After concluding a “successful” mediation, do you ever wonder, “Did I give up too much? Could I have gotten a better deal?”
Scholars have completed thousands of studies yielding surprising results on what improves bargaining outcomes. The results, which are often counterintuitive, demonstrate that prevailing in a negotiation requires much more than starting with an extreme position and trying to find an acceptable compromise. These gems can put us in a superior position to outmaneuver our opponents and help our clients grab the lion’s share of the settlement benefits.
A landmark study of a group of respected, rational experts—Harvard Medical School physicians—reveals how discrete differences in how numbers are presented have an impact on professional judgment. Scholars randomly divided the Ivy League doctors into two groups and asked them to opine on whether they would prescribe surgery or radiation for a specific type of cancer; one group was told that surgery had a 90 percent survival rate and the other group was told that it had a 10 percent mortality rate. Barbara J. McNeil et al., “On the Elicitation of Preferences for Alternative Therapies,” 306 New Eng. J. Med. 1259 (1982). Clearly, the alternatives contained the same data point; thus, one would expect identical outcomes. However, 85 percent of the physicians in the first group prescribed surgery, while only half of the second group recommended the operation. So, if elite surgeons are influenced by such nuances, are there ways that attorneys can influence the outcome by how they behave in conjunction with bargaining? The literature suggests several ways.
The research demonstrates that a successful negotiator does much more than start with a more extreme position and then gradually compromise. A team of international scholars performed multiple studies and concluded that optimal results are obtained when negotiators “set a clear target before they sit down at the negotiation table and continue to focus on it throughout the negotiation.” Kian Siong Tey et al., “The Impact of Concession Patterns on Negotiations: When and Why Decreasing Concessions Lead to a Distributive Disadvantage,” 165 Organizational Behav. & Hum. Decision Processes 153 (2021). This focused approach allowed for a clear pattern of decreasing concessions, which reinforced the firmness of the reservation price and correlated to more advantageous outcomes. So, come with a specific plan and stick to a pattern of consistently decreasing the amount of your concessions.
The evidence confirming the benefit of making the first offer is so well established that scientists refer to it as the “first mover advantage.” Jennifer R. Overbeck & Yoo Kyoung Kim, “Power, Status, and Influence in Negotiation,” in Handbook of Research on Negotiation 150 (Mara Olekalns & Wendi L. Adair eds., 2013). One study found that the initial offer created a powerful anchor and was a strong predictor of the result. Adam D. Galinsky & Thomas Mussweiler, “First Offers as Anchors: The Role of Perspective-Taking and Negotiator Focus,” 81 J. Personality & Soc. Psych. 657 (2001).
However, exceptions exist. There are data to indicate that, particularly in multi-issue bargaining, the advantage disappears if the offeror reveals information that indicates common interests on one or more issues. David D. Loschelder et al., “The First-Mover Disadvantage: The Folly of Revealing Compatible Preferences,” 25 Psych. Sci. 954 (2014). Similarly, the second mover can erase the edge when pointing out information that undermines the premise of the initial number. Galinsky & Mussweiler, supra. In the sales context, buyers with lower power are generally better off waiting for the seller to move first. Yossi Maaravi & Ben Heller, “Buyers, Maybe Moving Second Is Not That Bad After All: Low-Power, Anxiety, and Making Inferior First Offers,” 12 Frontiers in Psych. 677653 (2021).
What about the effect of a “phantom alternative,” i.e., a party’s subjective belief that the party has a possible alternative deal? Assume that a defendant offers $3.6 million to settle a case. The plaintiff’s belief that, in the future, the plaintiff can secure a judgment of $8 million is a phantom alternative because it is contingent on events over which the plaintiff does not have complete control. By contrast, a pharmaceutical start-up that has a firm offer for its intellectual property from Corporation A can go into negotiations with Corporation B knowing that its alternative is certain, i.e., not “phantom.”
A team of American scholars discovered that an illusory choice affected bargaining in profound ways. Robin L. Pinkley et al., “The Power of Phantom Alternatives in Negotiation: How What Could Be Haunts What Is,” 151 Organizational Behav. & Hum. Decision Processes 34 (2019). Negotiators with a phantom alternative performed about as well as those with concrete options. The reason appeared to be that the opponents of those who hold a contingent possibility tended to overestimate the utility of the unrealized option, leading them to achieve suboptimal results. These findings paralleled those from a London School of Economics study, which found that parties who lost their phantom alternative still did better than those who never had one. Garrett L. Brady et al., “The Power of Lost Alternatives in Negotiations,” 162 Organizational Behav. & Hum. Decision Processes 59 (2021). Thus, letting your opponent know of your client’s settlement options can be very beneficial, even if they are tenuous. In addition, it is important to carefully analyze your opponents’ alternatives to ensure you are not overestimating their value.
The increasing reliance on virtual mediation has created significant efficiency, but does it come with a downside? A growing body of research indicates that trust formation is more challenging to achieve in the teleconferencing environment. See L. Craig Nierman, “Virtually as Good? Psychological, Practical, and Performance Issues in Online Mediation” (originally published in 83 Iowa Law., no. 2 (Mar. 2023), at 22). It is axiomatic that most of the information we perceive during a personal interaction comes through body language. While our brains adjust to a telephone conversation by realizing there is no visual stimulus to observe, watching for clues through a computer screen is problematic because our minds cannot pick up on all the gestures; this creates a cognitive dissonance that undermines trust formation. Research suggests that potential mitigating behaviors include taking extra breaks, reducing the image size, turning off your self-view, and staying visually connected with nonelectronic objects in your office (e.g., a plant or picture of a loved one) to reduce mental fatigue. Additional aids include making extra efforts to listen to and rephrase what you have just heard to verify that messages were accurately received.
Some studies suggest that online negotiations accentuate the parties’ inequality of power. See J. Lee et al., “Wielding Power in Multiparty Negotiations: The Impact of Communication Medium and Assertiveness,” 33 Int’l J. Conflict Mgmt. 1 (2022), at 147 (and the studies cited therein). Thus, if we represent the stronger party, we may want to critically evaluate our resistance to a virtual mediation, and vice versa.
Have you ever wondered whether you inadvertently gave away your strategy for the negotiation, or have you ever been frustrated that your opponent was not getting your message? According to professors at Cornell, Northwestern, and the University of Colorado, negotiators tend to underperform in terms of reading messages from the other side. Leaf Van Boven et al., “The Illusion of Transparency in Negotiations,” 19 Negot. J. 117 (2003). Their studies reveal that even when people “tip their hand,” either intentionally or otherwise, the other side struggles to understand what the information means. Thus, if you fear that you carelessly gave away something, there is a good chance your opponent missed it. On the other hand, if you want to send a message, it may require being more explicit than you think.
A group of American researchers conducted a series of experiments involving attorneys and students playing the roles of plaintiff’s and defense lawyers to explore whether and how perspective, i.e., representing the plaintiff or the defendant, affected settlement judgment. Linda Babcock et al., “Forming Beliefs about Adjudicated Outcomes: Perceptions of Risk and Reservation Values,” 15 Int’l Rev. L. & Econ. 289 (1995). They found that those representing plaintiffs exhibited “over-optimism” in estimating verdicts, prompting them to unwisely proceed toward trial. Meanwhile, defense counsel tended to offer less than the cases’ expected outcome, suggesting they were prone to overlook obvious risks.
Those results were borne out by a group of attorneys who studied thousands of California trial results from over four decades and compared them with the final pretrial offers. Randall L. Kiser et al., “Let’s Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations,” 5 J. Empirical Legal Stud. 551 (2008). They found that plaintiffs were two to three times more likely to make the wrong settlement choice (i.e., doing worse at trial than if they took their opponents’ last offer). At the same time, when the defendants miscalculated, the amount of error was approximately 10 times more than when the plaintiffs misjudged.
The study also concluded that the frequency and magnitude of errors were dramatically lower when the attorney was also a mediator, leading the authors to suggest that lawyers trained in dispute resolution are “more cognizant of framing biases [and] may have a salutary effect on attorney/litigant decision making.” Id. at 590. The takeaway underscores the importance of creating ways to objectively analyze our own position, such as focus groups, inviting input from unbiased colleagues, and engaging in mediation.
Whether we are negotiating directly or participating in mediation, the nuances of our numbers, words, plans, and expressions can have a powerful impact on the outcome. Scientific research on bargaining offers a wealth of practical insights into how we gain the upper hand and prevent being manipulated. By employing these science-based best practices, we can have confidence that we have fulfilled our duty to produce the best possible results for our clients.
Portions of this content originally appeared in a previously published article by the author, “Data-Driven Negotiations: Applying Counterintuitive Research to Avoid Bargaining Regrets,” 53 Brief 4 (2024).
