When “fairness” is a distraction

By on / Daily, Negotiation Skills

Adapted from “Accept or Reject?” by Deepak Malhotra (professor, Harvard Business School), first published in the Negotiation newsletter.

Negotiators usually have strong feelings about fairness. Unfortunately, our fairness perceptions tend to be biased in a self-serving manner. Research has shown that, at the end of a negotiation, most people feel they were more cooperative than the other side, that they deserved more than they got, and that the other side made fewer concessions than they did.

Such distorted beliefs can lead to overly rigid bargaining positions and unrealistic demands. As talks drag on, a negotiator can become fixated on what he considers to be fair and, in the process, lose sight of his best alternative to a negotiated agreement, or BATNA.

In negotiation, it’s important to evaluate how much your fairness concerns are worth to you. Sometimes you may be willing to sacrifice money in the pursuit of fairness. But vague, self-serving notions about fairness can cloud your decision making.

Interestingly, our beliefs about fairness can also induce us to accept deals we should reject. A trip to the car dealership is a classic case. Suppose that, after test-driving a few different cars, Olivia decides that she wants to buy car X, which has a sticker price of $34,000. Her BATNA is to buy the cheaper, somewhat less appealing car Y from a different dealership. She conducts a simple analysis to come up with her reservation value, or the highest price she’ll accept $31,000:

At the dealership, Olivia haggles with the salesperson, who grudgingly lowers the price to $33,000. Not good enough, Olivia tells him with a friendly smile. After going off to “consult with the manager,” the salesperson tells Olivia that, with great difficulty, he has obtained approval to reduce the price by $750. After 20 more minutes of painstaking negotiation, Olivia secures an absolutely final, “we’re not even really allowed to do this” concession-an additional $250 reduction. The final offer, $32,000, is $2,000 below the sticker price. Should she take the car or run?

Regardless of whether the salesperson truly has gone as low as he can, the car costs $1,000 more than Olivia was willing to pay for it when she walked into the dealership. Yet for several reasons, she’s likely to feel pressured to accept the deal. First, because the salesperson made some concessions, Olivia may feel obliged to reciprocate. Second, by the end of a grueling negotiation, Olivia may well have forgotten all about her reservation value. Finally, the salesperson has appealed to Olivia’s sense of “fairness,” arguing that he’s given her a “steal” deal.

When a final offer does not meet your reservation value, none of these reasons is relevant to the decision of whether to walk away. If your BATNA analysis hasn’t changed, your reservation value shouldn’t either.

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One Response to “When “fairness” is a distraction”

  • Joe M.

    This analysis probably works pretty well for buying a car, because in that situation it is relatively easy to walk away from any negotiation and find just as good or a better deal elsewhere. Which means people probably do make too many mistakes in the other direction, by accepting a salesman’s offer. In settling lawsuits, however, the alternative of rejecting the other side’s offer is usually fraught with much greater uncertainty, and it is the parties’ analysis of their reservation values that is usually flawed and must be overcome. In other words, most cases settle in a zone outside both parties’ reservation numbers, and that is because people walking into the negotiation generally have not properly evaluated their BATNA.

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