Negotiation Ethics

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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Exercise: Rules

• Exercise: Bullard Houses
• Two-person negotiation over the sale of Bullard Houses.
• A buyer: Jones & Jones.
• A seller: Downtown Realty.

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• Rules:
• You will be randomly assigned a role.
• You will have 30 minutes to read the instructions.
• You will be matched with somebody else in the other role.
• You will have 30 minutes to reach a deal.
• All signed contracts must be submitted before the deadline.

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Exercise: Role Assignment

• Roles:
• Jones & Jones = odd number (1, 3, 5, …)
• Downtown Realty = even number (2, 4, 6, …)

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Ethics

• Ethics is moral principles that govern a person's or group's behavior.

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• Research shows:
• (1) On a given day you are lied to on average from 10 to 200 times.
• (2) Strangers on average lie 3 times within the first ten minutes of meeting a person.
• (3) People lie more to strangers than to co-workers.
• (4) Extraverts lie more than introverts.
• (5) Men lie more than women (Capraro 2018).
• (6) Women lie more to protect other people than men.
• (7) Married people lie to each other in 1 out of every 10 interactions.

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Unethical Behavior in Negotiation

• Unethical behavior in negotiation:
• Lying.
• Bluffing.
• Deception.
• Reneging on negotiated agreement.
• Retracting an offer.

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• Lying about:
• Positions.
• Interests.
• Priorities and preferences.
• BATNA and reservation prices.

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Exercise: Seller

• What is the seller’s target?
• Target: $20-$30m.

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• What are the seller’s BATNA and reservation price?
• (1) Sell to Wimbledon Properties (expected $8.6m).
• (2) Sell to Gentrification Inc. (expected $15m).
• (3) Sell to Grouse Inc. (expected $17.5m-$19.5m).
• Reservation price: $15m-$19.5m.

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• What are the seller’s interests?
• Sell the property to the “right” buyer.
• Prevent the Bullard Houses from becoming tourist attractions.
• Keep a good reputation and avoid neighbors’ uprising.

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Exercise: Seller-Buyer

• Sellers:
• Who did you sell the ancestral home to?
• What are they going to do with it?

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• Buyers:
• How did you respond when you were asked about the identity of your client?
• How did you respond when you were asked about the intended use of the property?

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Exercise: Buyer

• What is the buyer’s target?
• (1) luxury housing $11.5-$13.5m .
• (2) $20 Quincy Market.
• Target: $10m-$20m.

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• What are the buyer’s BATNA and reservation price?
• Building hotel on a different territory for $20m (not as prestigious).
• The site could be worth $32m-$40m, but it is difficult to build a hotel.
• Reservation price is given by the client: $24m.

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• What are the buyer’s interests?
• Buy the property for a hotel site.
• Do not reveal who is the buyer and the intended use of the site.

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Exercise: Bargaining Zone

• Possible settlement:
• Seller’s reservation price is $15m-$19.5m.
• Buyer’s reservation price is $24m.
• Bargaining zone: $9m-$4.5m.

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• There should be no agreement unless:
• (1) The buyer lies about the planned use of the property.
• (2) The buyer violates the instructions not to disclose the planned use of the property.
• (3) The representative of the seller loses sight of the seller’s fundamental interests.

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Exercise: Closing the Deal

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The Real Story

• The New York Palace Hotel is a hotel combining the historic landmark Villard Mansion with a modern 55-story tower.

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Economics of Lying

• Typical economic cost-benefit analysis:
• As the benefits of deception rise and the costs fall, negotiators become more likely to lie.

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• Benefits of lying:
• Possible gains in the short-run.

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• Costs of lying:
• Bad reputation in the long-run (lower likelihood of a successful negotiation in the future).
• Probability of detection (legal costs).

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Deception Game Study

• The deception game (Gneezy 2005):
• Player 1 sends either message A or B to player 2:
• Message A: "Option A will earn you more money than option B“.
• Message B: "Option B will earn you more money than option A“.
• Player 2 chooses either A or B solely based on the message of player 1.

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• Conclusions:
• The higher the benefit of lying the higher is the likelihood of lying.
• The higher the cost of lying the lower is the likelihood of lying.

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Psychology of Lying

• Psychological costs of lying:
• Lying produces emotional psychological costs in forms of guilt and shame.
• People who engage in lying behavior have to remember “too much”.

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• Biases that give rise to ethical problems:
• Overconfidence.
• Confirmation bias.
• Self-serving bias.

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Negotiation Biases

• Cognitive biases are mental errors caused by our simplified information processing strategies:
• Overconfidence.
• Agreement bias.
• Anchoring bias.
• Incompatibility bias.
• Fixed-pie bias.
• Confirmation bias.
• Self-serving bias.
• Availability heuristic.
• In-group bias.
• Exaggeration of conflict bias.

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Confirmation Bias

• Confirmation bias:
• The tendency to select information that confirms your beliefs.

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• Rationality behind the confirmation bias:
• Biased search for information.
• Biased interpretation.
• Biased memory (false memories).
• Availability heuristics (a mental shortcut that relies on immediate examples that come to a person's mind).

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• Potential solutions:
• Be open minded (embrace surprises).
• Hire a third party to conduct effective and complete due diligence.

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Self-serving Bias

• Self-serving bias:
• The tendency of people to attribute positive events to their own character but attribute negative events to external factors.
• Example: You get an A in the Negotiation class and you attribute it to your own awesomeness! You get a C and you attribute it to your professor not having explained well enough.

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• Rationality behind the self-serving bias:
• Common strategy to protect your self-esteem.
• Attribution theory – tendency to attribute a cause to the behavior.

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• Potential solutions:
• Mindful awareness.
• Be accountable for your actions.

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Common Reasons for Lying

• Conditions under which negotiators say they would engage in deception (i.e., lying) in negotiations.

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• Lie-for-a-lie: When I suspect the other party is deceiving me
• One shot: In a one-shot situation, with no potential for a long-term relationship
• Personal gain: If there was a gain to be had
• Not getting caught: If I felt I could get away with it
• Life or death: If the situation was “life or death”
• Low power: If the other party had more power (i.e., to “level the playing field”)
• Protecting reputation: When I would not have to worry about my reputation
• Dislike: If I did not like the other person
• Fixed pie: If the situation was purely distributive

The Reciprocity Principle

Strategies to Avoid Lying

• Strategy 1: Do not answer uncomfortable questions.
• When asked about your current salary you can avoid the question by saying: “I am willing to take a reasonable offer”.

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• Strategy 2: Rule question out of bounds.
• When asked about other offers you can respond by saying: “I don’t feel comfortable discussing other offers”.

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• Strategy 3: Answer another question.
• When asked about your current salary you can avoid the question by saying: “I’m focusing on jobs in the $90-$100K range”.

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• Strategy 4: Answer with a question.
• “What is the salary range your company is offering for the role?”

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Strategies to Detect Lying

• Strategy 5: Focus on the relevant attributes (Belot et al. 2012).
• It is hard to detect a lie (Eckman and O’Sullivan 1991).
• Detection rate: college students (53%), adults (55%), police (56%), FBI (56%), judges (57%), psychiatrists (58%), secret service (64%).
• Not important: age and attractiveness.
• Important: gender (men lie more, especially when a lie is self-serving; women lie more to protect others) and actions, such as promises.

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• Strategy 6: Focus on inconsistencies.
• Start with the baseline – discover how people act naturally.
• Ask “direct questions” and focus on inconsistencies and vagueness.
• Pay attention to body movements, voice and content of conversation.

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Bill Clinton

• Bill Clinton: "I did not have sexual relations with that woman…“
• http://www.youtube.com/watch?v=VBe_guezGGc

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When Lying…

• When lying:
• (1) People are over determined in their denial: “I did not”.
• (2) People use distancing language: “that woman”.
• (3) People repeat the question.
• (4) People use too many details.
• (5) People avoid eye contact (or look for too long into your eyes).

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Thank you!

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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References

• Thompson, L. (2004). The Mind and Heart of the Negotiator. New Jersey: Prentice Hall. (Chapter 7 & Appendix 2)
• Capraro, V. (2018). Gender differences in lying in sender-receiver games: A meta-analysis. Judgment and Decision Making, 13, 345-355.
• Robinson, R.J., Lewicki, R.J., and Donahue, E.M. (2000). Extending and testing a five-factor model of ethical and unethical bargaining tactics: Introducing the SINS scale. Journal of Organizational Behavior, 21, 649-664.
• Gneezy, U. (2005). Deception: The role of consequences. American Economic Review, 95, 384-394.
• Ekman, P., & O'Sullivan, M. (1991). Who can catch a liar? American Psychologist, 46, 913.
• Belot, M., Bhaskar, V., & Van De Ven, J. (2012). Can observers predict trustworthiness? Review of Economics and Statistics, 94, 246-259.

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Appendix: Dictator Game

• The dictator game (Gneezy, 2005):
• Player 1 chooses either A or B.
• Player 2 makes no action and simply receives the suggested payoff.

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