A Worse Deal than You Think?

By — on / Negotiation Skills

Most negotiators leave the bargaining table believing they were better at pushing the other side to its limit than was actually the case, according to recent experimental studies by Richard P. Larrick of Duke University and George Wu of the University of Chicago.

The researchers tell the story of Jill, who places an ad to sell her used car for $2,800 but is willing to go as low as $2,300. After haggling with a prospective buyer, Jill sells the car for $2,450. Later, when a friend asks Jill how much she thinks the buyer would have paid, she says, “Given the fuss he was making, I don’t think he would have gone above $2,500.” In Jill’s version of the story, the zone of possible agreements, of ZOPA, overlapped by about $200 ($2,300-$2,500), and Jill got 75% of the value in this zone.

Now consider the story from the buyer’s perspective. What would he have estimated the ZOPA to be? How low did he think Jill was willing to go? Larrick and Wu argue that the buyer probably did not know that Jill would have gone $150 lower to close the deal. Otherwise, he would have held out for less!

Negotiators often think they were more successful bargainers than they were. They also tend to believe that the overall pie was smaller than it actually was and that they received a greater percentage of the pie than they did. “If negotiators always think they are claiming 70% of the surplus,” Larrick and Wu say, “they will rarely stop to scrutinize their skills.” On the other hand, long-term relationships may thrive if both parties believe they did very well.

Finally, the authors speculate that negotiators also overestimate the degree to which they have found all the mutually beneficial trades in a negotiation, even when more are possible. This intriguing work identifies a pattern of misperception that may affect how people learn – or fail to learn – from their past negotiations.