Our decisions in negotiation depend greatly on our predictions about how the future will unfold. But, as has never been more apparent than in 2020, the future has a way of surprising us. In his new book Perfectly Confident: How to Calibrate Your Decisions Wisely (Harper Business, 2020), University of California, Berkeley professor Don Moore draws on his research and personal obsession with confidence to explain how we can make better decisions about the future, our counterparts, and other critical factors in negotiation and beyond.
Negotiation Briefings: People often fear negotiation, which suggests they lack confidence in their ability. But you’ve found that overconfidence causes real problems in negotiation. When are we overconfident versus underconfident in negotiation?
Don Moore: Underconfidence in negotiation is a real issue. It’s common for people to be reluctant to initiate negotiations; they may feel inadequate or be aware of their own constraints and lack of knowledge of the other side. This is just one of many circumstances in which the average person fears that they are below average on a difficult task because they are more aware of their own challenges than they are of others’ challenges. It’s easy to see this dynamic at work if you tell both sides in a negotiation that they’re facing a deadline. Both will think, Oh, that’s bad for me and good for the other side. In fact, the deadline must affect both sides equally if it ends the negotiation for both sides. That’s one of many circumstances in which when the task gets harder, everyone becomes less confident about their performance relative to that of their rivals.
NB: How serious a problem is overconfidence in negotiation?
DM: Overconfidence leads to a number of important results. It’s worth clarifying the different forms of overconfidence. My research distinguishes overestimation, or thinking you’re better than you actually are, from overplacement, which describes exaggerated beliefs that you’re better than others. The third variety of overconfidence is overprecision, which my research highlights as the most persistent, robust, and pervasive form of overconfidence. It manifests as negotiators being too sure that they know what’s going on and investing too little in investigating and understanding the perspective, interests, constraints, and motives of the other side. Because of overprecision, when the other side does something that you don’t understand, you’ll be tempted to decide they’re crazy, irrational, stupid, or somehow evil. By asking questions and gathering information, you can understand their behavior better and get a road map for working out a mutually acceptable arrangement.
NB: How else can negotiators better calibrate their confidence?
DM: Debiasing often involves asking, Why might I be wrong? What assumptions am I making that are misguided? and How can I better orient and calibrate my judgments? When it comes to overplacement, better calibration might involve thinking hard about your BATNA [best alternative to a negotiated agreement] and theirs. How bad would it be if you don’t come to agreement? What will the other side do? If you can get some inside information about the strength of the other side’s BATNA, that can be very useful in calibrating your confidence.
NB: How can we be appropriately confident when assessing the future, including parties’ ability to meet deal terms?
DM: Every negotiation, every big decision depends on a forecast of the future. Too often, negotiators fall into the trap of trying to predict the future, as if they could anticipate exactly what is going to happen. Such predictions are a fool’s errand. It is much better to think about the future as a distribution of possible outcomes where there is real uncertainty about how the product will sell, your counterpart’s future profitability, how much the issues in the negotiation are worth, and even your future preferences. You have to prepare for a range of possible outcomes, from the very good to the very bad, and consider how likely each one is and how you might insulate yourself from the risks posed by that uncertainty. Then talk explicitly with the other side about building contingencies into your contract to help form a more durable agreement.
NB: What should I do if I sense that my negotiating counterpart is overconfident?
DM: Such people are potentially exploitable because they are making a mistake, but you shouldn’t prefer an overconfident counterpart. They will make mistakes that may be costly to both of you, such as holding out for too much or behaving rudely or aggressively, making it harder for you to negotiate for mutual gain.
A useful tool for calibrating your confidence and helping others calibrate theirs comes from poker player Annie Duke, author of Thinking in Bets. Duke writes about how poker players challenge each other’s confidence by inviting each other, “Wanna bet?” There are lots of circumstances in negotiation where you could say, “Wanna bet?” The other side makes some claim or offers some assurance, and you can build a contingent contract around that. Each side bets on what they think is going to happen. Be aware that a well-informed counterpart could take advantage of your overconfidence by inviting you, “Wanna bet?” So you’d better be pretty sure that you’re willing to stand by your claim before placing a bet.