In this new monthly feature, we ask experts from the Program on Negotiation to share their latest ideas and insights on negotiation. This month, Harvard Business School professor Max H. Bazerman describes how web-based negotiations could increase efficiency and trust in many realms.
Negotiation Briefings: In-person negotiations can offer advantages over electronic negotiations—for example, in terms of rapport building and value creation. But what advantages might web-based negotiation have over face-to-face negotiation?
Max H. Bazerman: Web-based negotiation has the ability to solve trust problems by using large quantities of information to make negotiation processes more efficient.
Consider the insurance industry, which is based on a very simple model: People pay premiums for coverage, then file a claim and receive a check when they suffer a loss or damages. Despite this simplicity, insurance companies spend billions on buildings, bureaucrats, and lawyers to pay and contest claims. Why is the claims process so inefficient and costly? Because, far too often, claims processing turns into an adversarial negotiation. Claims professionals often try to avoid paying out claims, while customers sometimes try to over-represent their claims.
Online negotiation and dispute resolution have the ability to create a more efficient, more trusting process.
NB: How so?
MHB: People sometimes exaggerate their claims because they assume their insurance company will not negotiate honestly. Now imagine an online insurance company that wants to gain a reputation for being honest, fair, and fast. It has customers fill out their claims online. Using artificial intelligence and machine learning, the company then can easily determine whether the customer has a history of trying to cheat insurers. If not, the company should feel fairly confident about trusting the customer and making an instant payment. If the company could eventually assert that it pays 85% of its claims within a minute, it could help transform the typical negotiation process in this industry and save a great deal of money for all parties.
Online insurance companies could further encourage customers to be honest by drawing on new insights from psychology. We know, for example, from my research with Lisa Shu of the London School of Business and others that if you have people sign a form before they fill it out (signing at the top), they’re more likely to report honestly than when they sign after they fill out the form. Similarly, companies could prompt honesty by reminding customers before they file a claim online that an electronic record of it will exist forever. The company could also ask customers to describe the circumstances of their claim in a video created online. Knowing that they are being recorded should reduce the likelihood that people would be psychologically comfortable making a false claim.
NB: Can web-based negotiations help other industries where trust is an issue?
MHB: In almost any situation where people are influencing each other’s decisions online and the party providing information has the potential to be dishonest, psychological insights can generate higher integrity and a better process. For example, one of the problems with online reviews is that people often submit biased or even fraudulent reviews. An entrepreneur might get 200 of his friends to write positive online reviews of his new restaurant—or bad reviews about the competition. Figuring out how to solve the honesty problem in that context would also be useful.
NB: You’ve discussed advantages of web-based negotiations. When is it better to negotiate in person?
MHB: Negotiating in person still has strong advantages for complex negotiations where joint gains and trades are possible. Similarly, if the negotiation is more social, then there may be good reasons to negotiate in person. In online dating, for example, the interactions involved in negotiating the terms of a first date have advantages and disadvantages. There’s obviously enormous efficiency to the single person who wants to sift through hundreds or thousands of options a day. On the other hand, you may not be able to trust the information that others give. There may be ways to improve the information that’s provided in that online world as well.