Lack of transparency regarding negotiations between hospitals and the insurers known as preferred provider organizations, or PPOs, is a key contributor to spiraling health-care costs in the United States, back in a 2013 article in the New York Times. This topic has many questioning ethics in negotiating within the healthcare industry.
The problem starts with the somewhat arbitrary, sky-high prices that hospitals put on their supplies and services, such as $77 for a gauze pad and $1,000 for a toothbrush, writes Tina Rosenberg. PPOs negotiate discounts down from these rates, but hospital chains have been effective at standing firm on high prices. Many of the chains also negotiate secrecy clauses that prevent PPOs from revealing the true cost of hospital charges to their customers, who make up 80% of insured Americans. Consequently, a consumer looking at her insurance statement might see that she’s getting a 50% discount on a knee replacement and assume it’s a good deal, not realizing that the discount is based on a hyperinflated charge from the hospital.
Why don’t the PPOs say no to secrecy clauses? Why don’t they negotiate better rates from hospitals? Because the PPOs typically are in a weak bargaining position relative to hospital chains, writes Rosenberg. The PPOs have a strong motivation to please their customers by building broad networks. As hospital chains have grown and become increasingly indispensable to insurers, health-care costs have skyrocketed.
As this ethics in negotiating example suggests, whether negotiators choose to engage in ethically questionable behavior—such as trying to hide costs from consumers—can depend on a host of factors, such as power and opportunity. Two new negotiation research studies focus on situations that make negotiators susceptible to unethical behavior. Their findings indicate how we might lessen the risk of violating our own ethical standards and being misled by others.
When ethics in negotiating fade away
Whether we are aware of it or not, we make a series of “micro-ethical decisions” during our time at the bargaining table, write Mara Olekalns, Christopher J. Horan, and Philip L. Smith of the University of Melbourne in a new article in the Journal of Business Ethics. Such decisions often involve choosing whether to disclose, conceal, or misrepresent information that would potentially lessen our own outcomes and benefit our counterparts. For example, we might be tempted to claim we have better outside alternatives than we actually do, insist we care strongly about an issue when we don’t, or hide an unattractive aspect of a product or service that we’re selling.
The structure and social nature of such decisions can lead to ethical fading, a term coined by researchers Ann Tenbrunsel and David Messick to describe the tendency for the ethical dimensions of decisions to fade from view under certain conditions. Ethical fading allows us to diverge from our high moral standards and behave unethically without recognizing that we are doing so.
In a lab experiment, Olekalns and her colleagues considered various factors that might lead to ethical fading in negotiation. The researchers had pairs of undergraduate students engage in a simulated employment-contract negotiation. The students were given a list of issues to negotiate—job location, base salary, and so on—and a list of the number of points they could earn on different issues. Each negotiator had one “indifference issue”—an issue worth zero points to him or her.
After the pairs negotiated, the researchers looked at instances where participants had used their indifference issue as a bargaining chip—for example, by attempting to use it in a tradeoff or by stating outright that they valued the issue. Given that the issue actually had no concrete value to the negotiators, such behavior was coded as an unethical sin of omission (failure to disclose key information) or commission (overt deception).
The results showed that participants who had been primed to feel powerless in the negotiation (by being told they had no alternatives to the current negotiation) were less deceptive than those who believed they were powerful (as a result of having strong outside alternatives).
In addition to manipulating participants’ sense of power, the researchers also took steps to alter the participants’ regulatory focus—that is, how they approached their negotiation goals. Via the instructions, some were encouraged to be promotion focused: motivated toward action and with a high tolerance for risk. Others were led to feel prevention focused: vigilant to perceived threats and wary of the risks of change.
Those with an action-oriented promotion focus tended toward sins of omission, whereas those with a more cautious prevention focus were more likely to engage in sins of commission. The researchers theorized that promotion-focused participants were more attuned to the potential future costs of overt deception than prevention-focused participants, who were preoccupied with trying to minimize short-term damage to themselves.
Overall, the study results suggest that, beyond opportunity and our own moral code, a variety of factors can interact to affect whether or not we behave ethically in negotiation. As a result, we need to be particularly vigilant to the possibility that we will behave deceptively, even if we have no intention of doing so.
The unethical perspective taker
In another new study on ethics in negotiating, Jason R. Pierce of the Universidad Adolfo Ibáñez in Chile and his colleagues looked at whether a personality trait that can be a boon in many situations—perspective taking—might backfire by promoting unethical behavior in certain negotiations.
Perspective taking, or attempting to see a situation through another person’s eyes, has been linked to increased empathy and altruism, less reliance on stereotypes, and more objective judgments of what constitutes a fair negotiated agreement. Yet perspective taking can also fuel antisocial behavior in certain situations, prompting more selfish behavior in competitions, greater retaliation against transgressions, and greater negativity toward members of other groups.
Across four experiments, Pierce and his colleagues found that perspective taking can increase negotiators’ propensity to behave deceptively. In one experiment, for example, adults believed they were playing an online game that involved deciding how many points from their own allocation to contribute to a shared pool. (The counterparts’ responses were simulated.) Some of the participants’ counterparts were portrayed as cooperative; others, as competitive. One group of participants was asked what they would tell their counterpart about their point allocation and the number of points they would contribute to the pool. A different group was asked to imagine how many points they thought their counterpart would contribute and why.
About one-quarter of the participants (91 out of 358) lied about how many points they had been allocated. When the counterpart was framed as competitive rather than cooperative, those who had been asked to take their counterpart’s perspective were much more likely to lie than were those who had focused on their own intentions.
The researchers theorize that perspective taking amplifies the nature of our relationships with others. In cooperative situations, considering one another’s points of view generally benefits everyone. But in competitive contexts, perspective taking seems to draw our attention toward the other side’s conflicting interests and the threat they may pose. The results suggest yet another reason to frame negotiations as collaborative enterprises, even at times when you are focused on claiming value for yourself.
What scenarios have you encountered in negotiation that have taken ethics in negotiating into question?
Ethics in Negotiating Resources:
- “Maybe It’s Right, Maybe It’s Wrong: Structural and Social Determinants of Deception in Negotiation,” by Mara Olekalns, Christopher J. Horan, and Philip L. Smith. Journal of Business Ethics, 2013.
- “From Glue to Gasoline: How Competition Turns Perspective Takers Unethical,” by Jason R. Pierce, Gavin J. Kilduff, Adam D. Galinsky, and Niro Sivanathan. Psychological Science, 2013.
Adapted from “Will you behave ethically?” originally published in the November 2013 issue of Negotiation Briefings.