Negotiation Law Blog

Better Decision Making through Neurochemistry

OK, this is the stuff that makes me wish I had a science brain instead of a literature brain. Can you guys over at Decision Science News and the Neuroeconomics Blog please explain the firing of orbitofrontal cortex neurons or the dopaminergic system irregularities that account for science/math disabilities among literature majors and law school students while I compare and contrast semiotic decision science in Moby Dick with the new neuroeconomic historicism in Bleak House? You have twenty minutes. You may turn your papers over . . . . . . . . . . . . . . . . . . . . . . NOW!!

But seriously folks. The math/science/economics majors who stumbled their way into law school for reasons known only to their psychoanalysts (or here in California, their Kabbala teachers) shouldn't miss out on the new research being tracked daily by Steve Seletta, unsung summer research fellows like Nikki Sullivan, and Director Kevin McCabe along with their colleagues at the Center for the Study of NeuroeconomicsatGeorge Mason University.

It's heady stuff (no pun intended). Once in awhile I actually understand it and on fewer, but no less exciting occasions, I find it applicable to what we'll call negotiation "science" for 30 seconds so we can "teach the controversy" (could Darwinian natural selection theory explain the development of the rule against perpetuities or factual impossibility in criminal law? I don't think so!)

But don't stop there. Dan Goldstein at the London Business School, teaches and blogs about "Decision Science" in his capacity as Assistant Professor of Marketing. He's been mentioned by social, behavioral and cognitive science popularizer Malcolm Gladwell (Blink and The Tipping Point) so you know he must be easier to understand than the true scientists at George Mason U. And the photo on his web page is pretty cute.

But truly, I'm grateful to the cognitive, neuro- and decision science guys (and women) for giving me something to crack my head open over other than dark matter, black holes and string theory, all of which remain mysterious, but have the same strong pull on my randomly drifting attention as freeway accidents do for Southern California motorists. And you can never use particle physics to help explain your last business negotiation.

"What is the purpose of time," asked eminent physicist Stephen Hawking. "To keep everything from happening at once" he replied. This is what writers and scientists have in common. We all question first principles. It's not a perfect match but it's a start.

Negotiators have much to learn from game theorists. In the book, Higgling: Transactors and Their Markets in the History of Economics, edited by Mary S. Morgan (Duke University Press: Durham 1994) contributor Robert J. Leonard, lists six factors that affect bargaining outcomes as follows:


1. General bargaining dispositions. Tough bargainers are dogmatic, possess a strong sense of themselves and have a highly competitive orientation in regard to personal strength.

2. Payoff system. A negotiator's willingness to make concessions is strongly influenced by what he believes to be the minimum or maximum necessary to provide him with any benefit of the bargain. Other "payoff system" factors include time pressure, the cost of no agreement, the threat capacity of one's bargaining partner and the size of payoffs.

3. Social relationship with the opponent. Not surprisingly, negotiators tend to be more cooperative when they have a friendly social relationship or when there are reasons to be concerned about the other's interests. This is why hostage negotiators always ask the captors to take food orders from their captives and determine whether any of them need medicine or other critical accomodations. Once the captors begin to take care of the needs of their victims, they are more cooperative with negotiators and begin to care about the well-being of the captives.

Research has proven that moral appeals result in greater concessions by the one from whom concessions are sought. The negotiator who suggests that certain concessions are necessary to satisfy his basic needs or expresses the belief that his negotiating partner will treat him fairly does better than the negotiator who does not appeal to moral considerations. This is an example of "trading power for sympathy," a bargaining tactic often referenced in Ken Cloke's writings.

4. Social relationship with significant others. Extremely significant to negotiators representing clients is the tendency of representatives to be more competitive than the parties whose interests are at stake. This higher degree of competitiveness is increased even further when the representative is being monitored by her client.

The mediator's injunction to "have all stakeholders present" is therefore a double edged sword. If you are reprsenting a client with extremely high aspirations, there is some wisdom in resisting the mediator's insistence that your clients be present because you are more likely to cut a better deal in their absence. On the other hand, as all mediators know, settlement itself is much less likely if the stakeholders are not there to balance their own interests (known and unknown to their representatives) in creating a deal that maximizes benefits for everyone.

5. Situational factors. I've never met a litigator who was not attuned to the benefits of the home court advantage. Nevertheless, if closing the deal is your goal, it may well be better to negotiate in neutral territory. Researchers have also found that colorful and pleasant surroundings induce cooperative behavior but may also reduce the sense of urgency of reaching agreement.

6. Bargaining strategy. This, of course, is its own discipline. The balance between cooperation and intransigence is the art of negotiation and is covered more extensively elsewhere.

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Because People often ask me about the wisdom of making aggressive opening offer, I'm summarizing below a recent article on anchoring by a Kellogg Graduate School of Management Professor. His conclusion is that people aren't aggressive enough in their opening offers.

Although we are often told that only "reasonable" first offers influence negotiation outcomes, I am unaware of the existence of any research to support this dictum. Unfortunately, I suspect that the "reasonable first offer" theory is from the Graduate School of Feeling Good About Ourselves at Kumbya University.

The research discussed below is typical of all of the research and statistical studies I've recently read. If you've got contrary authority, please do pass it along.

1. Research shows that how we respond to an offer is highly influenced by any number that enters the negotiation environment. (one study used zip codes to influence numeric estimates).

2. The greater the parties' uncertainty about the value of the item/s being bargained for the stronger the anchoring effect of the first offer.

3. That anchoring effect will continue to exert a strong pull throughout the rest of the negotiation THE SUPPORTING RESEARCH

 

The Supporting Research

Researchers had real estate agents inspect a house and estimate its appraisal value as well as its purchase price. they manipulated the house's list price, providing high and low anchors. All of the agents' estimates were influenced by the list price even though they denied factoring the list price into their decisions. When challenged, the agents cited features of the property that would justify their estimates.

In another study, researchers sent customers to mechanics to obtain estimates on the value of a car. The customers asked the mechanics for their opinions only after suggesting a value of their own. Half the mechanics were given a low anchor and half were given a high anchor. The mechanics estimated the car to be worth a thousand dollars (actually they were Deutsche Marks) more when they were given the high-anchor value.

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 In her working paper, Winning Legally: The Value of Legal Astuteness, Harvard Associate Professor of Business Administration, Constance E. Bagley posits that "legal astuteness" -- the ability of top management to effectively communicate and work with counsel to solve complex problems — is a valuable dynamic capability.

 According to Bagley, legally astute managers understand that "every legal dispute is a business problem, requiring a business solution." These astute managers will listen carefully to the legal advice given to them but they will not be overly deferential to their attorneys. Professor Bagley reemphasizes what all business executives now surely know, that "litigation is a 'zero-sum' game, with a clear winner and loser," leaving few opportunities for integrative bargaining.

 "Legally astute" business executives, she stresses, "take responsibility for managing their disputes and do not hand them off to their lawyers with a 'you-take-care-of-it' approach."

But how, you ask, does a "legally astute" manager retain control of a business problem that has become a multi-million dollar piece of litigation. Let alone in a way that synergizes the strengths and diminishes the weaknesses of everyone on the litigation team -- executives and trial lawyers alike.

Litigators: Bring Your Business Executives Back in from the Cold

 When mediating settlements of commercial lawsuits, I always begin by inviting the business executives back into the game. "Your lawyers," I remind them, "justifiably advised you not to talk about the litigation in public or satisfy your need to "tell your side of the story" at deposition. If you've heard it once, you've heard it a million times -- "today is not our day to win the lawsuit; today is our day to provide as little information as possible."

Settlement day, however, is the day to come armed with business information and business strategy.

 "Only lawyers," I say to managers, "have legal problems. You have a business problem you couldn't fix without the coercive power of the law. That legal power has now brought your opponent back to the negotiating table. The legal dispute is again a commercial problem for which there are myriad business solutions."

 "That's the good news," I say. "The difficult news is that it will take a lot of work from everyone and the end result is unlikely to look like the victory you once hoped for. Today we try to find a way to negotiate an agreement that is a better alternative than trial."

Then we all roll up our sleeves and begin.

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