Adapted from “Are You an Overconfident Negotiator?” by Don A. Moore, Professor, Carnegie Mellon University.
Many negotiators understand the importance of estimating the other side’s reservation price—the worst deal he would accept from you. However, despite the fact that such estimates often are based on hints, clues, and speculation, negotiators are frequently overconfident that their estimates are accurate.
Say, for instance, that you do a bit of Internet research before making an offer on your dream car. You conclude that the dealer’s invoice price (what he paid the manufacturer) is $32,500. You also assume that this is his reservation price in his negotiation with you.
Not so fast! Your estimate could be way off base for a variety of reasons. Your sources may not be impeccable. You may not know about rebates the dealer receives from the manufacturer. You might also lack key information about consumer demand for the car.
Research on overconfidence shows that negotiators’ estimates—whether of a counterpart’s reservation price or some other quantity—typically are overly precise. This tendency toward overprecision, or excessive confidence in the accuracy of one’s judgments, makes it unlikely that you will sufficiently account for the uncertainty inherent in your estimates of various quantities. Even worse, once you’re seated at the negotiating table, there’s a good chance you won’t pay enough attention to useful information that you could use to update your estimates.
For this reason, seek out as much relevant, high-quality information about the other side as you can, and use that information to your advantage. In the course of talks, listen closely to the other side, and update your beliefs when necessary. Before and during the negotiation, ask others within your organization to question you about your approach and assumptions.
In addition, remember that it rarely hurts to ask your negotiating counterpart for what you want. You will be amazed by what you can get—including valuable information—simply by asking.
Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.
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