Strategic Negotiating: A Scientific Approach to Improving Settlement Results

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. The takeaways from these studies can put us in a superior position to outmaneuver our opponents and help our clients procure advantageous settlement results.

Are Professionals Too Easily Manipulated?

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% survival rate and the other group was told that it had a 10% mortality rate. Clearly, the alternatives contained the same data point; thus, one would expect identical outcomes. However, 85% of the physicians in the first group prescribed surgery, while only 50% of the second group recommended the operation. So, if elite surgeons are influenced merely by how data is framed, are there ways that attorneys can influence the outcome by how they behave in conjunction with bargaining? The literature suggests several ways.

Negotiation Strategies That Strengthen Results

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.” 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 , according to this research.

Making the first offer.

The evidence confirming the benefit of making the first offer is so well established that scientists refer to it as the “first mover advantage.” One study found that the initial offer created a powerful anchor and was a strong predictor of the result.

However, exceptions exist. There is 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. Similarly, the second mover can erase the edge when pointing out information that undermines the premise of the initial number. In the sales context, buyers with lower power are generally better off waiting for the seller to move first.

Phantom alternatives.

What about the effect of a “phantom alternative,” i.e., a party’s subjective belief that they have a possible alternative deal? Assume that a defendant offers $3.6 million to settle a case. The plaintiff’s belief that, in the future, they can secure a judgment of $8 million is a phantom alternative because it is contingent on events over which they do not have complete control. By contrast, a pharmaceutical startup 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. Negotiators with a phantom alternative performed about as well compared to those with concrete options. The reason appeared to be that the opponents of contingent possibility-holders 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. Thus, letting your opponent know of your client’s settlement options can be very beneficial, even if they are tenuous. Additionally, it is important to carefully analyze your opponents’ alternatives to ensure you are not overestimating their value .

Virtual (dis)connections.

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. 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 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. Thus, if we represent the stronger party, we may want to critically evaluate our resistance to a virtual mediation, and vice versa.

Transparency.

Have you ever wondered if you inadvertently gave away your strategy for the negotiation or were 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. 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.

Judgment: Plaintiffs versus Defendants.

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, impacted settlement judgment. They found that those representing plaintiffs exhibited “over-optimism” in estimating verdicts, prompting them to unwisely proceed toward trial. Meanwhile, defense counsel tended to make a final offer of 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. 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 ten 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.” 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.

Conclusion

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.