Why do negotiations fail – the cognitive biases that affect human interactions

Before engaging in a negotiation, it is important to understand some of the common cognitive biases that could affect you and the opposite party during the negotiation.

“World War I was not inevitable, as many historians say. It could have been avoided, and it was a diplomatically botched negotiation.” – Richard Holbrooke, American diplomat

Amongst all the disastrous consequences that could arise from failed negotiations, perhaps the World War I was the most destructive one. While there are several factors that contribute to failed negotiations, cognitive biases could be the most pervasive and overlooked factor. Biases affect most human interactions, and negotiations are hardly immune from these biases. Before engaging in a negotiation, it is important to understand some of the common cognitive biases that could affect you and the opposite party during the negotiation. Such biases also operate in a judge who might be deciding your dispute, should it not settle with the negotiation!

As mediators who facilitate negotiations, we see these biases play out as barriers innumerable times – most often unbeknownst to the parties. The following are the most commonplace cognitive biases that affect even the most well-seasoned negotiators and act as barriers to effective negotiations.

Cognitive biases

Inattentional blindness

Inattentional blindness is a very common cognitive bias. It is our tendency to see, hear or experience only that which we are focussed on, and be blind to other obvious factors that is not the focus of our attention. In the process, important information is overlooked, resulting in our inability to make rational and effective decisions.

Several experiments to demonstrate this bias have been conducted. One such experiment was conducted with radiologists, who were asked to look for cancerous nodules in lung scans. Twenty out of twenty-four radiologists failed to notice a gorilla the size of a matchbox. This is despite the fact that out of the twenty radiologists who reported not seeing the gorilla, eyeball tracking technology showed that twelve had looked directly at the location in the scan where the gorilla was, when it was clearly visible. These radiologists were so focussed on looking for the cancerous nodule that they missed (the very obvious) matchbox sized gorilla.

When we are focussed on a specific issue, we filter out the world around us so aggressively, that we phase out all the other side issues. Similarly, during a negotiation, parties are so focussed on their positions/perspectives/goals while processing multiple issues and complex information that inattentional blindness could make even the most expert negotiators missing key information for effective resolutions.

Confirmation bias

This is our tendency to search for and interpret information in a way that confirms our preconceptions. Henry Thoreau famously said, “We only see the world we look for.” Confirmation bias often goes hand-in-hand with inattentional blindness. When we’re confronted with complex information, we’re likely to focus on information that is favourable to us. When we encounter neutral information, we would interpret it in a manner favourable to us. More time we spend on gathering and interpreting information that bolsters the strength of our perspective, more likely are we to believe our preconceptions.

In a study that was conducted with Harvard Business School students, the operation of confirmation bias was clearly illustrated. The students were divided into two groups that were negotiating over a dispute for the claimant’s and the defendant’s side. Both groups were given common information and confidential instructions. However, the two groups did not know that their confidential instructions were the same. When they were asked to give their assessments of the amounts they could claim on behalf of their party, both groups came up with very different assessments. This was because, the students were interpreting the information in a way that supported their perspectives, while ignoring information relevant to the other side’s claims.

Expert negotiators are aware of this inherent bias and set in place checks and balances to counter the bias. For example, at an annual general meeting of Berkshire Hathaway held in 2013, Warren Buffet famously invited David Kass, a hedge-fund trader and an ardent critic of Buffett, to present his views on the way Berkshire Hathaway was being run. This was to counter any confirmation bias that might have been influencing Buffet’s decisions.

When in a negotiation, it is easy to slip into the mode of analysing the situation purely from your own perspective. To engage in an effective negotiation and to neutralise the confirmation bias, it is important to understand that we do not see the complete picture. It becomes necessary therefore to analyse the situation, both rationally and psychologically from your counterpart’s perspective, so that effective and realistic decisions can be made in negotiation.

Loss aversion

“Losses loom larger than corresponding gains.” – Amos, Tversky, Mathematician, Economist and Cognitive Psychologist.

Loss Aversion is our tendency to prefer avoiding losses over equivalent gains. This means, that most people would rather not lose Rs 100 than gain Rs 100. The loss that parties foresee can be an actual loss or a perceived loss that is not necessarily reality-based.

A study that was conducted on two groups of participants waiting in line to watch a movie at the theatre well demonstrates this bias. One group had been waiting for 45 minutes and the other for 15 minutes, when they were both informed that due to unforeseen circumstances they would have to wait for an additional 30 minutes. The group that had waited for 45 minutes continued to wait for the additional 30 minutes while large numbers of participants from the 15-minute group chose to leave and not wait for the additional 30 minutes.

When we have spent resources on something — whether it is as small as waiting in line for a movie, or as large as crores of rupees spent on an investment that is not working out —we're inclined to stay the course so as not to waste what we've already spent. In other words, we want to avoid feeling the loss of what's been spent, so we stick with our plan, hoping for a gain, even when sometimes that just leads to a bigger loss in the long run.

In a negotiation framework, parties can be seriously affected by this loss aversion bias and make irrational decisions or take illogical risks to “protect” an investment which might have better been foregone. Loss aversion could also hinder parties in a negotiation from truly realising their gains.

Reactive devaluation

This is a cognitive bias that occurs in a negotiation when an offer, proposal or concession is devalued simply because the offer, proposal or concession originated from an antagonist or an adversary. This bias can occur irrespective of the relative quality of the offer, proposal or concession.

In an experiment that was conducted, Israeli citizens were showed a peace proposal that the Israeli government had formulated to implement in its conflict with Palestine. However, these participants were not aware of who generated the peace proposal. When they were informed that this peace proposal was formulated by the Palestinian Government, they rated it less favourably than when they were told that it was the Israeli government’s proposal.

Even in conflicts, we’re likely to reject the best proposals that come our way, because of our bias against the person proposing it. Most negotiators are not even aware of the operation of reactive devaluation. It would be a useful exercise to reflect on why an offer made in a negotiation might seem unpalatable to you – if it is the offer itself or the person making the offer. Similarly, when you have offers to make at a negotiation, you might want to consider if you are the best person to make that offer to the other side.

Neutral third party

Most advice on negotiation focus on techniques and strategies that parties can use in achieving effective outcomes. However, there are often psychological and cognitive biases that operate as barriers, such as those described above, that lurk beneath the surface of conscious awareness. When these biases are operating in unwitting parties, they hijack a negotiation process from reaching its effective conclusion. When a neutral third party is involved in assisting negotiating parties, she/he has some distance from the situation and has no attachments to the outcome. This enables the neutral third party to identify when such psychological biases are operating as barriers in negotiating parties, and use appropriate techniques to diffuse the operation of such biases.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)