A Fun DIY Science Goodie: The Behavioral Economics of Agreement (and Why Negotiations Fail)

Why do people have such a hard time reaching a compromise? Blame fairness.

Image: Flickr/EdwardDalmulder, cc license

That was the message of behavioral economist George Loewenstein of Carnegie Mellon University when I interviewed him for my book, Brain Trust. In many types of negotiations, he says, ?People aren?t trying to get the maximum payoff, they?re just trying to get what they see as fair.? And if there?s wiggle room in what?s fair, parties on opposing sides are likely to wiggle toward opinions of fairness that are personally beneficial, eventually entrenching like four-hundred-pound sumo wrestlers staring each other down across the ring.

Loewenstein offers the following example: Imagine you and I are splitting twenty poker chips. When all?s said and done, each chip you?re holding will be worth five dollars and each chip I?m holding will be worth twenty dollars (ha!). Now we have to negotiate how to split the twenty chips.

What do you think is fair? Maybe you propose keeping sixteen chips and giving me four. That way, we each get eighty dollars. That?s fair.

But wait ? the chips are worth more to me than they are to you! What are you going to do with a measly eighty dollars? If I keep all the chips I?ll have four hundred dollars. Now that?s worth something. Certainly you can see it?s better to squeeze the most out of the system, even if you don?t happen to be the beneficiary this time, right?

This is an example of a self-serving bias ? your idea of fairness is influenced by what?s best for you. But there?s still hope for agreement. If the top range of my fairness overlaps the bottom range of your fairness, there?s shared territory for a deal. But if I?m only willing to give eight chips max, and you?re only willing to accept twelve chips min, then we?re at loggerheads. In this case, Loewenstein explains, ?People are frequently willing to incur a loss rather than take what they see as an unfair payoff.?

In other words, we?d rather burn money than share with a cheater. No deal.

To see if self-serving bias jumps the confines of abstract poker chip games, Loewenstein and his colleague Linda Babcock sent letters to all the school board presidents (on one side) and heads of teachers? unions (on the other) in Pennsylvania. The letters asked the boards or unions to make a fair list of the nearby towns that are comparable to their own ? like valuing a house, salaries in comparable districts help negotiators set teacher salaries in a target district. Loewenstein and Babcock found that the school board heads consistently listed towns with low teacher salaries, while the heads of teachers? unions consistently listed towns with high teacher salaries.

Which towns were fairly comparable? Well, whichever ones allowed school board presidents to propose lower salaries or union heads to propose higher ones. And generating lists with little overlap was a strong predictor of an eventual strike.

Image: Flickr/RoberBlackwell, cc license

So if you believe you?re on the fair side of the fence and I believe I?m on the other fair side of the fence, and between these fences is a gaping demilitarized zone, what?s the negotiation solution? ?Well,? says Loewenstein, ?we did a lot of research trying to debias it.? How can you remove this pesky self-serving bias? Nix writing an essay about the other side?s point of view. It didn?t work. Having both sides list the holes in their own case helped a bit.

But check this out: Rather than trying to diffuse self-serving bias, Loewenstein recommends using it to create a solution ? the stronger the bias, the better. That?s because a strong bias can blind combatants to the idea that a third party could see it any way but their own.

It?s not just that I would like at least eight poker chips, but that I believe the abstract idea of fairness is certain to award me at least these eight chips. And you?re equally certain you?ll get at least the twelve chips at the bottom end of your fairness scale. So we?re both happy to let a fair third party make the call, both blithely confident that the outcome will be the one we want. Self-serving bias makes us both likely to agree to arbitration.

When you notice a demilitarized zone between the two fences of entrenched parties, rather than trying to nudge these fences closer together ? toward the shared space of agreement?let them stand apart. And pick an arbitrator to split the difference. We?re likely to be equally surprised when this impartial third party awards us ten chips each, but you gotta admit it?s fair.

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