When We Expect Too Much

Adapted from “Great Expectations,” by Max H. Bazerman (professor, Harvard Business School), first published in the Negotiation newsletter.

How often have you heard a friend or colleague refer to a contract as being “in the bag,” only to find out later that the deal didn’t go through? There always turns out to be a good reason a negotiation fell apart. Yet the fact remains that most negotiators are overconfident about their chances of reaching agreement. A common cognitive bias, overconfidence causes us to have unrealistically high expectations of success, in negotiation and in many other aspects of life.

Major league baseball offers a graphic example of overconfidence in action. When a baseball team and a player disagree about compensation, a system exists that calls for the player and owner to submit final offers to an arbitrator. In final-offer arbitration, the arbitrator is required to weigh the offers and accept one position or the other; compromise is not allowed. For both owner and player, the goal is to come slightly closer than the opposition to the arbitrator’s perception of the appropriate compensation package.

Researchers Margaret Neale and Max H. Bazerman asked negotiators in a simulated final-offer arbitration to estimate the probability that an arbitrator would accept their offer. Because the arbitrator had to accept one of two offers in its entirety, the overall probability that a particular offer would be accepted was 50%. On average, negotiators estimated that their final offers had a 68% chance of being chosen by the arbitrator. They believed their offers were 18% more likely to be accepted than could actually be true. Such overconfidence diminishes incentives to compromise and often leads to disappointment at the bargaining table.

Objectivity is the key to reducing overconfidence. In arbitration, for example, the more objective your assessment of the opponent’s offer and the position of the arbitrator, the better equipped you’ll be to use this information strategically. Here are three ways to improve your objectivity and your negotiation performance:

1. Embrace uncertainty. As your objectivity increases, so will your uncertainty about your probability of success. Smart negotiators accept uncertainty as an integral part of decision making. By acknowledging your own uncertainty about the future and about the other side’s position, you’ll become more willing to propose and accept the type of compromises that lead to mutually beneficial agreements.
2. Enlist a third party. When you’re preparing for an important negotiation, seek out an objective critique of your plans from a disinterested adviser. You can hire a professional consultant, speak off the record with a colleague at another firm, or seek help from a friend whom you trust to be blunt and honest. Whether you’re paying the third party for his advice or not, it’s essential that he has no stake in your success.
3. Itemize your errors. Before any negotiation, seek out data that could lead you to revise your plans. Research the other party’s position, as well as people who have been in your shoes in the recent past. Don’t just look on the bright side—account for potential strikes against you as well. By facing up to your bargaining weaknesses, you’ll increase your odds of proposing an offer that’s acceptable to the other side. Once talks are under way, it will be much harder to update overconfident beliefs.

Related Articles: Managing Expectations