Ask almost any real estate agent, and you’ll hear that homeowners often turn down decent offers in the hope of getting a better one that never materializes. Such miscalculations reflect the difficulty of assessing an uncertain BATNA, or best alternative to a negotiated agreement.
According to negotiation experts, the ability to accurately compare the deal on the table to your BATNA is one of the most important skills needed for negotiation. If the deal is better than your best outside option, you should take the deal. If it isn’t, you should declare impasse and pursue your BATNA. Unfortunately, because BATNAs are often uncertain rather than guaranteed, it can be difficult to follow negotiation best practices in the real world.
In the journal Organizational Behavior and Human Decision Processes, Southern Methodist University professor Robin L. Pinkley and her colleagues report that most people have difficulty assessing uncertain BATNAs, or so-called phantom BATNAs, and make subpar decisions as a result. We can all learn to think through no-deal alternatives more precisely—and reach better outcomes in situations that require negotiation.
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A BATNA in the Hand . . .
In their experiments, Pinkley and her colleagues had participants play the role of job candidates negotiating their starting salary. Depending on the experiment and the condition to which they were assigned, participants were told before negotiating that they definitely had another job offer, possibly had another offer (a “phantom BATNA”), or had no other offer.
Overall, those who believed they might have another offer felt more powerful and consequently negotiated more aggressively and successfully on salary as compared to participants who were told they had no other offer. Thus, an uncertain BATNA appears to boost our sense of power and leads us to do better than when we know we have a weak no-deal alternative.
However, participants also made mistakes when assessing their BATNAs. First, many participants who were told they had a strong BATNA that was certain or likely failed to tell their counterpart about it, which likely prevented them from gaining valuable concessions. Second, overconfidence led participants with unlikely BATNAs to turn down offers they should have accepted. Third, and conversely, people facing highly likely phantom BATNAs tended to be overly pessimistic that the BATNA would pan out—and took the “safe” offer on the table.
“Rather than exhibiting consistent optimism or overconfidence, our negotiators seemed to make judgments that ‘regress to the mean’ by being overconfident when likelihoods are low, and underconfident when likelihoods are high,” Pinkley and her colleagues conclude.
Toward Better BATNA Analysis
The following five skills needed for negotiation involve making more of your BATNA and assessing it more accurately:
- Beef up your BATNA. Because negotiators with strong BATNAs tend to reach better outcomes than those with weaker ones, the ability to improve your BATNA is a key negotiation skill. Depending on the context, that might mean pursuing numerous job leads, interviewing multiple suppliers, or negotiating for several houses.
- Assess your BATNA’s value and likelihood. As part of your preparation for negotiation, gather as much objective information about your BATNA’s likelihood as you can. Then determine if there are steps you can take to improve the likelihood that your BATNA will be available if you need it. That might mean conveying to sellers of your second-choice home that you remain very interested, for example.
- Be explicit about your BATNA. When you have determined that you have a strong BATNA, even if it’s not a sure thing, it’s often wise to let your counterpart know about it. “Another organization that’s considering me for a similar job is offering about $10,000 more,” a job candidate might say.
- Take their BATNA threats seriously. In both distributive and integrative bargaining, there are times when a counterpart might threaten to make things worse for you if you don’t reach agreement. Don’t take such threats lightly; confront them head-on, and try to talk through your differences.
- Assess the other side’s BATNA. If your counterpart tells you about her own phantom BATNA, remind her of the old adage, “A bird in the hand is worth two in the bush,” advise Pinkley and colleagues. When you call attention to the risk associated with your counterpart’s BATNA, you may be able to reduce her overconfidence, avoid an impasse, and get a better deal.
What other key skills needed for negotiation have you identified?