Adapted from “It’s Not Intuitive: Strategies for Negotiating More Rationally,” by Max H. Bazerman and Deepak Malhotra (professors, Harvard Business School), first published in the Negotiation newsletter.
When deciding whether to start a new business, entrepreneurs should critically and comprehensively analyze negotiations over land, construction, hiring, and so on. Yet in a study by Arnold Cooper of Purdue University, Carolyn Woo of Notre Dame University, and William Dunkelberg of Temple University, more than 80% of entrepreneurs estimated their personal chances of success to be 70% or higher; one-third of them described their success as certain. In fact, the five-year survival rate for new businesses is only about 33%.
Negotiators typically are unaware of their own biases in negotiations, such as the overconfidence displayed by these entrepreneurs. At the same time, they are capable of accurately pinpointing the biases that influence others. Why? Because we make decisions using two different lenses: the insider lens and the outsider lens, according to psychologists Daniel Kahneman of Princeton University and Daniel Lovallo of the Australian Graduate School of Management. A negotiator typically uses an insider lens for making judgments when deeply immersed in a particular context or situation; the insider relies on intuitive thinking. By contrast, the typical negotiator adopts an outsider lens when removed or detached from a particular situation; the outsider uses more rational thinking. The insider focuses only on the current situation, while the outsider is better at integrating information across multiple episodes—in particular, other people’s successes and failures.
Obviously, for our most important negotiations, the outsider lens is preferable. Unfortunately, however, the outsider lens is rarely the default option when we are facing major negotiations or are embroiled in conflict. A negotiator might well be aware that it takes six to 12 weeks to move from an initial sales call to a legally binding agreement. Yet, when a new prospect comes along, she may nonetheless believe that she can close the deal within three weeks. Furthermore, negotiators are likely to continue to be overly confident about their odds of success despite being proven wrong in the past. In other words, most of us fail to learn from experience.
Many intelligent people stake their reputations, large sums of money, and years of their lives on negotiations based largely on intuition and overconfidence. The strong urge to view the world—and ourselves—in a positive light can powerfully affect our decision making in negotiation. How can you make sure the outsider view is represented at your most important negotiations? First, during preparation for a key negotiation, consider hiring a true outsider, whether an expert within your firm, a consultant with unique expertise, or a trusted friend. When your deal is complex or emotionally charged, others will identify factors that you have ignored, weigh negative information more appropriately, and maintain an objective view in ways that you cannot.
If you are not willing or able to bring in an outsider, become an outsider yourself by assessing the situation as if you were not immersed in it. This strategy might require you to recall when someone else was faced with a similar situation or to collect data on what you should rationally expect. In addition, ask yourself this simple question: If someone I cared about asked me for my opinion in a negotiation such as this, what advice would I give?