6 additional pitfals to avoid during a negotiation: Cognitive Biases

August 17, 2014

It was Richard Feynman who gave the most profound warning: “The first principle is that you must not fool yourself — and you are the easiest person to fool.”

Following my post which highlighted the importance of identifying Logical Fallacies and showcased the 6 most prevalent ones with practical examples, I feel that it is time to also  touch upon another significant field that can become a pitfall in a negotiation, that of “cognitive bias”.

Read on if you want to find out and become conscious of 6 prevalent tendencies to self-deceive yourself by restricting into thinking in a particular way i.e. fall a victim of cognitive biases.

Gaining consciousness of this “bad reasoning” will assist to identify them and so, improve your negotiation skills.

250px-Kaninchen_und_Ente

Do you see a duck or a rabbit?

DEFINITIONS

Cognition is the mental action or process of acquiring knowledge and understanding through thought, experience and the senses.

As per the Webster’s Dictionary (Consice Encyclopedia)

“Cognition includes every mental process that may be described as an experience of knowing (including perceiving, recognizing, conceiving, and reasoning), as distinguished from an experience of feeling or of willing”.

So, a cognitive bias is a tendency to commit certain errors in the process of reasoning.

How is this different to a Logical Fallacy?

“A [Logical] fallacy is an actual mistake in reasoning. A cognitive bias is a tendency to commit certain sorts of mistakes. Not all fallacies are the result of cognitive biases, and having a cognitive bias doesn’t guarantee that you’ll commit the corresponding error”. AskPhilosopher’s

6 COGNITIVE BIASES TO WATCH OUT FOR

There are many cognitive biases (see list here).

The below 6 form a useful reference list of some fairly common ones that you can identify even on a daily basis:

1) Forer Effect or Barnum Effect 

This describes the effect when individuals believe that general enough statements that could apply to a wide range of people are supposedly specifically tailored for them.

This effect can provide a partial explanation for the widespread acceptance of e.g. astrology as well as, some types of personality tests.

Below is a interesting video highlighting how this effect works:

Screen Shot 2014-08-15 at 11.59.33 pm

2) Bandwagon effect

The tendency to do (or believe) things because they are popular at the time. This is also known as herd mentality or groupthink.

Examples can be found in politics and consumer behaviour. Look at how the “cool” product, a popular leader or the latest fad attracts consumers – until the next one comes along. For example:

A political party holds a rousing rally, with music, speeches and much cheering. Those who go are encouraged to ‘keep the faith’ and ‘bring others on board’ and otherwise keep the bandwagon going. (changingminds.org)

Popular diets, popular books and popular “5 step to success” schemes may fall in this category.

3) Framing effect

Drawing different conclusions from the same information, depending on how or by whom that information is presented.

“This course of action has a 20 percent failure rate,” few managers would approve. When that same solution is presented as having an 80 percent success rate, the same manager is going to consider it more deeply—even though a 20 percent failure rate means the same thing as an 80 percent success rate! The frame changes the decision’.” Stever Robbins – The Path to Critical Thinking

4) Pareidolia

This is a psychological phenomenon during which vague and/or random stimuli (often an image or sound) are perceived as significant.

e.g. seeing a face in the clouds, the face on mars, and hearing non-existent hidden messages on white noise or on records played in reverse.

Face-on-mars

5) Stereotyping

This is the expectation that a member of an ethnic, religious, geographic, gender or other group has certain characteristics just because they belong to that group, without having more information about this person.

As an example:

What comes to mind when you hear the word economist? Probably a male figure of some sort.

Substitute the word “economist” for “nurse”, “teacher”, “scientist” or “doctor”.

Well, there you have it.

6) Halo effect

The “what is beautiful is good” effect.

The Halo effect describes the tendency we have to form perceptions of one’s personality (or other characteristics) based on a particular likeable or unlikable element such as the person’s physical attractiveness.

“One great example of the halo effect in action is our overall impression of celebrities. Since we perceive them as attractive, successful, and often likeable, we also tend to see them as intelligent, kind and funny”. (psychology.about)

The above six cognitive biases are just a small sample of the wide variety of bad reasoning out there. However, these are a good start on the journey to establishing integrity in thinking towards a successful negotiation.

How many of them can you identify in your daily interactions?

Image courtesy of Wikipedia

“The rabbit–duck illusion is an ambiguous image in which a rabbit or a duck can be seen….. The image was made famous by Ludwig Wittgenstein, who included it in his Philosophical Investigations as a means of describing two different ways of seeing: seeing that/seeing as”.

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Filed under Effective Communication, Effective Negotiation Tools series, General, Procurement Tagged with ,

The 4 absolute basics to a contract deal (the 4Ps)

March 6, 2014

What are the absolute basics towards a steady foundation for a written deal?

Imagine that you have been working on a deal for weeks and during a meeting with the supplier (or customer) you reach a breakthrough agreement. Both parties are quite excited and shake hands. Is this enough?

Certain cultures consider this to be enough.

Irrespective of the integrity (character) of both parties though, it is always best to write things down as a Letter of Intent (LOI) or a Memorandum of Understanding (MOU) or Agreement (MOA).

But what do you actually need to take down as a minimum to make this deal valid, workable and to later avoid disputes.

Read on if you want to find out the 4 elements that are widely acknowledged as the absolute basics to a deal.

handshake

The 3 Ps

A deal is considered to be valid if it refers to three basic elements commonly known as the 3Ps. These are:

  1. Parties
  2. Price
  3. Product

It is quite obvious that if we do not have the parties that are covered, the price agreed (and what is included and excluded in the rates) and the product (an exact description of what the product/service is and any agreed variations) then, really, there is no deal. As without these elements there is inadequate clarity to any deal.

3Ps augmented – (the IRON TRIANGLE contribution)

I don’t believe that the above are enough though in the current environment as I have elaborated here based the concept of the Iron Triangle.

This concept reflects the importance of the balance between i) the Scope-Product, ii) the Price and iii) the Performance-Quality-KPI expectations when agreeing a deal.

What the Iron Triangle concept contends is that if these three elements are not in balance the deal is in high risk of failing.

As you can see, the Iron Triangle concept adds to the 3P concept one more element. The element of Performance-Quality-KPI as an absolute basic to any deal.

SUMMARY – the new model = The 4 Ps

So, in summary, combining the two models, the absolute basics to any deal are as follows:

1. Take down the deal in a written agreement (LOI, MOU,MOA etc)

2. Include the below in the written agreement:

  1. Parties
  2. Price
  3. Product
  4. Performance (Quality – KPIs)

What are the elements you use as the absolute basics in a written deal?

 

Image courtesy of anchor1203 / www.flickr.com]

This post was first published on the CILT Australia blog page

Filed under Contract Management, Effective Negotiation Tools series, Procurement, Sourcing Tagged with , , ,

5 Approaches to a Negotiation – (Negotiations and everyday life)

February 22, 2014

The ability to negotiate effectively is one of the key skills to have in life.

Do you have a practical model to think about a negotiation? Something that will work at a fruit market as well as a high status negotiation table.

Read on if you want to find out about a model I have found extremely useful and easy to explain to my 9 year old, as well as, esteemed colleagues and can be used as an additional framework for any occasion.

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WHAT IS YOUR PREFERRED STYLE?

Before you read about this particular model check the below case study and choose your 2 preferred responses.

This will provide an indicator to your preferred negotiation style.

CASE STUDY

You hire a component for a particular gadget and the contract is up for renewal. Your supplier, who you have used for a while has good service quality but not excellent. Your company is expanding with the requirement for this component increasing by 30%, and therefore are looking for a reduction in the price. You would settle for no price increase; your boss would be satisfied if an increase was held to 2 per cent. Your supplier’s first offer, taking into account the increased volume, is at the same unit price as last year. How do you respond?

Potential Responses

  1. Accept the offer
  2. Explain you were looking for a 10% reduction, ask to be met halfway, i.e. a 5% reduction in the unit price
  3. Explain that you should also be looking elsewhere as a matter of company policy
  4. Stress the 30% increase in business you have to offer and the fact that the basic cost of the equipment has fallen, due to improvements in technology
  5. Suggest improved payment terms and a longer contract period in exchange for a better offer.
  6. Show appreciation for the offer that has been made and mention the ‘bad time’ users have given you over servicing

Now, spend a minute to consider your answers. Remember choose only two of the above six choices.

Ready. Well done! Let’s move on.

THE MODEL

Categorisation is essential for it is the way to frame and really understand how things work. In this model, the negotiation approaches are split in the below general categories (the #numbering corresponds to the above suggested responses):

  • Logic #4
  • Threat #3
  • Emotion #6
  • Compromise #2
  • Bargaining #5
  • and then there is Acceptance #1 but then this is not really a negotiation (if Acceptance is the first response).

So, which were your preferred responses?

Your choices are an indicator of what is your instinctive preferred style is.

What you choose to use at every negotiation should be quite different and should dependent on the context, the relationship, the required outcome etc.

Using one behavioural style at every negotiation despite the different power dynamics and the different preferred outcomes is not wise as this would not enhance the potential for maximising the value of the deal.

For example, as an extreme case, imagine you have decided upon a collaborative approach for R&D (mutual product development) with a supplier but your natural style is to Threaten (#3). Well, this is not an approach that builds bridges towards greater collaboration.

WAYS TO USE THE MODEL AND BE EFFECTIVE AT A NEGOTIATION

1. Know what you naturally prefer (in this CIPS white paper there is a test that more accurately measures your negotiation style)

2. Pay attention on what is the preferred method from the other side.

An easy way to do this is to identify key themes. Notice again the above 6 responses and compare them for key differences.

3. Get on your team people with natural talent at different negotiation style.

4. Prepare, Prepare, Prepare. Prepare on what style and arguments you should use. Prepare for what naturally you would expect from the other party. Prepare BATNA, WATNA etc

FURTHER USEFUL READING

Previous Blog posts about Negotiations:

  • Definition on what the term negotiation really means (here).
  • The first step towards an effective negotiation (here).
  • A useful guide to identify and avoid bad reasoning in a Logical argument (here).
    A checklist on prerequisites for an effective negotiation (here)

Great Books

  1. Clive Rich- The Yes Book
  2. Robert Cialdini – Influence
  3. Roger Fisher & William Ury – Getting to Yes

 

 

 

 

[Image courtesy of Andalousia / www.morguefile.com]

Filed under Effective Communication, Effective Negotiation Tools series Tagged with , , ,

If you want something complex done well, give it to a busy person!

December 13, 2013

We have all heard the phrase “If you want something done, give it to a busy person”. We all felt that there is some truth in it.

Research done by Dijksterhuis and van Olden recently seems to take this insight to another level.

The research was performed on how Decision Making and the likelihood of  Regret are linked and produces some very interesting results. Let’s look into it.

THE EXPERIMENT

As mentioned in Richard Wiseman’s book 59 Seconds, a few years ago Dijksterhuis and van Olden conducted a study whereas, subjects were shown five posters and were asked to use three different techniques to make a decision. At the end of this process the subjects were given the poster of their choice and a month later the researchers called them and asked them how they felt about their decision and what amount of money would it take to part with their originally chosen poster. The results are surprising.

At the time of the experiment the researchers broke the subjects into three groups.

  1. The first group was asked to immediately choose the poster they liked the most.
  2. The second group was asked to study the posters well, list what they liked and did not like about them. Only then, to make a decision and choose a  poster.
  3. The third group was quickly shown the posters and then they were asked to do anagram puzzles for 5 minutes. Only after this process, they were asked to choose a poster.

At the end of the experiment, all subjects from all three groups were handed over the poster of their choice, and then a month later they were asked how much they liked the poster then and how much they would sell it for.

Surprisingly, at the time of the experiment the subjects in Group number 2 (the ones that were asked to carefully consider the pros and cons) were the most confident they had made the right decision.

A month later though, it was a completely different story.

Group number 3, (who was shown the posters quickly and then did puzzles before eventually making a choice), were the most attached to their chosen poster and wanted more money to part with it.

WHY GROUP NUMBER 3? THE THEORY OF THE UNCONSCIOUS THOUGHT

The explanation of this behaviour is attributed to what is called, the theory of the Unconscious Thought.

A good summary of it can be found here and below.

Unconscious thought theory (UTT) was first presented by Ap Dijksterhuis and Loran Nordgren in 2006. UTT posits that the unconscious mind is capable of performing tasks outside of one’s awareness, and that unconscious thought (UT) is better at solving complex tasks, where many variables are considered, than conscious thought (CT), but is outperformed by conscious thought in tasks with fewer variables. This is a countercurrent position, as most research on UT since the early 1980s has led to its being characterized as simple and incapable of complex operations. Dijksterhuis’ and Nordgren’s theory is based primarily on recent findings from a new experimental paradigms.

The interesting article, titled, The Beautiful Powers of Unconscious Thought by Dijksterhuis himself (here), elaborates on the facts and nuances of these important findings.

PUTTING THEORY IN PRACTICE

So, what does this mean in practice for everyday work life?

Well, I think that this data supports the position that managers, supervisors and organisations need to make an effort to fill the days of their teams with meaningful projects and try to engage them (ideas on how to do this can be found here and well as a method on innovation here and here).

Moreover, as mentioned here we have to move one step forward from being busy to becoming productive as, the key question is not if we are “doing” something but if we are “effective” in what we aim for.

Hence, the organisations need to create an environment conducive to best utilise the theory of the Unconscious Thought aiming of course the more complex of projects. I trust that more research will be done on these important findings in the future that will verify and expand our understanding in this important field.

How did you handle your last complex task allocation?

Image of Ap Dijksterhuis courtesy of Radboud University Nijmegen / www.ru.nl

Filed under Category Management, Effective Communication, Effective Negotiation Tools series, Procurement, Productivity, Team Development Series Tagged with , , , , , , , ,

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