Negotiations: Using Bias to Your Advantage

We continue our theme this week by focusing on negotiations. When many of us enter negotiation, we have some cognitive biases that we bring along with us to the table. Russell Korobkin of UCLA and Chris Guthrie at Vanderbilt University believe you can turn these biases into tools of persuasion. They believe knowing the biases allows them to be used to your advantage.

Bias #1: Anchoring Effect

Korobkin and Guthrie suggest you enter negotiation with an extreme offer. If you think your case is worth $150,000, go in asking more than that. Your extreme offer will influence the entire process. The other side will start to think that they were wrong in choosing a lower amount, even if their amount was more “appropriate.” If you are on the opposite end of this negotiation, you will know that the other side has only put up an extreme offer to persuade you to increase your offer. Do not fall into their trap.

Bias #2: Availability Bias

The availability bias is someone’s tendency to rely on readily available information, therefore not going out on their own to seek extra information from different sources. Since you know the other party is susceptible to the availability bias, you can carefully choose the comparisons you make during negotiations. You may only want to compare situations to your current problems for a more appropriate settlement. This bias may make more sense in the legal context. If the defendant cites a similar case where the judge rewarded a very small amount, this can influence the judge’s decision. In negotiation, citing other negotiation meetings and their outcomes may help your case.

Bias #3: The Importance of Framing

When you are trying to reach a negotiated settlement, it is always important to consider how you frame the negotiation in terms of gains and losses. You know each party comes in thinking they will either win or loose, but you must frame the situation in a way that turns the negotiation into a win-win situation for both parties. Not only will taking this approach build trust at the negotiating table, it may persuade the other parties to become risk averse. If the other party thinks you are taking their needs into consideration as well, they will be more likely to reach a settlement.

Bias #4: Contrast Effects

This effect could also be renamed the Options Effect. The key here is to provide options in order to offer a contrast. Let’s say you make a flat offer to settle a case at $30,000. This one option may not seem attractive, but it will seem more attractive when it is contrasted with other offers. Rather than making that one offer you can say, “You have three options to choose from: $30,000 immediately in cash, $10,000 annually for the next three years, or a $30,00 payment to charity.” When compared to these options, the defendant will definitely think the $30,000 cash offer is the best. By utilizing the contrast effect, the negotiator will not have to compare the amount to a higher price, only other options.

Source referenced: Harvard Law Program on Negotiation

 

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Apple and Samsung in Mediation

Beginning in 2010 and 2011, Apple and Samsung seemed to be engaged in a never ending battle over patents. In April 2011, Apple filed a lawsuit against Samsung saying the company had copied the “look and feel” of iPhones with its new Galaxy phones. The battle started when Samsung countersued Apple for not paying royalties after using its wireless transmission technology. Apple and Samsung continued to go back and forth with accusing each other of copying functions and appearances. In May 2012, it looked like both companies were tired of the legal battles.

Apple and Samsung were both willing to compromise because they wanted to avoid going to court. A California court had suggested they limit the number of disputed patents, so both agreed to cut the number of disputed patents in half. The court also urged the two companies to go to mediation to resolve their disputes. Both agreed with the court, but Apple still tried to get a judge to bar the sale of Samsung’s Galaxy Tab 10.1 because it was designed to mirror Apple’s iPad. Their effort was not successful.

Mediation between the companies lasted for two days. Both Tim Cook and Gee-Sung Choi attended the meetings in an attempt to put their differences aside. Samsung is Apple’s biggest supplier and both CEO’s knew the importance of maintaining a healthy relationship. Despite this, both sides refused to back down or compromise. Apple ultimately won more than $409 million at trial.

While Apple and Samsung were not able to resolve their issues through mediation, we hope this serves as a lesson for other business owners. The longer your company spends fighting another company, the more uncooperative both of you become. Therefore, it is essential to go into mediation with an open mind and before legal battle take a toll on your relationship. Apple and Samsung did not go into mediation looking for a solution and it may be the reason they never reached one. We advise all business owners to do their best to mediate a solution before going to the courts.

apple-siri-patent-vs-samsung

Source referenced: Harvard Law Program on Negotiation

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Avoiding Intercultural Barriers during Negotiation

In this age of globalization, it is common for companies in different countries to work with each other. However, it is not always simple to figure out the work ethic or culture of the other company. If you are doing business with another country, it is likely you will be in a position to negotiate with them. Even if both you and the representatives from the other country speak the same language, negotiation may be a difficult process. Intercultural barriers during negotiations can negatively impact a business deal. In order to avoid this, we have provided a few tips below to keep in mind when you prepare for your next intercultural negotiation.

Tip #1: Do your Research

The first step in overcoming intercultural barriers is getting to know who you will be dealing with. Getting to know as much as you can about your counterpart is a great idea. Do some research and find out if he/she has any international negotiating experience. If they do, then it would be safe to assume that you do not need to engage in cultural stereotyping. If you are not able to find much information about him/her, then do some general research on the culture and do your best to avoid stereotyping. You may also ask a negotiating partner or another contact within the business to provide you with more information on your counterpart.

Tip #2: Enlist an Adviser

If you continue to have trouble finding information on your counterpart or you don’t believe the information you have is adequate, then enlisting an adviser from the same culture as your counterpart is a great idea. You may also want to enlist an adviser if the person you are negotiating with has no international experience. Your adviser can serve as your “second” in negotiations and and “cultural guide.” However, you should not defer to your adviser too much during the negotiations. If you need to speak to your adviser during the negotiations, it is recommended you take a break and step away from the table. Also, be sure to have an open relation with your adviser. If the adviser interjects during the negotiation, be sure to consult with him about your next steps and learn from your mistakes.

Tip #3: Pay Attention to Negotiation Dynamics

Although everyone at the negotiating table may speak the same language, it does not necessarily mean you will understand everything they say. Therefore, it is important for you to listen carefully to every word. If you are not sure about what they just said, repeat what you think they said. If you ask them a question and their response is not clear, rephrase the question and try again. Also, be sure to mind your manners and go with your intuition when you get mixed signals.

 

International negotiations

Source referenced: Harvard Law Program on Negotiation

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Negotiation: The Right of First Refusal

This week we continue with our focus on negotiation. The rights of first refusal refers to the chance to be first in line to repurchase a property if the buyer decides to sell it at a later time. Although this is a little known fact, there are two types of first-refusal right when it comes to negotiations.

Two Types of First-Refusal Rights

The first “gives the former owner the ability to regain the property by matching competing bids.” They must propose a value equivalent to the highest bid, but do not need to engage in any type of bidding war or auction. The second type of first-refusal right “requires the right holder to accept or reject the seller’s demand before other potential buyers are offered the same deal.” In this type of refusal, the right-holder loses the chance to match other offers in the future if he/she initially refuses the right. These offers are made before the property is actually on the market.

The Right of First Refusal in Negotiation

These rights are best demonstrated through the use of a hypothetical. Let us say you hold the first-refusal rights to a property worth $1 million. If you want to buy the property and your only requirement is to match the highest bid, you may be able to get the land for a bargain. This would be an example of the first type of refusal right.

Now let’s say you want the purchase the same property, but you must respond to the listing before the property is on the market and before any other offers have been made. If the owner demands $900,000, you may have no choice but to pay the amount. In the first example, you may have been able to lower the price because other buyers were not willing to offer anything close to $1 million. In this second example, you are essentially bidding against yourself.

We hope this post serves as a cautious warning to our readers. The next time you negotiate a sale with the right of first refusal, be sure the terms won’t leave you bidding against yourself. The best case scenario would be going with the first type of refusal-rights strategy, presented in the first hypothetical. Do not hesitate to negotiate the terms of an agreement if you think you are being left with the short end of the stick. Bidding against yourself, as shown in the hypothetical, is not the best way to purchase property or buy anything else.

Source referenced: Harvard Law Program on Negotiation

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Ethics and Fairness in Negotiation

There are often times in business where you may feel a need to negotiate. For example, you may want to negotiate the terms of a contract. Other times you are forced to negotiate. An example would be selling your business, which you have co-owned with a friend for the past several years. While it may be easy to negotiate with people we are not as familiar with, the ethics and fairness of negotiation definitely come into play when we are dealing with our friends and family. Through this blog post, we will attempt to highlight the best way to perform an ethical and fair negotiation.

We will use the example of selling your co-owned business to demonstrate negotiation ethics. You and Julie have co-owned a business for several years, but Julie put in most of the work. She worked twice as many hours as you, but she was compensated nominally for the extra amount of time she spent on the business. You spent most of your time working at a full-time job elsewhere. When the business is sold, the extra money will be a good bonus for Julie and much-needed extra cash for you and your family. So, how should you split the business?

There has been an abundant amount of research on negotiation in the past couple of years and researches have found three fairness norms that negotiators typically invoke:

  • Equality: This would mean splitting the profits in half, or a 50/50 profit from the sale of the business.
  • Equity: A split determined by looking at whoever put in the most amount of work.
  • Need: A split that looks at the partner and their needs to determine who deserves the larger portion of the money.

As human beings, it is common for us to think of ourselves and our loved ones before we consider other people’s needs. In the hypothetical presented above, you may argue that you need the money more than Julie. However, Julie can argue by saying she put in the most amount of time and effort into building the business. Psychologist David Messick finds we we define our needs and justify our positions based on our personal needs. There is a high chance that both of you will be dissatisfied at the end of the day. Therefore,there is a need for another method to negotiate.

A fourth fairness norm used mostly by arbitrators has been Maintaining the Status Quo. This norm says that many businesses and organizations resolve conflict by resisting change. Despite the norm you choose to use during your negotiation, we recommend that you strive to be ethical and fair.

Source referenced: Harvard Law Program on Negotiation

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The Importance of Mediation Confidentiality Agreements

There is a high chance that mediation will not successful if the parties are not honest about everything. This honesty can only come forth if everyone is assured that everything said at mediation will remain confidential. A confidentiality agreement allows parties to be more open and honest. In fact, clients will even feel comfortable enough to talk about emails, text messages, or phone calls. Full disclosure to the mediator can definitely help mediation become more successful.

Aside from the lack of mediation confidentiality, mediation can also be unsuccessful if one side believes there was never a true meeting of the minds or a true agreement reached on material terms. This occurred in the case of Facebook v. Pacific Northwest Software. There are times when both parties are unhappy with mediation or the result of mediation. Attorney malpractice or something wrong being done by the mediator are some of the causes of dissatisfaction. The CA Supreme Court has prohibited the discovery of mediation communications to prove attorney malpractice. When there are multiple parties participating in mediation and not all of them are included in the settlement, the non-settling parties may attempt to seek discovery of mediation communications to resolve the remaining issues. While these communications are currently protected because of the CA Supreme Court’s previous ruling in Cassel, the legislature may make some exceptions to this law in the near future.

In order to keep parties satisfied and “in the loop” on all agreements being made, it is recommended that any resolution reached during the process be written down so that it clearly shows that a party agreed to a specific resolution. It would also be helpful to include information on whether or not the resolution is enforceable or binding. All of the laws and regulations regarding mediation confidentiality discussed here are specifically for California. The laws of another jurisdiction may vary. There are talks of establishing a Federal common law privilege governing mediation confidentiality. However, California courts are split on whether we are ready to adopt a Federal privilege. Therefore, all mediation confidentiality agreements should be written considering the applicable statutory provisions, case law, or court rules.

We hope this article has helped everyone realize the importance of a mediation confidentiality agreement. Here are some tips for mediator’s to remember when it comes to confidentiality agreements:

  1. Always enter into a mediation confidentiality agreement at the beginning of the mediation process. Be sure all parties understand and consent to the agreement. Attorneys and mediators can help clients understand the implications of the agreement.
  2. Whenever the parties enter into an agreement, be sure to include something similar to the following case: “This agreement shall be 1) binding upon the parties and enforceable, including without limitation, pursuant to Section 664.6 of the California Code of Civil Procedure and 2) admissible pursuant to Section 1123 of the California Evidence Code in a proceeding in any court of law or arbitration for purposes of enforcement of this agreement.”
  3. Be sure all parties include the degree of mediation confidentiality they desire in a stipulated protective order .

Source: California Lawyer

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Settlement Authority in Mediation

Mediation is only successful when the parties have come to a negotiated settlement. While there are other benefits to mediation, such as exchanging information or gaining insight of the other party on the case, the ultimate goal  is to have both parties reach a settlement. If this does not happen, mediators and the involved parties often feel as if they wasted their time with the process. The three most common reasons mediation fails are:

  1. Absence of persons with real settlement authority
  2. Lack of a genuine intent to settle
  3. Choosing the wrong time to mediate

The first reason listed above is perhaps the most important. There are many times when the wrong people are sent to a mediation meeting. In this blog post, we will focus on the consequences of sending the wrong person to mediation. When someone is sent to mediation on behalf of their company or their boss, they are generally given limited authority to settle. These people usually purport to have full authority, but their position as a client representative becomes clear when the other party is willing to settle and they are hesitant. People with limited authority are given a certain set of terms that they can negotiate on, so any attempts by the mediator or other parties to convince them on different terms are futile. The other side can obviously become very upset if they came in with the intent to settle and now they are unable to because the person will full authority is absent from the mediation.

It is recommended that parties make it very clear to each other and the mediator on the authority of the person being sent to mediation. It is understandable that sometimes the person will full authority to settle will not be able to make it to the meeting. In this case, all attempts should be made to schedule a time where he/she can be present. If this is still not possible, we recommend having the decision-maker available on standby or by telephone. With advances in technology, Skype or Google Hangouts may also be an option. If the other party was ready to settle and you were unable to settle because of limited authority, the other party may not want to return to the table. If they do, mediation may not be a success the next time. We highly recommend being completely honest with your mediator about who will be present at mediation and how likely they are to settle the dispute.

Source referenced: Mediate

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