We all negotiate and behave in some way - consciously or unconsciously. To achieve better negotiation results, it is important to become aware of this behaviour and to train it. Behavioural economics helps you to understand your counterpart a little better, so that you can negotiate more successfully.

In the first part of the series, we showed you what behavioural economics actually is and explained two behavioural patterns. We will continue these explanations with three more behavioural patterns.

Liar aversion: The negotiating table is a paradise for liars. Your counterpart always follows his strategy and trust would be foolish. Wouldn't it? Surely you too have regularly had the suspicion in negotiations that you are being lied to by your negotiating partner. Has my negotiating partner already exhausted all possibilities to reduce the price? Can I really trust the cost transparency granted to me? The incentive to lie to the negotiating partner is obvious. However, behavioural economics teaches us the opposite in this context. People find it surprisingly difficult to lie, even if a lie would mean a significant advantage for them and at the same time they have no personal relationship with the counterpart. One's own understanding of morality and the fear of a guilty conscience dominate the possible advantages of a lie. If one is in a long-term business relationship, this so-called lie aversion becomes even stronger. Of course, we must not become naïve. People lie more often at the negotiating table than in other places, but far less than you might think. In your next negotiation, consciously take in the information from your counterpart and do not dismiss it as a mere negotiation strategy.

lnformation cascade: Everyone knows lnformation cascades from private life. You are on holiday, want to go out for a meal and find yourself facing two restaurants. One of the two is well frequented, the other rather empty. Naturally, the decision is made in favour of the full restaurant, because after all, so many people can't be wrong. Have you ever asked yourself how the previous person who went to the restaurant made your decision? And the one before that? It is quite possible that you made your decision based on the decision of other people who, like you, simply followed the majority. Such cascades of information need not have a well-founded beginning. The example could have been triggered by a group of locals who are friends with the owner of the restaurant. At no point did quality play a role. Such situations occur all too often in the business world - with serious consequences for negotiations. Products that are already used by competitors in an industry receive a much higher valuation than alternatives of equal quality. The producers of these products become quasi-monopolists and can achieve significantly higher prices in negotiations. Therefore, at the beginning of any negotiation, you should invest time in extensive research of the market in order to turn a monopoly negotiation into a competitive negotiation.

Risk aversion: The section on risk aversion is less about the negotiators themselves and more about the companies that employ large numbers of buyers and salespeople. People shy away from high risk in almost every situation in life. Similarly, they opt for safe rather than risky gains in negotiations, which can be higher but also lower. The crucial point is that almost all negotiators would make higher gains more often if they were only willing to take a little more risk. The reason for this is obvious: every negotiator is measured by their negotiation results and compared with other negotiators within the company. If you take a higher, but still healthy risk, you will be unlucky and the next annual evaluation will be rather bad. The company itself actually wants its negotiators to take a little more risk. Because of its large number of buyers and salespeople, poor results of a few can be compensated for and surpassed by the majority of higher profits. The total company profit would increase in this way. This problem is known from the principal-agent theory. The headmaster, i.e. the company, wants its agents, i.e. the negotiators, to take a little more risk, but achieve exactly the opposite through the chosen incentive structure. Companies should position themselves in such a way that negotiators are encouraged to take risks without having to fear negative consequences. In the end, the whole company will benefit. Finally, a tip for your next negotiation: Remember that your counterpart is probably similarly incentivised as you. Why not make him risky offers and try to steer him in a certain direction.

Consciously perceive irrationality

Behavioural economics offers many opportunities to improve your own negotiation results. Simply avoiding the behavioural patterns mentioned as examples could already make your next negotiation outcome significantly more successful. Irrationality must be consciously perceived. A good negotiator has internalised how to avoid being manipulated and which possibilities of active manipulation can be used. Given the multitude of effects and the complexity of human interactions, even experienced negotiators always have valuable potential for improvement.

Dr. Marvin M. Müller and Fabian Spühler

Kerkhoff Consulting