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 negotiation outcomes. The results, which are often counterintuitive, demonstrate that the phrases that accompany our offers and the numbers themselves have a disproportionate impact on the result. These gems can put us in a superior position to 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 impact 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 England 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 how a figure is framed affects elite surgeons who are making life or death judgments, how might the way attorneys articulate settlement offers influence the outcome? The literature suggests several ways.
To round or not to round: When should an offer be stated with precision (e.g., $7,803,046) versus framed in a way that is easy to remember (e.g., $7.8 million)? The research offers some paradoxical results.
A team of German scientists found that the effects of detailed versus general numbers affected senders and receivers differently, but generally produced beneficial results for the party being more exact. David D. Loschelder et al., How and Why Precise Anchors Distinctly Affect Anchor Recipients and Senders, 70 J. Experimental Soc. Psych. 164 (2017). Their study results indicated that receivers tend to associate the precise offer with the senders’ competence, prompting them to move more in response. At the same time, the senders’ responses to their more granular offer led them to concede less in subsequent rounds. A Columbia Business School paper documented parallel results indicating that precise offers made more potent anchors. Malia F. Mason et al., Precise Offers Are Potent Anchors: Conciliatory Counteroffers and Attributions of Knowledge in Negotiations, 49 J. Experimental Soc. Psych. 759 (2013).
However, other studies highlight some exceptions. One paper laid out how precise first offers made before there was a mutual commitment to negotiate signaled an inflexibility that effectively created a barrier to talks. Alice J. Lee et al., Too Precise to Pursue: How Precise First Offers Create Barriers-to-Entry in Negotiations and Markets, 148 Organizational Behav. & Hum. Decision Processes 87 (2018). For example, prospective buyers might be more hesitant to look at a house listed for $1,501,728.94 rather than $1.5 million.
Another study involved 1,320 experts and amateurs negotiating for things like real estate, jewelry, and job offers. David D. Loschelder et al., The Too-Much-Precision Effect: When and Why Precise Anchors Backfire with Experts, 27 Psych. Sci. 1573 (2016). It concluded that precise numbers had credibility with amateurs but backfired when experts detected that the exactness reflected a lack of competence. Thus, be careful about using precise numbers unless you can tie them to an objective measure, such as an expert report or expenditures made.
One of the easiest ways to influence your opponent is to use framing anchors by prominently featuring the benefits to the other party rather than your client. Researchers from Columbia and Leuphana Universities found that simply accentuating your opponent’s benefit to the proposal is more likely to give your client the bargaining edge. Johann M. Majer et al., Open to Offers, but Resisting Requests: How the Framing of Anchors Affects Motivation and Negotiated Outcomes, 119 J. Personality & Soc. Psych. 582 (2020). For example, instead of plaintiff’s counsel saying, “We demand $5.3 million,” emphasize the benefit to the defendant, i.e., “We will release your client from liability if you pay $5.3 million.” Likewise, the defendant can first mention the plaintiff’s upside, i.e., “We will pay $1.2 million in exchange for a release.”
Another strategic device is to use a “phantom anchor”—i.e., a figure that is more extreme than the actual offer—which is included to make it sound like the receiving party is getting a better deal (not unlike a store that induces you to buy something because it is “on sale”). For example, a plaintiff’s statement, “I was going to demand $5 million, but I will start with $4.8 million,” includes a phantom anchor of $5 million. Drawing on data from nine studies, scientists at the University of Pennsylvania and Johns Hopkins University found that a phantom anchor is likely to solicit more favorable counteroffers and lead to better negotiated results. Nazli Bhatia & Brian C. Gunia, “I Was Going to Offer $10,000 but . . . ”: The Effects of Phantom Anchors in Negotiation, 148 Organizational Behav. & Hum. Decision Processes 70 (2018). However, they also identified a downside, namely, that those delivering the dual figures were perceived as more manipulative; thus, there are long-term risks.
When negotiators present their “last and final” offer, they generally couch it by either using a disparagement rationale, i.e., “I am not willing to agree to anything more/less than $X on this claim,” which puts the focus on the merits of the other side’s case; or a constraint rationale, i.e., “My authority is such that I cannot do anything less/more than $X,” which emphasizes available resources. Which is more effective?
Columbia University scholars, after running multiple studies, found that constraint rationales (i.e., those related to resources rather than the merits) were less likely to provoke resistance, presumably because they did not offend their opponents’ perceptions about the value of their case. Alice J. Lee & Daniel R. Ames, “I Can’t Pay More” versus “It’s Not Worth More”: Divergent Effects of Constraint and Disparagement Rationales in Negotiations, 141 Organizational Behav. & Hum. Decision Processes 16 (2017). So, when you are at the end of your concessions, frame the explanation in terms of your limits rather than the flaws of your opponent’s case.
Whether we are negotiating directly or participating in mediation, the nuances of our numbers and offers can have a powerful effect on the outcome. The research on bargaining offers a wealth of practical insights into how we can gain the upper hand. By employing these science-based best practices, we can experience confidence that we have fulfilled our duty to produce the best possible results for our clients.
