Adapted from “Taking an Outside View,” first published in the Negotiation newsletter.
Cognitive biases such as overconfidence affect even smart and highly educated negotiators. Unfortunately, awareness of our biases is not enough to prevent their having a negative impact on our next negotiation.
Why is it so hard to keep our biases in check? Researchers Dan Lovallo and Daniel Kahneman argue that we all approach negotiation tasks with two perspectives: an inside view and an outside view. The insider is the biased negotiator who looks at each situation as unique. The outsider, by contrast, is better at generalizing across negotiations.
Thus a person entering a new negotiation may be aware of the common tendency to be overconfident about reaching agreement (outside view), while also believing that her own high estimate of success is somehow accurate and unbiased (inside view). Someone who’s about to undertake a home renovation may know from his friends that such projects typically end up 20% to 50% over budget and overdue (outside view), but the first-time renovator will nonetheless believe that his negotiation with his contractor will be different—that the project will be completed on time and near the estimated cost (inside view).
Lovallo and Kahneman argue that the outsider possesses the most objective assessment of negotiation, yet we tend to act on the inside view. Why? Optimism and overconfidence are factors, as is the tendency to consider each negotiation as unique, even when a cluster of them is obviously related. This limited focus leads us to overlook historic data and to let our biases run amok.
The inside-outside distinction suggests a strategy: When approaching an important negotiation, ask an outsider to help you prepare. Alternatively, invite your “inner outsider” to the table. In other words, imagine that a friend has asked for help in preparing for the same negotiation. What advice would you give him? The answer is your outside perspective!