GETTING TO THE AGREEMENT Third Party Direct Intervention As A Way To Overcome Judgmental Biases In Business Negotiations Ph.D. Candidate: Andrea Caputo
Advisor: Prof. Roberto Cafferata Scientific Tutor: Dr. Gianpaolo Abatecola Program of Study Committee:
Prof. Corrado Cerruti Dr. Simonetta Pattuglia Dr. Emiliano Di Carlo
UNIVERSITY OF ROME “TOR VERGATA” SCHOOL OF ECONOMICS PH.D. PROGRAM IN MANAGEMENT XXV CICLE January 16th, 2013
� The negotiation theory, which has a prescriptive nature, emerges as a synthesis between the economic-mathematic approach and the socio-psychological approach.
It implies (Simon, 1957, Cyert and March, 1963, Lax and Sebenius, 1986): � actors are not perfectly rational, � have emotional and cognitive limitations, � miss a perfect and common knowledge of the
� Negotiation is a process through which two or more parties could reach a needed joint decision, while having different preferences (Rubin and Brown, 1975; Gulliver, 1977; Zartman, 1977; Pruitt, 1981; Raiffa, 1982; Lax and Sebenius, 1986; Lewicki, Saunders, and Barry, 2005).
The essential elements of a negotiation
are: 1. Interdependence; 2. Conflict of interests;
3. Possible agreement.
Different kinds of negotiation can be featured according to: 1. Parties (two-party negotiations versus
many-party negotiations) 2. Issues (single-issue negotiations versus
many-issue negotiations) 3. Interests (distributive or win-lose
� Different dynamics of development of such negotiations from the bilateral negotiations (Kramer, 1991): � wider size, � greater complexity, and � increased diversity.
“There is a vast difference between conflicts involving two disputants and those involving more than two disputants” (Raiffa, 1982; p. 11).
� Distributive negotiations are also known as win-lose - or fixed pie - and are configured for conflicting interests of the parties. Distributive agreements represent agreed divisions of a fixed pie of resources, where one side’s gains are the other side’s losses.
� Integrative negotiations are defined win-win – or expandable pie - because of the possibility of reaching an agreement satisfactory to all parties. Integrative agreements, in contrast, reconcile the interests of both parties, and lead to higher joint benefit.
� Usually theory refers to third parties only as mediators or arbitrators, which are mainly driven by their own interest, often non-related to the negotiation’s outcome and implementation.
� The direct third party intervention can be defined as the situation when external parties to a negotiation, i.e. the stakeholders, enter the negotiation with an interest in it, and they could act as a facilitator or not.
Interdependence of chapters The Third Who Joins a Negotiation
• RQ: How can external parties, such as stakeholders, help multilateral negotiations to create value for all the parties involved?
• Systematic Literature Review
Studying Biases in Negotiations
• RQ: What is the discipline’s current grasp of cognitive biases in negotiation processes? What lessons can be drawn from this body of literature?
• Systematic Literature Review
Helping Negotiators to Overcome Biases
• RQ: Can a third party direct intervention help in overcoming biases in negotiations? How do managers perceive this role? Do managers and negotiators perceive this form of cooperation as fair and effective?
The size is consistent with the results of other systematic reviews published on management journals in the last two decades (e.g. Abatecola et al., 2011, Cafferata et al., 2009, Carpenter et al., 2004, Mari and Poggesi, 2013, Newbert, 2007, Tranfield et al., 2003).
� Karambayya and Brett (1989) focused on perceptions of fairness and the role of managers on handling disputes. Findings demonstrated negative outcomes when disputants worked the conflict out themselves.
� Blum and Wall (1991) addressed the need to focus more on integrative negotiators' strategies, opening to further studies on third parties intervention.
� Sebenius (1992) introduces the ideas of governing negotiation process and structure, and is currently considered by scholars as one of the most important work on multilateral negotiation (Brouthers and Bamossy, 1997, Mnookin, 2003).
� Keashly et al. (1993), focusing on the relationship between outcome and third party intervention, emphasized how the parties themselves have difficulties to shift their thinking and behavior towards a collaborative, win-win orientation.
� Ackermann and Eden (2011) found a positive correlation between the introduction of a subject capable in helping collective cognition and agreement’s implementation and stability.
Stanovich and West (2000) have made a distinction between System 1 and System 2 within cognitive functioning; � System 1: intuitive, automatic effortless,
implicit and emotional; � System 2: reflective, slower, conscious, effortful
and rational. Since the System 1 is faster than System 2 in making decisions, people have developed thousands of simplifying strategies or rules of thumb, so-called heuristics.
� negotiation decisions are often made in conjunction with other parties, which have different interests (Fisher et al., 1981; Kramer, 1991; Lax and Sebenius, 1986; R. J. Lewicki et al., 2005; Raiffa, Richardson, and Metcalfe, 2002; Zartman, 1977);
� as individual decisions are often irrational and affected by cognitive biases, so would negotiated decisions.
� the goal of cognitive studies is to identify faulty assumptions that negotiators have during negotiation situations (Bazerman and Carroll, 1987; Pruitt and Carnevale, 1993; Thompson, 1990)
� heuristics are simplifying strategies to cope with complex issues and problems often lead to systematic biases (Bazerman and Moore, 2009, Tversky and Kahneman, 1974).
The size is consistent with the results of other systematic reviews published on management journals in the last two decades (e.g. Abatecola et al., 2011, Cafferata et al., 2009, Carpenter et al., 2004, Mari and Poggesi, 2013, Newbert, 2007, Tranfield et al., 2003).
� The anchoring effect relates to the decision-making process when individuals make estimates for values. The decision-making literature predicts that an individual will make their estimate based upon an initial value – derived from past events, random assignment, or whatever information is available – and typically make insufficient adjustments from that anchor when establishing a final value (Bazerman and Moore, 2009). Anchoring on unreliable information appears to pose a significant risk to the quality of individual judgment, even
when objectively appropriate anchors are available (Whyte and Sebenius, 1997).
� The fixed-pie (or fixed-sum) judgmental error is defined as “the tendency to assume that the other party places the same importance – or has the same
priorities as the self – on the to-be-negotiated issues when the potential for mutually beneficial trades exists” (Thompson and Hastie, 1990). This means that negotiators may fail to accurately understand their counterparts’ interests, judging that one’s own interests are diametrically opposed to one’s opponent. Thus, the fixed-pie perception often concludes with a faulty decision, because most situations provide an opportunity for joint gain (Lax and Sebenius, 1986,
� The framing effect consists in different perceptions and different reactions individuals may have based on how the problem is posed to them. Alternative wordings of the same objective information can significantly alter the decisions that people typically make, despite the fact that differences between frames should have no effect on the rational decision (Bazerman and Moore, 2009). In particular, decision-makers treat the prospect of gains differently than the prospect of losses, and this strictly
interacts with their risk propensity (Kahneman and Tversky, 1979).
� The self-serving bias is commonly defined in literature as a judgmental error that effects individual perception of a situation depending on their role in the situation, even when identical information are presented. This was found
to be grounded in the concept that people have a pervasive tendency to see themselves better than others (Miller and Ross, 1975).
The idea: 2 levels of analysis X 3 objects of analysis
2 levels of analysis: ① the general idea about the third party effect on the
negotiation from a representative population of managers with different experience
② how answers might differ across different subjects, in terms of background education and experience, gender, and personality traits (McCrae and Costa, 1987, McCrae and John, 1992)
3 objects of analysis: ① how managers’ perceptions of the negotiation process have
changed between the two parts of the case, namely before and after the third party direct intervention;
② how managers perceived the role and the effect of the third party direct intervention; and
③ the output of the case study, namely if the subject accepted the mediated agreement proposed by the third party at the end of the case scenario.
Ch. 3 Helping negotiators to overcome judgmental biases
According to Barrick and Mount (1991), these include five factors: � extraversion, which is associated with being sociable, assertive,
talkative and active; � agreeableness, which is associated with being courteous, flexible,
trusting, co-operative and tolerant; � conscientiousness, which is associated with being careful,
responsible and organized; � emotional stability, which is associated with being calm, even-
tempered, and less likely to feel tense or rattled;
� openness to experience, which is associated with being imaginative, curious, original and open-minded.
The impact of personality on negotiation has not been adequately studied, and researchers may have prematurely dismissed personality effects as topics for research (e.g. Barry and Friedman, 1998, de Dreu et al., 1999, de Dreu, 2003, Griffith, 1991, Liu et al., 2005).
Ch. 3 Helping negotiators to overcome judgmental biases
The choice of the TIPI test � One of the most recently developed test (Gosling et al., 2003)
� Reduces transient measurement errors resulting from participant fatigue, frustration, and boredom associated with completing several survey instruments in combination with a lengthy experimental session (Volk et al., 2011).
� Was validated against standard Big-Five instruments, finding generally positive results in terms of validity (Donnellan et al., 2006, Ehrhart et al., 2009, Gosling et al., 2003, Jonason et al., 2011, Lu and Kao, 2009, Volk et al., 2011).
� Has acceptable psychometric properties even across different cultures and languages (Hofmans et al., 2008, Muck et al., 2007, Romero et al., 2012).
The TIPI test Personality Questions (Ten-Item Personality Inventory – TIPI, from Gosling et. al., 2003) Here are a number of personality traits that may or may not apply to you. Please select a number next to each statement to indicate the extent to which you agree or disagree with that statement. You should rate the extent to which the pair of traits applies to you, even if one characteristic applies more strongly than the other. 1. I see myself as extraverted, enthusiastic. 2. I see myself as critical, quarrelsome. 3. I see myself as dependable, self disciplined. 4. I see myself anxious, easily upset. 5. I see myself as open to new experiences, complex. 6. I see myself as reserved, quiet. 7. I see myself as sympathetic, warm. 8. I see myself as disorganized, careless. 9. I see myself as calm, emotionally stable. 10. I see myself as conventional, uncreative.
Cronbach’s alphas for the 5 TIPI scales were very similar to other studies (Volk et al. 2011, Donnellan et al., 2006, Ehrhart et al., 2009, Gosling et al., 2003)
The questionnaire N. Questions after part A of the case Questions after part B of the case
1 I think Jim Griffin’s communication style is open. I think Jim Griffin’s communication style is open. 2 I think Ted Mosby’s communication style is open. I think Ted Mosby’s communication style is open. 3 I think Jim Griffin took advantage of the situation. I think Jim Griffin took advantage of the situation. 4 I think Ted Mosby took advantage of the situation. I think Ted Mosby took advantage of the situation. 5 I think the overall information disclosure was fair. I think the overall information disclosure was fair. 6 I think Jim Griffin’s information disclosure was fair. I think Jim Griffin’s information disclosure was fair. 7 I think Ted Mosby’s information disclosure was fair. I think Ted Mosby’s information disclosure was fair. 8 I think the parties’ orientation was competitive rather than
collaborative. I think the parties’ orientation was competitive rather than collaborative.
9 I think the parties tried to maximize their own share of benefits, rather than to increase benefits for both sides.
I think the parties tried to maximize their own share of benefits, rather than to increase benefits for both sides.
10 I think the parties focused more on positions than interests. I think the parties focused more on positions than interests. 11 I think Jim Griffin interpreted the information in a limited
fashion. I think Jim Griffin interpreted the information in a limited fashion.
12 I think Ted Mosby interpreted the information in a limited fashion.
I think Ted Mosby interpreted the information in a limited fashion.
13 I think Jim Griffin is considering all the facets of the situation. I think Jim Griffin is considering all the facets of the situation. 14 I think Ted Mosby is considering all the facets of the situation. I think Ted Mosby is considering all the facets of the situation. 15 I think the situation is likely to be resolved. I think the situation is likely to be resolved. 16 I think the intervention of a third party can be useful. I think the role of Mayor Walker was useful. 17 . I think the role of Mayor Walker was determinant. 18 . I think Mayor Walker helped the parties overcoming their judgmental biases. 19 . I think the entering of Mayor Walker can lead to an agreement. 20 . If you were Mosby, would you accept the offer? 21 . If you were Griffin, would you accept the offer?
Dimension reduction Value domains for terminal values Total Variance
Explained Marker values in order of the level of the factor loadings
Claiming value Part A: α = 0.773, M = 3.82, SD= 0.71; Part B: α = 0.625, M = 3.17, SD= 0.71
63,61 %
8. I think the parties’ orientation was competitive rather than collaborative. 9. I think the parties tried to maximize own share of benefits, rather than to increase benefits for both sides. 10. I think the parties focused more on positions than interests.
Creating value Part A: α = 0.709, M = 2.76, SD= 0.77; Part B: α = 0.509, M = 3.11, SD = 0.65
58,23 %
13. I think Jim Griffin is considering all the facets of the situation. 14. I think Ted Mosby is considering all the facets of the situation. 10. I think the parties focused more on positions than interests. (reverse)
Information fairness Part A: α = 0.629, M = 3.23, SD = 0.66; Part B: α = 0.580, M = 3.54, SD = 0.56
57,09 %
5. I think the overall information disclosure was fair. 6. I think Jim Griffin’s information disclosure was fair. 7. I think Ted Mosby’s information disclosure was fair.
Biased interpretation of information Part A: α = 0.634, M = 2.90, SD = 0.64; Part B: α = 0.558, M = 2.98, SD = 0.58
49,97 %
11. I think Jim Griffin interpreted the information in a limited fashion. 12. I think Ted Mosby interpreted the information in a limited fashion. 1. I think Jim Griffin’s communication style is open. (reverse) 2. I think Ted Mosby’s communication style is open. (reverse)
Communication openness Part A: α = 0.348, M = 3.29, SD = 0.76; Part B: α = 0.330, M = 3.26, SD = 0.68
62,75 %
1. I think Jim Griffin’s communication style is open. 2. I think Ted Mosby’s communication style is open.
* The table shows value domains obtained from principal components factor analysis with varimax rotation. Cronbach’s alphas (α), mean scores (M) and standard deviations (SD) in parentheses.
� In order to understand differences among the population in terms of demographic characteristics, a series of compare means procedures have been computed by taking into consideration the above-mentioned five dimensions and independent variables such as education, gender and experience or education in negotiations.
� No substantial differences have been found in terms of gender and education level, while the specific education or experience in negotiation showed some differences in the mean: � Information Fairness (F = 2.011, p = .144) � Communication openness (F = 2.558, p = .087).
Results from cross tabulation analysis show that the vast majority of the people perceived a third party as useful, before and after intervention. In addition, only four participants changed their opinion on this statement.
The three questions are all significantly correlated, and Cronbach’s alpha of the three questions is .722, which constitutes a high value for this index.
� a gender effect, namely the likelihood of reaching an agreement is higher for female subjects than male subjects (B = .67, p = .031)
� An “educational level” effect, people with lower level of education showed more availability to accept the mediated offer (B = -.275, p = .011)
� A limited “working experience” effect, an higher value in working experience increase the probability of acceptance of the mediated offer (B = .04, p = .000).
In terms of personality traits, just “extraversion”, “agreeableness”, and “emotional stability” showed a significant impact on the target variable:
� Extraversion and emotional stability play a negative effect (respectively B = -.475, p = .000 and B = -.375, p = .001)
� Agreeableness plays a positive effect (B = .391, p = .024).
The change on perceptions between the two parts of the case 1 After the intervention of the third party, the parties showed higher creating
value characteristics rather than claiming value Supported
2 The entrance of the third party should increase the perception of fairness of the information disclosure
Supported
3 The parties should interpret the information in a less biased fashion after the intervention of the third party
Not Supported
4 The parties should communicate in a more open way after the intervention of the third party
Not Supported
The effect of the third party 5 Subjects should show higher confidence in a negotiated solution after the
intervention of the third party Supported
6 Subjects should perceive the third party as useful Supported 7 Subjects’ perceptions on the role of third party should be correlated with the
role played by the third party on overcoming biases and leading to an agreement
Supported
The output of the case study 8 Subjects should accept the offer Supported 9 Differences should be found in terms of personality dimensions, education, and
experience Supported
10 A correlation should be found between the acceptance of the offer and the perception of the role of the third party
� The third party had an important influence on the perceived creating value level and fairness level in the negotiation process. This supports findings from the vast majority of the literature (e.g. Arunachalam et al., 1998, Lewicki et al., 1992, Raiffa et al., 2002, Sebenius, 1992).
� The parties showed fixed-pie error along the negotiation process, which, as predicted, has an effect on the perception of fairness (e.g. Mumpower et al., 2004, Thompson and Hastie, 1990, Thompson and Loewenstein, 1992).
� It is relevant to underline the absence of a strong gender effect as predicted by some recent studies (e.g. Bowles and Flynn, 2010, Eriksson and Sandberg, 2012, Kulik and Olekalns, 2012, Semnani-Azad and Adair, 2011).
� Further research should specifically analyze the relationship between education and experience in negotiation, as results showed differences in perceptions among subjects with and without specific education or experience in negotiations.
� The vast majority of participants perceived the third party direct intervention as useful and determinant to overcome judgmental biases, and then lead to an agreement, increasing their positive perception after the intervention. This supports previous studies (e.g. Conlon and Fasolo, 1990, Conlon et al., 1994, Delerue, 2005, Sebenius, 1992).
� The majority of subjects accepted the offers. � No correlation has been found between the acceptance of the offer and the
perception on the role of the third party, as well as the fact that the subject possessed a specific experience or education on negotiation.
� The trait of extraversion has been found related to some measures of the perceptions on the case study as well as on the possibility to reach a negotiated agreement. � lower level of information fairness and creating value associated with the third party
intervention – confirmin Imai and Gelfand (2010). � Predictor for the rejection of the proposal..
� Negotiators high in agreeableness have been found to be best suited to integrative negotiations and to prefer negotiation and disengagement tactics as better choices than power assertion tactics (Graziano et al., 1996, Dimotakis et al., 2012). These results have been confirmed by the present analysis.
� Emotional stability is positively related to integrative styles of negotiation (e.g. Ana-Paula et al., 2012, Der Foo et al., 2004). � perceived a lower fairness in the absence of the third party and a higher claiming value
tactics after the intervention of the third party. � negatively correlated with the disposition to accept the mediated offer.
� People with high values of openness to experience showed a higher positive perception on the effect of the third party with reference to enhanced creating value and decreased claiming value. � no impact on the disposition to accept the mediated settlement. This is consistent with
recent finding where openness to experience has not been found related to significantly improved integrative negotiation processes (Imai and Gelfand, 2010).
� A need is advocated in terms of studies referring to parties that enter the negotiation as main actors and act as facilitators
� A need to study under-researched biases in negotiation such as Focalism and Confirmation traps
� A need for a systematic theory about the interactions between biases in negotiation
� The roles of culture, learning, experience, mood and personality have not been deeply researched and need attention
What about situations where more than one bias at the time effects the negotiation? Is it possible to understand connections among biases during a negotiation process? Are there biases that can help overcome others? All those questions seem to remain unanswered, and they deserve specific research attention.
