn of Leiden University and Lindred L. Greer of the University of Amsterdam found in their recent research with Heather Caruso of Harvard University. This suggests that you’ll be more likely to share information with your negotiation partner when you like other team members who are present. By contrast, if you dislike or distrust certain onlookers, you may withhold more. Similarly, your negotiation partner may be reluctant to share information in front of certain team members.

Balanced relationships. In his classic book The Psychology of Interpersonal Relations (Wiley, 1958), Fritz Heider observes that we tend to seek balance in our relationships. This desire for balance may lead you to turn against a friend’s enemy or, conversely, to befriend an ally’s friends. If both you and your negotiation counterpart dislike an onlooker to your dispute, you may actually grow to like each other more and collaborate more with each other. The presence of a “common enemy” causes negotiators to bond against the outsider.

When one negotiator strongly dislikes an onlooker whom the other negotiator likes, the two negotiators may begin to behave competitively with each other. Suppose that your closest team ally sees you negotiating with someone he doesn’t like. To maintain relations with your ally, you’re likely to find fault with your counterpart—a form of transference that will jeopardize your outcome.

In negotiations with colleagues, it’s critical that you strive to reduce the impact of workgroup alliances. Here’s how:

• Acknowledge negative feelings. We all know how difficult it can be to confront animosity during a negotiation at work. If you’re negotiating in front of someone you dislike or with whom you are uncomfortable, first acknowledge these feelings to yourself.

• Deal with clashes privately. Try to remove personal emotions from the task at hand by dealing with them privately. This should reduce the degree to which your allies’ expectations influence your negotiating behavior. Similarly, communicate concern for the relationship with your counterpart while at the same time making sure the negotiation remains as task oriented as possible. By doing so, you may be able to prevent personality clashes from influencing your talks with other coworkers.

• Share information. During a negotiation, strive to stay focused on hammering out the best agreement possible by sharing relevant information. Intentionally hiding information to exact revenge on a colleague who has burned you in the past is likely to backfire in the form of a deal that overlooks significant sources of value. Concentrate on the trust you’ve developed in the past, and guard against “catching” contagious negative feelings from observers.

A married couple was debating whether their four-year-old daughter should attend public or private elementary school. It was a difficult issue, and Mike had a tendency to walk out when the conversation got heated. Frustrated, Lisa imposed a condition on the negotiation itself: she would discuss the issue only if Mike agreed not to flee. Mike readily consented to this reasonable request. When the discussion inevitably became tense again, he remembered his promise and stayed at the table. Thanks to the condition that Lisa had added to the negotiation, they reached a deal: public school at the outset but revisiting the issue each year as needed.

Expert negotiators are familiar with the benefits (and limits) of contingent contracts—deal clauses that allow negotiators to avoid impasse by “betting” on their different predictions. Imagine, for example, that a buyer and a seller are negotiating over pricing for delivery services, which will depend heavily on the future price of gas. Believing that gas prices will increase, the seller demands a high price for the service contract. The buyer, who believes gas prices will fall, wants to pay a low price today. If both sides genuinely believe their forecasts, they can set a low price, but with a contingency: the buyer must make added payments if the price of gas rises.

A condition to a deal is a related though far less common deal-structuring technique. Like a contingency, a condition is an “if” statement (“I’ll discuss our daughter’s schooling only if you promise to stay at the table”). But whereas a contingency depends on unknown future events, such as the price of gas, a condition is entirely within the control of the parties involved. In addition, conditions are resolved during talks—and no later than the closing of the deal. Specifically, proposing deal conditions can help you not only avoid impasse but also create and claim value.

Lisa’s condition established a ground rule for her negotiation with Mike. Such “process” conditions can be as useful in business deals as in personal ones. Recently, a couple was interested in buying a vacation house on Martha’s Vineyard, an island off the coast of Massachusetts. They found their ideal retreat and submitted a bid, only to learn that the seller had just received another offer.

The seller suggested an auction between the two bidders. The couple agreed, but only under the following conditions: (1) a single-round, sealed-bid auction, with the seller bound in advance to accept the higher offer; and (2) offers had to include a specific dollar amount (rather than, say, “One dollar more than the higher offer”).

The seller could either reject the couple’s conditions and be left with only one bidder or accept the ultimatum and achieve a one-round auction. The seller accepted the conditions, and the couple won the property at what they perceived to be a reasonable price, thanks to conditions that avoided an all-out bidding war.

Your entry into a negotiation often carries its own value. Lisa, naturally, needed Mike at the table for them to resolve the issue of their daughter’s schooling. Similarly, the couple’s bid on the vacation home was valuable to the seller seeking an auction. When your entry has such value, don’t give it away. Instead, propose negotiating conditions that extract process terms to your advantage.

Peter Maass, New York Times Magazine writer and author of Crude World: The Violent Twilight of Oil, will discuss the power of oil to fan the flames of existing problems and harm countries that possess large quantities of it. His work has taken him to Iraq, Saudi Arabia, Russia, Nigeria, Venezuela, and Kuwait.

Renowned photographer Ed Kashi will share his photographs and multimedia work on the Niger Delta, focusing on issues of oil, development, environmental and economic destruction, sustainability, and our own unavoidable connections to these dynamics.

Wednesday, February 10, 2010, 7 pm.
Pound Hall 102, Harvard Law School

This event is co-sponsored by:
The Program on Negotiation at Harvard Law School
The Nieman Foundation for Journalism
The Shorenstein Center on the Press, Politics, and Public Policy

Refreshments will be served.