In Negotiating Rationally, Max Bazerman and Margaret Neale explain how to avoid the pitfalls of irrationality and gain the upper hand in negotiations.
For example, managers tend to be overconfident, to recklessly escalate previous commitments, and fail to consider the tactics of the other party. Drawing on their research, the authors show how we are prisoners of our own assumptions. They identify strategies to avoid these pitfalls in negotiating by concentrating on opponents’ behavior and developing the ability to recognize individual limitations and biases. They explain how to think rationally about the choice of reaching an agreement versus reaching an impasse. A must read for business professionals.
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December 31, 1994
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Excerpt from Negotiating Rationally by Max H. Bazerman
CHAPTER 1 Introduction to Rational Thinking in NegotiationEveryone negotiates.While many people think of negotiation as something that takes place only between a buyer and a seller or a union and management, in its various forms, negotiation is used every day to resolve differences and allocate resources. It occurs between all sorts of people -- colleagues, spouses, children, neighbors, strangers, corporate entities, even nations negotiate. Some negotiations are face-to-face; others take place over time through sequential decisions between competitors. In business, millions of negotiations happen every day, often within the same company.Think of all the times you negotiate. What could be more central to business than negotiation? And what could be more central to successful negotiation than casting off your illusions about it and, henceforth, negotiating rationally and effectively? This book will teach you how to do just that.Negotiating rationally means making the best decisions to maximize your interests. However, we are not concerned with "getting to yes." Our work shows that in many cases, no agreement at all is better than "getting to yes." What we've learned from thousands of executives will help you decide when it's smart to reach an agreement and when it is not.Negotiating rationally means knowing how to reach the best agreement, not just any agreement. What we've learned will help you avoid decisions that leave both you and those you negotiate with worse off.All executives have pervasive decision-making biases that blind them to opportunities and prevent them from getting as much as they can out of a negotiation. They include the following:1. Irrationally escalating your commitment to an initial course of action, even when it is no longer the most beneficial choice2. Assuming your gain must come at the expense of the other party, and missing opportunities for trade-offs that benefit both sides3. Anchoring your judgments upon irrelevant information, such as an initial offer4. Being overly affected by the way information is presented to you5. Relying too much on readily available information, while ignoring more relevant data6. Failing to consider what you can learn by focusing on the other side's perspective7. Being overconfident about attaining outcomes that favor youKeep these seven factors in mind as you consider the following example.In 1981 American Airlines introduced its frequent-flier program, arguably the most innovative marketing program in the history of the airline industry. Business fliers (or anyone else who flew frequently) could earn miles for the flights they took and redeem those miles for travel awards. While the incentive plan -- designed to encourage loyalty for American -- may have seemed like a brilliant marketing strategy, it was a miserable decision from a negotiations standpoint and soon proved disastrous from a marketing and financial standpoint.Following American's lead, every airline in the industry soon launched its own frequent-flier program. Increasing the competition further, each company soon offered double miles to their most frequent passengers and even more miles for hotel stays, car rentals, etc. Soon, the benefits required to remain competitive inflated out of control and resulted in tremendous liabilities. By December 1987, when Delta announced that all passengers who charged tickets to their American Express card would get triple miles for all of 1988, analysts estimated that the airlines owed their passengers between $1.5 and $3 billion in free trips. How could the airlines get out of this mess?One possible answer comes from a similar competitive war that took place in the United States auto industry in 1986. All three U.S. auto companies were engaged in rebate programs designed to increase their sales volume and market share. The rebate