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Negotiations involve situations in which there are two (or more) parties with conflicting interests. A child may want a cookie, while a parent might want the child to study. A prospective employee might want a high salary and a month’s vacation, while an employer might want to pay a lower salary and offer only two weeks’ vacation.
Part of the power of each side in a negotiation comes from the Best Alternative to a Negotiated Agreement (or BATNA). The BATNA is the best each party can hope for if negotiations fall through. An employee who already has one job offer can walk away from the negotiation with a second prospective employer knowing she already has a good option.
From an economic standpoint, the parties to a negotiation should only make an agreement if that agreement is more valuable than each party’s BATNA. Prospective employees should not take a job if they have better alternatives. Prospective employers should not agree to offer a job to someone if they have better options.
Of course, what makes a particular agreement a good one is not always that it maximizes the economic gain for the parties. An agreement might create value by enhancing a business relationship or by showing good faith to others who are watching the negotiation.
Still, the negotiated agreement ought to add value.
A fascinating (and somewhat scary) study on this topic was reported in a paper in the March, 2016 issue of Psychological Science by Ece Tuncel, Alexandra, Mislin, Selin, Kesebir, and Robin Pinkley.
In one study, they had pairs of MBA students in a negotiation class participate in a mock employment negotiation. One participant played the role of prospective employee, while the other played the role of prospective employer. There were several dimensions of the negotiation (reflecting factors like salary and vacation time). Participants would be awarded a certain number of points for each dimension depending on the agreement they reached. Some dimensions were worth more for one participant than another, so they key to reaching a good agreement was for each party to recognize which dimensions mattered a lot to them and to concede to the other party when a dimension was not important to them.
Of interest, each party also had a BATNA. The prospective employee had another job offer and the prospective employer had another potential employee. These alternatives were specified by the total number of points they would get for walking away from the negotiation.
The outcome of the negotiation really mattered. The points that participants obtained in the task influenced the grade that they got on the assignment for the class.
Overall, 70 pairs of participants negotiated together. Of these, 43 reached an agreement. Of the participants who reached an agreement, 31 pairs settled on an agreement in which at least one participant accepted fewer points than their BATNA. That is, 44% of the pairs overall (and 72% of those who reached an agreement) settled on an agreement that was suboptimal for at least one member of the pair.
That means that a substantial number of participants were actually paying a cost in order to reach an agreement in the negotiation. The participants in this study were in a class studying to be good negotiators, and yet they valued reaching an agreement rather than getting a good outcome for themselves.
This study (and several others in the same paper) suggest that people believe that reaching an agreement is an important part of negotiating. They treat a negotiation as a failure if they do not reach an agreement, even if each party does better by walking away from the table than they would by accepting the best agreement.
More generally, when you are involved in a negotiation, remember that the best outcome is not always reaching an agreement. Sometimes it really is better to walk away than to accept a deal that is worse for you. Unless walking away from the negotiating table will damage your relationship with the other party, don’t feel like reaching an impasse means that you have failed. Instead, reaching an impasse may just mean that you cannot get what you want from this negotiation partner.
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