Negotiations: Why do we avoid uncertainty?

Leonore DupontPosted by

Most of us know that it is important to understand our own motivations in any negotiation-type setting, but how many of you are aware of the natural cognitive biases that we are all prone to? And how these biases can influence both your decision-making processes and those of other people with whom you interact?

As mentioned in my previous article, the art of strategic negotiating is a learned skill, and one that takes some practice despite its influence permeating every aspect of our personal and professional lives (see Negotiations: Why do we hate to lose?). Being able to identify and understand the influence of natural human biases is a key aspect of being a skilled negotiator. It informs decisions such as how to frame proposals, the language used to persuade others to accept your suggestions or point of view, and how you evaluate any proposals or offers received.

Are you sure?

One of these biases is the certainty effect: that people are more inclined to choose a ‘sure thing’ over a probability, even though from a logical perspective the probability may be, or is in fact, the better choice. Basically, we prefer to choose an assured or ‘certain’ outcome of £100 than to take a 90% chance at winning £120 with the 10% risk of ending up with £0.

This bias, underestimating a probable option when compared with a certain one, was first recognised by Kahneman and Tversky in 1979 and has been the subject of numerous studies since then. It is also used on a daily basis all around you. The next time you walk down a high street or browse shops online, take a close look at the offers and loyalty programs available and how they are being framed. Most offers are certain ones such as ‘buy two items and get the third free’, or ‘spend over £100 and get free shipping’; or even ‘sign up to our mailing list and get 20% off your first purchase’. Probable offers are seen less frequently, such as ‘buy this and you will be entered into a draw to win that giveaway’.

Knowing your own mind

An explanation that researchers have suggested for this mental bias is that we save cognitive effort by focusing on reference points. Basically, our mind intuitively fixes on stable reference points such as 0 or 100% and processes these stable reference points much faster and instinctively than probabilities.

Probabilities seem to require more cognitive effort to process and therefore take more brain-time. The interplay between these two tendencies appears to lead to decisions being based on incorrect assumptions regarding the comparative value of a certain option as against a probable option, with effect that the certain option is sub-consciously given a greater weight – in other words, it looks more attractive.

It is really interesting to note that this certainty effect, as well as other framing effects (such as our natural tendency to avoid risk when a positive frame is presented and to seek risk when a negative frame is used) tend to be reduced when a choice is presented in a different language. This may be because understanding and processing information in a foreign language requires a greater amount of concentration and focus. It is less automatic, and therefore the information is evaluated more carefully and less instinctively which reduces the impact of the bias.

Studies have also shown that a preference hierarchy of sorts exists for decision-making. The biggest impact is the preference for a gain over an equivalent loss (see the discussion regarding loss aversion). Second is the preference for a certain gain being favoured over a probable gain, and third is that a probable loss is favoured over a definite loss.

Framing your proposals

How can you use this knowledge to your advantage?

A good starting point is being aware of the certainty effect bias and making the effort to negate its effect on you by carefully evaluating the options being presented. This will not remove the bias (apparently nothing will – its just how our brains work!), but it should offset the worst impact of the certainty effect.

The second challenge is to be aware of how you frame any offers or proposals that you make in either formal and informal negotiations, both in terms of the language and reference points used. There is no ‘one size fits all’ approach to doing this, but an example might be trying to offset your audience’s instinctive devaluation of any probability based element of an offer with a certain element.

Finally, you can attempt to place yourself in your opponent/audience’s shoes and evaluate where your proposal or offer would fit into the hierarchy of preferences from their viewpoint. This might be a difficult task depending on the circumstances, but… nothing ventured, nothing gained!

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