Get Your Head in the Game
In this class: vocabulary regarding negotiation.
In this class: vocabulary regarding negotiation.
Original source: Harvard Law School
Like top athletes, smart negotiators confront the cognitive and psychological errors that could keep them from performing at their best.
In 2000, 18-year-old Matt Harrington was widely considered the most promising pitcher in the Major League Baseball (MLB) draft. The Colorado Rockies chose him as their seventh pick and then sweetened the pot after Harrington, his parents, and his agent, Tommy Tanzer, rejected the team’s first offer.
On behalf of his client, Tanzer turned down the Rockies’ final offer of $4 million over two years, though it was a typical offer for a seventh-pick player. After a disappointing season in the independent leagues, Harrington entered the 2001 MLB draft, where the San Diego Padres made him the 58th overall selection. On the advice of his new agent, Scott Boras, Harrington rejected an offer of $1.25 million over four years and a $300,000 signing bonus. In 2002, following another lackluster season in the independent leagues, Harrington did poorly in the MLB draft and turned down less than $100,000 from the Tampa Bay Devil Rays. In 2003, the Cincinnati Reds drafted Harrington in the 24th round and offered him little more than the opportunity to play; again talks fell through. In 2004, the New York Yankees drafted Harrington in the 36th round but passed on making him an offer.
After failing to receive any offer in the 2005 draft, Harrington became a free agent. In 2006, he received a minor-league contract from the Chicago Cubs, but he was released before the 2007 season began. He continues to play for independent-league teams, earning about $1,000 per month, and works other jobs during the off-season.
Matt Harrington holds the dubious distinction of being the longest holdout in the history of the MLB draft. His string of botched negotiations ensured that his career ended before it could even begin.
The mistakes Harrington and his negotiating team made are spectacular as a whole, but considered one by one, they are not unique. In their book, Judgment in Managerial Decision Making (Wiley, 7th ed., 2008), professors Max H. Bazerman of Harvard Business School and Don A. Moore of Carnegie Mellon University present Harrington’s thwarted baseball career as a cautionary tale to illustrate the decision-making errors that affect virtually all negotiators. In negotiation, we unwittingly operate under a number of systematic and predictable cognitive biases on a regular basis. Many of these errors in thinking result from our tendency to put too much trust in our intuition. Here we present three of the most common mistakes that Bazerman and Moore have identified and suggest a number of ways to keep this faulty thinking from ruining your most important talks.
Mistake No. 1: Viewing negotiation as a fixed pie. Negotiators often falsely assume that their interests are directly opposed to those of their counterparts. The prevalence of competition in our society, ranging from sports to university admissions to corporate promotion systems, can lead us to view many other situations as win-lose. For example, too many negotiators assume that the pie of resources is fixed in size when, in fact, opportunities exist to expand the pie by creating value. What’s more, researchers have found that the belief in a fixed pie causes negotiators to devalue any concession their “adversary” makes. Unfortunately, Matt Harrington and his agents succumbed to the tendency to view the other side’s alleged best offer with too much suspicion.
They also neglected to explore the possibility of a value-creating trade, such as accepting the salary offered and negotiating performance-based bonuses if Harrington played as well as he expected. Solution: Share information. The simplest way to break through the fixedpie mindset in a negotiation is to disclose information to your counterpart. In particular, try to provide information that could lead to wise tradeoffs. If a customer complains about your prices, break down your costs for her and ask whether she is willing to make concessions on delivery time or other issues.
Typically, the discoveries you reach jointly will outweigh the risk that the other side will take advantage of the information you disclose.
Mistake No. 2: Anchoring on the first offer. Harrington and his family fell victim to another common cognitive bias: they were overly affected by the first number that entered the negotiation. Harrington’s first agent, Tommy Tanzer, told MLB teams with high draft choices that Harrington would require at least a $4.95 million first-year signing bonus—an unrealistic amount that scared off seven teams in the draft. This high anchor created expectations in the minds of Harrington and his family that could not be supported. Initially, the Harringtons stood by Tanzer’s hard bargaining.
Only later did they come to understand that they had hired an inexperienced agent—and file a lawsuit against him for botching the deal. Solution: Reject anchors. Unprepared negotiators are far more likely to fall into traps, such as inappropriate anchors, than their prepared counterparts. When you come to the table unprepared, you put yourself at a distinct disadvantage. Set concrete goals for the negotiation in advance so you won’t be swayed by others’ influence tactics and vivid stories. In addition, keep in mind that your thinking will tend to be more intuitive and less rational when you’re pressed to make snap decisions. Don’t allow other negotiators to force you to give an answer right away. Instead, schedule breaks between negotiating sessions that give you time to think and evaluate.
Mistake No. 3: Escalating commitment. After wising up about Tanzer, why did the Harringtons make the same mistake year after year—rejecting decent offers in favor of much worse alternatives? When Tanzer urged his 18-year-old client to turn down the Rockies’ multimillion-dollar deal, he unwittingly set up his client for a string of failed negotiations. According to Bazerman and Moore, negotiators have a tendency toward irrational escalation of commitment—a strong psychological need to justify their prior decisions and behaviors, both to themselves and to others. After you’ve invested a great deal of time and energy in a course of action, it’s difficult to know when to quit.
Many of us would rather remain committed to a losing strategy than admit we’re throwing good money after bad. As for Harrington, by turning down one disappointing draft offer after another, he committed himself more deeply to doing better the next year, even as the odds of that happening dropped out of sight.
Solution: Don’t dwell on the past.
Thoughts about the “sunk costs” you’ve invested can keep you plodding forward long after you should quit a negotiation or settle for a disappointing deal. Yet economists tell us that past investments should rarely affect our decisions about the future. At each decision point during your talks, make sure you have a sound basis for escalating your commitment to a deal.
Do you consider yourself a good negotiator? Tell us about your last negotiation. What was it about? How did it go? What are the things that you have to negotiate at work? (PS: Many people think that negotiation is only important for those who work in the sales and purchase department but this is not true. Remember that everyone needs to negotiate, regardless of the department. You may have to negotiate your salary, negotiate your vacations, negotiate a longer deadline to deliver a report/a project…)