What is Negotiation

Learning Outcomes

Having completed this module, you will be able to:

  • Describe overconfidence bias and techniques to avoid it.
  • Identify hindsight bias and how to avoid it.
  • Discuss anchoring and how to avoid it.
  • Define framing bias and how to avoid it.
  • Recognize escalation of commitment and how to avoid it.
  • Learn the five phases of negotiation.
  • Negotiation Skills You Must Learn to Succeed

Overconfidence Bias

  • Occurs when individuals overestimate their ability to predict future events. Many people exhibit signs of overconfidence. For example, 82% of the drivers surveyed feel they are in the top 30% of safe drivers, 86% of students at the Harvard Business School say they are better looking than their peers, and doctors consistently overestimate their ability to detect problems.
  • Jérôme Kerviel, a junior trader in the bank, had extensive knowledge of the bank’s control mechanisms and used this knowledge to beat the system.
    Interestingly, he did not make any money from these transactions himself, and his sole motive was to be successful. He secretly started making risky moves while hiding the evidence. He made a lot of profit for the company early on and became overly confident in his abilities to make even more. In his defense, he was merely able to say that he got “carried away.” 

To avoid this bias, take the time to stop and ask yourself if you are being realistic in your judgments.

Hindsight bias

s the opposite of overconfidence bias, as it occurs when looking backward in time and mistakes seem obvious after they have already occurred. 

In other words, after a surprising event occurred, many individuals are likely to think that they already knew the event was going to happen. This bias may occur because they are selectively reconstructing the events. Hindsight bias tends to become a problem when judging someone else’s decisions.

  • For example, let’s say a company driver hears the engine making unusual sounds before starting the morning routine. Being familiar with this car, in particular, the driver may conclude that the probability of a serious problem is small and continues to drive the car. During the day, the car malfunctions and stops miles away from the office.
  • It would be easy to criticize the decision to continue to drive the car because in hindsight, the noises heard in the morning would make us believe that the driver should have known something was wrong and taken the car in for service. However, the driver in question may have heard similar sounds before with no consequences, so based on the information available at the time, continuing with the regular routine may have been a reasonable choice. Therefore, it is important for decision-makers to remember this bias before passing judgments on other people’s actions.


This refers to the tendency for individuals to rely too heavily on a single piece of information. Job seekers often fall into this trap by focusing on the desired salary while ignoring other aspects of the job offer such as additional benefits, fit with the job, and working environment.

  • Example: Lives were lost in the Great Bear Wilderness Disaster when the coroner, within 5 minutes of arriving at the accident scene, declared all five passengers of a small plane dead, which halted the search effort for potential survivors.
    The next day two survivors who had been declared dead walked out of the forest. How could a mistake like this have been made?

One theory is that decision biases played a large role in this serious error, and anchoring on the fact that the plane had been consumed by flames led the coroner to call off the search for any possible survivors.

Framing bias

  • This is another concern for decision-makers. Framing bias refers to the tendency of decision-makers to be influenced by the way that a situation or problem is presented.For example, when making a purchase, customers find it easier to let go of a discount as opposed to accepting a surcharge, even though they both might cost the person the same amount of money. Similarly, customers tend to prefer a statement such as “85% lean beef” as opposed to “15% fat.”It is important to be aware of this tendency because depending on how a problem is presented to us, we might choose an alternative that is disadvantageous simply because of the way it is framed.

Escalation of commitment

Occurs when individuals continue on a failing course of action after information reveals it may be a poor path to follow. It is sometimes called the “sunken costs fallacy,” because continuation is often based on the idea that one has already invested in the course of action.

Why does escalation of commitment occur? There may be many reasons, but two are particularly important.

  • First, decision-makers may not want to admit that they were wrong. This may be because of personal pride or being afraid of the consequences of such an admission.
  • Second, decision-makers may incorrectly believe that spending more time and energy might somehow help them recover their losses. 

Effective decision-makers avoid escalation of commitment by distinguishing between when persistence may actually pay off versus when it might mean an escalation of commitment.
To avoid escalation of commitment, you might consider having strict turning back points.

Finally, creating an organizational climate in which individuals do not fear admitting that their initial decision no longer makes economic sense would go a long way in preventing the escalation of commitment, as it could lower the regret the decision-maker may experience.

The Five Phases of negotiation

 Negotiation is a process whereby two or more parties work toward an agreement.

The five phases of negotiation are:

  • Investigation
  • Determine Your BATNA
  • Presentation
  • Bargaining
  • The Closure

 One important part of the investigation and planning phase is to determine your BATNA, which is an acronym that stands for the “best alternative to a negotiated agreement.”

Negotiation Skills You Must Learn to Succeed

  • Analyze and cultivate your BATNA. In both integrative negotiation and adversarial bargaining, your best source of power is your ability and willingness to walk away and take another deal. Before arriving at the bargaining table, wise negotiators spend significant time identifying their best alternative to a negotiated agreement, or BATNA, and taking steps to improve it.

  •  Negotiate the process. Don’t assume you’re both on the same page when it comes to determining when to meet, who should be present, what your agenda will be, and so on. Instead, carefully negotiate how you will negotiate in advance. Discussing such procedural issues will clear the way for much more focused talks.
  •  Build rapport. Although it’s not always feasible to engage in small talk at the start of a negotiation (particularly if you’re on a tight deadline), doing so can bring real benefits, research shows. You and your counterpart may be more collaborative and likely to reach an agreement if you spend even just a few minutes trying to get to know each other. If you’re negotiating over email, even a brief introductory phone call may make a difference. This is one of the most valuable negotiation skills to master.
  • Listen actively. Once you start discussing substance, resist the common urge to think about what you’re going to say next while your counterpart is talking. Instead, listen carefully to her arguments, then paraphrase what you believe she said to check your understanding. Acknowledge any difficult feelings, like frustration, behind the message. Not only are you likely to acquire valuable information, but the other party may mimic your exemplary listening skills.
  • Ask good questions. You can gain more in integrative negotiation by asking lots of questions—ones that are likely to get helpful answers. Avoid asking “yes or no” questions and leading questions, such as “Don’t you think that’s a great idea?” Instead, craft neutral questions that encourage detailed responses, such as “Can you tell me about the challenges you’re facing this quarter?
  • Search for smart tradeoffs. In a distributive negotiation, parties are often stuck making concessions and demands on a single issue, such as price. In integrative negotiation, you can capitalize on the presence of multiple issues to get both sides more of what they want. Specifically, try to identify issues that your counterpart cares deeply about that you value less. Then propose making a concession on that issue in exchange for a concession from her on an issue you value highly
  •  Be aware of the anchoring bias. Ample research shows that the first number mentioned in a negotiation, however arbitrary, exerts a powerful influence on the negotiation that follows. You can avoid being the next victim of the anchoring bias by making the first offer (or offers) and trying to anchor talks in your preferred direction. If the other side does anchor first, keep your aspirations and BATNA at the forefront of your mind, pausing to revisit them as needed.
  • . Present multiple equivalent offers simultaneously (MESOs). Rather than making one offer at a time, consider presenting several offers at once. If your counterpart rejects all of them, ask him to tell you which one he liked best and why. Then work on your own to improve the offer, or try to brainstorm with the other party an option that pleases you both. This strategy of presenting multiple offers simultaneously decreases the odds of impasse and can promote more creative solutions
  •  Try a contingent contract. Negotiators often get stuck because they disagree about how a certain scenario will play out over time. In such cases, try proposing a contingent contract—in essence, a bet about how future events will unfold. For example, if you doubt a contractor’s claims that he can finish your home renovation project in three months, propose a contingent contract that will penalize him for late completion and/or reward him for early completion. If he truly believes his claims, he should have no problem accepting such terms.
  •  Plan for the implementation stage. Another way to improve the long-term durability of your contract is to place milestones and deadlines in your contract to ensure that commitments are being met. You might also agree, in writing, to meet at regular intervals throughout the life of the contract to check in and, if necessary, renegotiate. In addition, adding a dispute-resolution clause that calls for the use of mediation or arbitration if a conflict arises can be a wise move.