Cognitive Biases Archives | The Negotiation Academy

Negotiation Skills 101: Common Cognitive Biases in Negotiations

Try thinking back on some conversations you’ve had with a biased person.

They tend to interpret things in ways that don’t seem objective or are clearly self-serving.

These tendencies might seem harmless in casual conversations, but in negotiations, cognitive biases can lead to suboptimal outcomes if we don’t catch ourselves in the act.

We’ve covered a fair number of common cognitive biases that could plague any negotiator, and this post is to give you a quick overview of them all.

What Are Cognitive Biases in Negotiations?

When your current understanding of the matter is different from what the matter is, you have a cognitive bias.

Cognitive biases are systematic errors in thinking that arise from our brain’s reliance on mental shortcuts. These are mental shortcuts that we take to draw conclusions faster but lead to judgments and decisions that deviate from rationality.

In everyday situations, cognitive biases might be harmless or even helpful. But in negotiation, slower, more deliberate thinking is crucial.

To better understand cognitive biases, it helps to review Kahneman and Tversky’s System 1 and System 2 thinking from their book “Thinking Fast and Slow”:

System 1 is fast, automatic, and intuitive. It operates with little effort but is also prone to biases and errors. It is responsible for quick judgments and impressions. We make most of our daily decisions using System 1 thinking (think about 95%).

System 2 is slow, deliberate, and analytical. It requires more cognitive effort and is used for complex reasoning and problem-solving. It monitors and evaluates the decisions made by System 1 but is often lazy and easily distracted, leading to reliance on System 1’s quick but sometimes flawed conclusions.

In negotiations, relying too much on System 1—trusting our gut feelings—can lead to biased conclusions. Taking time to slow down and analyze the situation using System 2 can help counter these biases.

We cover more detailed examples of how System 1 and System 2 thinking affect negotiations in this blog post.

Types of Cognitive Biases in Negotiations

There are many reasons why cognitive biases in negotiations happen, such as latching on to initial information too tightly or even your inherent values and beliefs.

Here’s a quick list with links to their more detailed articles:

Selective Perception

Selective perception refers to people’s tendency to interpret information to confirm their beliefs, impressions, and experiences. This can go as far as selectively filtering out information that doesn’t help us get what we want.

Example: Imagine presenting the same evidence to both the plaintiff’s and the defendant’s lawyers in a case. Each lawyer may interpret the evidence differently based on what benefits their client.

Framing

How an offer is framed will affect the way we interpret and react to it. Here are two examples of how this could happen:

Loss Aversion – The pain we feel from losses tends to be felt more than the joy from gains, so people try to avoid losses whenever they can.

Certainty Effect – The certainty effect happens when people prefer guaranteed outcomes compared to probable outcomes. This leads to people avoiding risk when there is one of their options has guaranteed results.

The reverse is also true, where they want to avoid guaranteed losses and pick probable gains. This preference persists even if the probabilistic option could have a better payoff

Both of these biases are key components of Kahneman and Tversky’s Prospect Theory. You can read more about how framing works in negotiations here.

Differences in Values and Beliefs

Differences in values and beliefs can manifest problems in different ways. If you enter a negotiation with somebody you have enmity with, that could lead to win-loss mindsets.

Value conflict could also lead us to selectively ignore or leave out key information they provide if we choose to value the information less than they do.

Offers that don’t align with the values and expectations of the other side could also be rejected out of principle, even if it is an objectively good deal.

Example: In labor negotiations, a company may value profitability, while a union prioritizes worker well-being. This value conflict can lead to deadlock, even if both parties stand to gain from an agreement.

To get more details on this cognitive bias, read more here.

Perceptions of Fairness

People reject outcomes they perceive as unfair, even if it results in worse outcomes for both parties.

Example: In this Ultimatum game social experiment, two parties were given money to split among themselves. The condition is that they could only receive the money if both parties agreed on the amount. The splits were closer to equal splits of the money as the receiving party would choose to reject offers and walk away with nothing rather than accept an outcome they perceived as unfair.

In negotiations, parties tend to select standards of fairness that benefit their side the most. To find out 4 of these standards, check out more in our fairness article.

Overconfidence

This comes across as more of an attitude instead of a cognitive bias, but it is actually a cognitive bias all the same.

Overconfidence bias happens when we overestimate our abilities, judgments, and estimated success while underestimating all these aspects of our environment or counterparty. This hampers our assumptions, judgements and estimations of success – which can all hamper our decision making during negotiations.

Example: A negotiator may assume they know exactly what the other party wants, only to discover that their assumptions were completely off, leading to a missed opportunity for a deal.

Find out more about overconfidence here.

There are plenty of other cognitive biases that we haven’t covered yet, but just familiarising yourself with some of these can help you to keep your own biases in check.

Ever wanted to see some of these in action? We have live demonstrations of these biases in action during our live negotiation workshops.

Curious? Contact us and sign up for one of our workshops or online courses today!

To your negotiation success!

Dr. Claudia Winkler

We share a lot of what we’ve learned by training businesses and law firms with their negotiation in our online courses and live sessions.

Joining one of our courses will put you on par with over 10,000 leading lawyers from Fortune 500 companies to Tier 1 law firms globally, boosting your negotiation skills to new heights.

If you want to see how these biases happen in real life, try one of our online courses or join a tailor-made live training session for your organization!

Cognitive Biases in Negotiations: How Fairness Affects Negotiations

As you and your friend walk down the street, you spot a 10-dollar bill.

“Cool, let’s split it 50:50”

“Good idea, that sounds fair”

Now, wait just a minute…

Both parties instantly agreed that it was fair, even though neither party did anything to earn it. But why did we care if the outcome was fair or not?

As much as we’d like to think we’re rational, biases often influence our decisions, especially regarding cognitive biases in negotiations. In addition to framing and emotions, a sense of fairness is another frequently overlooked factor.

If either side feels the outcome is unfair, they will not accept it. We sometimes care more about fairness than rationality; as much as we hate to admit it, we are much less rational than we think. What makes this more complicated is that people tend to have different ideas of what is ‘fair,’ too.

How Fairness Affects Negotiations

In economics, a fairness bias prioritizes equitable or fair outcomes, even if they sometimes come at a cost to oneself.

People often reject offers that are perceived as unfair, even if it results in a loss. A study on public perceptions of fairness revealed that people consider it unfair for firms to impose losses relative to a reference point, such as the pre-existing price, wage, or rent.

For example, a study revealed that 82 percent of participants found it unfair for a hardware store to raise snow shovel prices after a storm, despite the economic rationale.

The 10-dollar example above is a variation of Thaler’s Ultimatum Game. In the game, the researchers offer people a sum of money, but both sides must agree on how to split the money, or neither side will receive anything. (Thaler, 1988).

Rationally, just accepting the offer already gives them more money than earlier. However, people preferred to receive nothing by rejecting the offer rather than accepting what they viewed as an unfair share. Offers closer to a 50:50 split were perceived as more ‘fair.’

Parties may reject offers they perceive as unfair, even if the offer would benefit them. This can lead to negotiation breakdowns or missed opportunities for agreement.

Perceptions of unfairness can stretch beyond just the outcomes on the table. If the negotiating parties have a history of conflict and perceive being treated unfairly, they may become less cooperative. This could lead to conflict and make it harder to reach a deal. This is often seen in labor disputes where employees feel they are not fairly compensated for their contributions.

A perception of fairness is also crucial to long-term relationships between parties. If one side feels treated unfairly, it can damage trust and reduce the likelihood of successful future negotiations. Conversely, perceptions of fairness can enhance trust and facilitate smoother negotiations in the future.

Types of Fairness Norms

Sometimes, the reverse is true when it comes to negotiations. Max Bazerman, Straus Professor at Harvard Business School, notes that in negotiations, parties interpret what’s fair in terms of what will benefit them the most. This includes both the counterparty and ourselves.

He noted that there are four main norms that people use when perceiving something as fair:

Equality – everyone receives a similar outcome
Equity – people are rewarded based on how much effort and input they put into the pie being split
Need – Disregarding input, people are rewarded based on their current needs, such as family needs
Status Quo – Going back to existing splits without any radical changes

Handling Fairness in Negotiations

We must appear fair during negotiations without getting too caught up in being fair ourselves. In the meantime, we also need to see if our perception of fairness is self-serving. Being aware of our own cognitive biases in a negotiation is the first step to overcoming them.

Fairness can be used to signal their interests and why they are gunning for their desired outcomes. With the various fairness norms available to us, we can return to focusing on interests rather than positions and use what our counterparty perceives as ‘fair’ as a signal for what is important to them.

We can try to build an objective standard of fairness for the negotiation that both sides can agree on, and frame offers around that. While working on that standard, we can also frame our offers and concessions around their perception of fairness to keep the negotiations going.

Want to hear more about the cognitive biases we experience during negotiations first-hand?

Joining one of our courses will put you on par with over 10,000 leading lawyers from Fortune 500 companies to Tier 1 law firms globally, boosting your negotiation skills to new heights.

Happy Negotiating!

Claudia Winkler

If you enjoyed this content, join our free 10-week Email course on the fundamentals of Collaborative and Competitive Negotiation skills by clicking HERE.

Each week, you will get a bite-size email unpacking some of the most fundamental negotiation concepts that you can apply in your everyday negotiations, along with an insight video and book recommendation to go further in areas you want to learn more about.

References:

Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a Constraint on Profit Seeking: Entitlements in the Market. The American Economic Review, 76(4), 728–741. http://www.jstor.org/stable/1806070
Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a Constraint on Profit Seeking: Entitlements in the Market. The American Economic Review, 76(4), 728–741. http://www.jstor.org/stable/1806070
Anomalies: The Ultimatum Game – American Economic Association
When Employees Think the Boss Is Unfair, They’re More Likely to Disengage and Leave
Nancy A. Welsh and Nancy Welsh, Fairness: Perceptions of Fairness in Negotiation, 87 Marq. L. Rev. (2004).
Fairness in Negotiation – Program On Negotiation Harvard

Cognitive Biases in Negotiation: Overconfidence and Blindspots in Negotiation

Welcome back to our series on cognitive biases in negotiations!

This week, we will cover another cognitive bias that shrinks our ZOPA and hinders our negotiation success: Overconfidence.

The Overconfidence Effect

The sinking of the Titanic. The nuclear accident at Chernobyl. You running late because you underestimated traffic (again😁😘). Just a few ‘victims’ of the overconfidence effect.

Overconfidence bias happens when we overestimate our abilities, judgments, and estimated successwhile underestimating all these aspects for our environment or counterparty.

“I am definitely not overconfident, Claudia“. “I am a perfectionist in constant panic over the quality of my work.” “If anything, I suffer from imposture, not overconfidence” – I hear some of you say.

But bear with me, because none of this “saves” you from the overconfidence effect we are talking about!

Oftentimes, the overconfidence effect is not so much about our technical abilities, which is why even those of us with full-on imposture syndrome (basically almost everyone😅) can be affected.

Even those with constant (overachiever) doubts in their technical skills may still be overconfident in their assumptions (“I am sure they just want money”), judgements (“he really doesn’t want to settle this”), or gut assessments (“this case is not worth more than 100k if taken to court”).

All of these drive our negotiation strategy and are proven to be assessed wrongly (with lots of confidence) routinely.

This has severe consequences for negotiations, including

Lack of preparation
Poor listening
Inflexibility
Suboptimal deals

Dealing with the Overconfidence Effect

One way of dealing with the overconfidence effect is to find the middle ground between the confidence that comes from proper preparation and the willingness to consider the possibility that we are wrong in our assumptions. Here are some steps to help you with that.

1. (Over)preparation

It pays to be (over)prepared. Most people don’t realize that preparation is 80% of negotiation success and skimp on this bit. And it shows!

Collect as much information as you can about your situation as well as your counterparty:

Our and their Interests
Our and their Goals and Priorities
Options for your side and theirs
Information you can share with them
Questions you need to ask them
Your best alternative to no agreement (BATNA) and theirs
Your Target Price
Your Limit/Reserve Price
Your Opening Price
Estimates of their numbers (remember to update this when new information arrives)

[Download our free 7-step preparation sheet here to help you cover all of these!]

Remember: Negotiation is a preparation game.“Wins” are not decided in the ring but in training.

2. Play Devil’s Advocate

This helps you consider gaps in your preparation with some honest self-examination. To counter the problem of ‘over-precision,’ try asking yourself a few questions:

Who did you rely on for your sources of information? What might you be missing?
What information is your counterparty likely to know better?
What assumptions did you make?
What are the weaknesses of your case/situation?
What are their likely strengths and weaknesses?

3. Ask more Questions and Be willing to listen

Even if our preparation was perfect, you will never have perfect information. Asking more open questions and listening to your client and counterparty intently could open up opportunities for new insights, ways of collaboration or other ways of discovering information that enhances the negotiation for both sides.

Collaborating in the process or sharing your preparation with colleagues and peers could also give you fresh perspectives on what you might have missed.

Finding this “Goldilocks” zone between having enough confidence while being open to revising what we know takes time to develop, but it is well worth it for you and your clients.

Bonus Read & Example

For the story of Andrew Carnegie “losing” 100 Mio $ to the Overconfidence Effect (and lack of preparation) see this PON Blog.

To your negotiation success!

Dr. Claudia Winkler

We share a lot of what we’ve learned by training businesses and law firms with their negotiation in our online courses and live sessions.

Joining one of our courses will put you on par with over 10,000 leading lawyers from Fortune 500 companies to Tier 1 law firms globally, boosting your negotiation skills to new heights.

If you want to see how these biases happen in real life, try one of our online courses or join a tailor-made live training session for your organization!

Cognitive Biases in Negotiation: Differences in Values and Beliefs

Welcome back to our series on cognitive biases in negotiation!

So far in our cognitive bias series, we’ve covered prospect theory and selective perception. Prospect theory shows how we can be affected by something framed as a gain or loss. Selective perception happens when we zoom in on information that supports what we believe or want to see while ignoring other information.

Now we’re moving on to biases based on our beliefs, the counterparty’s beliefs, and even what we believe about the counterparty.

Ever had an impression of someone, and after meeting them they reinforced what you felt? What if others see that individual in a completely different light? Would that impact how you treat them in a negotiation?

If you answered no, you’ll still need to be cautious and catch yourself thinking that way in negotiations, as we explore further below.

Values and Beliefs and Value Conflicts

Value conflicts arise around core values such as morals, religious beliefs, and family welfare.

Values and beliefs shape how we perceive information and can create blind spots in negotiations. For instance, if a negotiator values short-term gains over long-term relationships, they might disregard offers that could benefit them in the long run.

Another pitfall we should consider is how we think of the counterparty. Never assume that they are irrational or you’ll take power away from yourself (!). Find out how they think and what they value and then try framing things around that. Even if it initially appears irrational to us, what they value still makes sense to them, so we can appeal to that.

Consider a company prioritizing profit over employee well-being. This value system might lead them to overlook proposals that could improve workplace morale, ultimately affecting productivity. One great example is the tension between companies and worker’s unions.

During collective bargaining agreements between businesses and worker’s unions, many different examples of how values and beliefs interfere with negotiations abound:

In this scenario, the corporation values profitability, operational efficiency, and maintaining control over workplace policies. In contrast, the union prioritizes fair wages, job security, healthcare benefits, and safe working conditions for its members. These differing priorities can lead to significant challenges in negotiations.

Impasses

Differing values often lead to impasses during negotiations. For instance, the union might push for pay raises, citing the rising cost of living and the need for fair compensation. On the other hand, the corporation might resist these demands, arguing that significant wage hikes could hurt its competitive edge and financial stability.

Miscommunication

Differing values and beliefs can lead to misunderstandings and misinterpretations of the other party’s intentions and statements (Thompson, 2006).¹

For example, workers could be so angry with the way they perceive their bosses have been treating them that they are unable to see or accept concessions given to them. Anger has been shown to impair our ability to perceive things in a neutral way, leading to miscommunication.²

Conflict, Tension and Reduced Collaboration

Deep-seated differences in values and beliefs can create underlying tension and conflict, making it harder to reach a consensus (Fisher & Ury, 1981).³ Also, when negotiators hold strongly opposing beliefs, they may be more likely to adopt a competitive rather than cooperative or collaborative approach (Lewicki, Barry, & Saunders, 2016).⁴

Business and workers’ union negotiations can become heated, with both sides finding it difficult to reach an agreement. The corporation might perceive the union’s demands as excessive and unfeasible, while the union sees the corporation’s resistance as prioritizing profits over people. This dynamic can lead to strikes, protests, and other forms of industrial action, which can be costly and damaging for both parties.

Sadly, with how heated these can get and how deep-seated each party’s assumptions about the other are —‘lazy and entitled workers’ vs. ‘greedy executives’—it can get quite challenging to find a win-win solution in many cases.

Reducing the Effect of Cognitive Biases

The same steps that can overcome selective perception biases and framing biases can help you overcome overconfidence, blind spots, and differing values and beliefs:

Prepare Well and Never Assume Anything

Being humble and never judging your counterparty too hastily as you prepare for the negotiation can help you overcome any prejudices you may harbor.

Preparation is 80 percent of your negotiation outcome. It can also give you insight into your counterparty even before you arrive at the negotiation table. For more, check out our preparation checklist.

Keeping an Open Mind

Never fall back into the ‘this is how we’ve always done it’ mindset. Monitor how you take in and process information.

Summarise and Reframe

You can summarise what your counterparty has said to ensure you haven’t left out or filtered anything they have said and understand their points correctly. Reframing their shared information can also help you avoid getting caught in gain/loss framing.

Think through and be honest while seeking the opinions of others

You can discuss and think through the negotiation’s progress with an assistant. During the discussion, you can objectively look through the strengths and weaknesses of your side and theirs.

Take Your Time

Never rush to a conclusion. We covered that thinking too quickly uses System 1 thinking that is fast but prone to biases. Give yourself enough time to use System 2 thinking and consider their statements, results, and options rationally and carefully to see if you’ve been subconsciously biasing your own understanding based on your own beliefs.

Negotiations are based on how well you communicate with your counterparty, so knowing their value and why can give you a major advantage. Similarly, we need to leave our prejudices at the door so that we don’t get blinded by our own beliefs and jeopardize the negotiation.

We share a lot of what we’ve learned by training businesses and law firms with their negotiation in our online courses and live sessions.

Joining one of our courses will put you on par with over 10,000 leading lawyers from Fortune 500 companies to Tier 1 law firms globally, boosting your negotiation skills to new heights.

If you want to see how these biases happen in real life, try one of our online courses or join a tailor-made live training session for your organization!

References:

Pronin, E., Lin, D. Y., & Ross, L. (2002). The Bias Blind Spot: Perceptions of Bias in Self Versus Others. Personality and Social Psychology Bulletin, 28(3), 369-381.
Communication Breakdowns: When All We Can See is Red – Programme On Negotiation Harvard
Fisher, R., & Ury, W. (1981). Getting to Yes: Negotiating Agreement Without Giving In. Penguin Books.
Lewicki, R. J., Barry, B., & Saunders, D. M. (2016). Negotiation. McGraw-Hill Education

Cognitive Bias in Negotiation: Navigating Selective Perception

“Brains are awesome, everybody should get one!” was a popular mock during my school years.

I have to think about this every time I share the research showing how little of our total brain capacity we are actually putting to use for an average decision.

While it would be difficult to go through our days making every decision with 100% of our attention and brain power, our typical, every day, low-effort decisions also have significant risks – especially for our negotiation outcomes!

Today, we are talking about cognitive biases.

Fast and Instinctive System 1 – Slow and Rational System 2

Kahneman and Tversky’s famous work “Thinking Fast and Slow” describes two modes of thinking:

System 1 is fast, automatic, and intuitive. It operates with little effort but is also prone to biases and errors. It is responsible for quick judgments and impressions. We make the majority of our daily decisions using System 1 (think about 95%).

Here is a summary of how System 1 and System 2 thinking relates to selective perception and confirmation bias from Kahneman and Tversky’s book:

In his essay “How Mental Systems Believe,” Daniel Gilbert builds on Spinoza’s idea that understanding a statement starts with believing it.

System 1 quickly and automatically generates belief by making sense of any given statement, even nonsensical ones. System 2, responsible for doubt and unbelief, requires more effort and is prone to laziness or distraction.

Experiments showed that disrupting or exhausting System 2 thinking among participants makes it hard to reject false statements. This highlights our tendency to believe and confirms how associative memory contributes to confirmation bias, leading to overestimations of improbable events.

The moral of this experiment above is that when System 2 is occupied, people tend to believe almost anything due to System 1’s gullibility. System 2, responsible for doubt and unbelief, can be lazy, busy, or depleted.

One example discussed in the book is how we would respond to the questions “Is Sam friendly?” or “Is Sam unfriendly?” When asked these questions, different instances of Sam’s behavior will come to mind. We’ll then do a deliberate search for confirming evidence, called a ‘positive test strategy.’

Kahneman and Tversky go on to say that people, when testing hypotheses, tend to look for data that is compatible with their current beliefs. “The confirmatory bias of System 1 favors uncritical acceptance of suggestions and exaggeration of the likelihood of extreme and improbable events.” For instance, imagining tsunamis when asked about a tsunami’s likelihood of hitting California in the next thirty years can lead to an overestimation of the disaster happening.

This makes individuals more susceptible to persuasive messages, especially when tired. Associative memory and confirmation bias further influence belief, as people seek evidence supporting their beliefs rather than refuting them, leading to an exaggerated perception of events. This leads to multiple cognitive biases like selective perception.

Selective Perception

Selective perception refers to people’s tendency to interpret information in ways that confirm their existing beliefs, impressions, and experiences. This can go as far as selectively filtering out information that doesn’t help us get what we want.

For a legal example, if you give the same evidence and information to a plaintiff’s lawyer and a defendant’s lawyer, they may not come back with the same notes as they zoom in on facts that support their respective clients’ cases.

In negotiations, this can lead negotiators to overlook critical details that don’t align with their preconceptions. It can also lead to the following outcomes:

1 – Misinterpretation of Intentions:

We may misread the other party’s intentions or proposals based on our own biases and preconceived notions, leading to misunderstandings and conflict.

2 – Confirmation Bias

We may focus only on information confirming our beliefs and ignore contrary evidence, reducing the likelihood of finding mutually beneficial solutions.

3 – Reduced Collaboration

When negotiators selectively perceive information, it may hinder open communication and collaboration, making it difficult to build trust and reach a consensus. This makes it harder to find win-win solutions and could result in more money left on the negotiating table.

Reducing the Effect of Cognitive Biases

But how can we not fall into these cognitive bias traps?

Here is a quick list of what you can do:

1 – Keeping an Open Mind

Never fall back into the ‘this is how we’ve always done it’ mindset. Monitor how you take in and process information.

2 – Summarise and Reframe

You can summarise what your counterparty has said to ensure that you haven’t left out or filtered anything they have said and that you understand their points correctly. Reframing the information they shared can also help you not get caught in gain/loss framing.

3 – Think through and Seeking the Honest Opinions of Others

You can discuss and think through the negotiation’s progress with an assistant, a colleague or a coach. During the discussion, make sure you try to objectively look through the strengths and weaknesses of your side and theirs.

Take Your Time

Never rush to a conclusion. Although System 1 thinking may be fast, it will result in biased and poorly thought-through results. Give yourself enough time to consider the results and options with System 2 thinking.

In conclusion, yes, “brains are awesome” (:P), it’s great we all have one, and we need to use it selectively to get through our day without absolute decision fatigue by the time we have our second coffee.

But be aware not to let your brain get ‘lazy’ when it comes to important decisions in negotiation. Because that ‘laziness’ can allow your System 1 to take over, resulting in unconscious biases sneaking in and shaping your decisions for you.

If you want to see how these biases happen in real life, try one of our online courses or join a tailor-made live training session for your organization.

Joining one of our courses will put you on par with over 10,000 leading lawyers from Fortune 500 companies to Tier 1 law firms globally, boosting your negotiation skills to a new height.

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If you enjoyed this content, feel free to sign up for our free 10-week Email course on the fundamentals of Collaborative and Competitive Negotiation skills by clicking HERE.