In any negotiation scenario, a negotiator needs to determine what would constitute an ideal outcome. This ideal is known as a target or aspiration (sometimes called a target point or aspiration point). Identifying a target or aspiration may sound straightforward enough, but three major problems often arise:

1. The underaspiring negotiator sets his or her target or aspirations too low. The underaspiring negotiator opens the negotiation by requesting something that is immediately granted, resulting in a regrettable state of affairs known as the winner’s curse.³ The winner’s curse occurs when a negotiator makes an offer that is immediately accepted by the other party. Consider the Olympic Games bidding process; the winning bids in this competitive process are so astronomical that on average host cities incur cost overruns of 179% without any long-term economic gains following the event.⁴ The immediate acceptance of one’s offer by an opponent signals that a negotiator did not ask for enough. Another example is that of an army sergeant returning from a tour of duty in the Gulf War. Recently engaged, the sergeant wanted to bring back a beautiful gold necklace for his bride-to-be. When he entered the jewelry store in Saudi Arabia, he knew enough not to offer full price for the gold necklace, so he offered exactly half of the marked price. The shopkeeper was overjoyed, immediately accepted the offer and even included the matching earrings and bracelet! The sergeant’s key mistake: His initial offer was too generous because he had not adequately prepared. The winner’s curse is nearly impossible to remedy: In a series of experiments, negotiators were given different parameters, full feedback, and several counterexamples in an attempt to counteract the winner’s curse, but none were effective in eliminating the faulty behavior.⁵

2. The overaspiring negotiator or positional negotiator is too “tough”; he or she sets the target point too high and refuses to make any concessions. The near demise of Hostess Brands, the 82-year-old maker of bakery treats, began in 2009 when it came out of bankruptcy and its unions agreed to $220 million annually in labor cost-related concessions. But Hostess soon racked up $2 billion in unfunded pension liabilities, and the unions balked at further concessions. They eventually organized a strike. In response, the hedge funds that essentially controlled Hostess decided to shut the company down rather than risk further losses on their investment. A lack of concessions and unrealistic market expectations by both sides led to Hostess being brought to auction. However, just days before the auction, Metropolous & Co. and Apollo Global Management bought Hostess.⁶ Ego-defensive behavior triggers competitive communication, retaliatory behavior, negative perceptions of the counterparty, and attitude polarization.

3. The grass-is-greener negotiator does not know what he or she really wants—only that he or she wants what the other party does not want to give—and does not want what the other party is willing to offer. This type of negotiation behavior is also known as reactive devaluation.⁷ For example, in a survey of opinions regarding possible arms reductions by the United States and the Soviet Union, respondents were asked to evaluate the terms of a nuclear disarmament proposal, a proposal that was either allegedly authored by the United States, Soviet Union, or a neutral third party.⁸ In all cases, the proposal was identical; however, reactions to it depended upon who allegedly initiated it. The terms were seen as unfavorable to the United States when the Soviets were the initiators, even though the same terms appeared moderately favorable when attributed to a neutral third party and quite favorable when attributed to the United States.⁹

A negotiator needs to determine his or her best alternative to a negotiated agreement, or BATNA (Best Alternative To a Negotiated Agreement).¹⁰ Negotiators should be willing to accept any set of terms superior to their BATNA and reject outcomes that are worse than their BATNA. Surprising as it may seem, negotiators often fail on both counts.

Consider an MBA student negotiating her employment terms. In this case, the MBA student has a $90,000 job offer from company A, plus some stock options, moving expenses, and a signing bonus. The student is interested in getting an offer from company B. Thus, company A is her BATNA. The question the student should ask herself is, “What does company B need to offer me so that I feel it is as attractive as the offer made by company A?” The answer to this question represents her reservation point, which includes all things relevant to the job offer, such as salary, stock options, moving expenses, and signing bonus, as well as quality of life and feelings about the city to which she will move. A reservation point, then, is a quantification of a negotiator’s BATNA with respect to other alternatives.

A negotiator’s reservation point has the most direct influence on his or her final outcome. When three types of information—market price, reservation price, and aspiration—were made available to negotiators, only reservation prices drove final outcomes.¹³

Failure to assess reservation points can lead to two unfortunate outcomes. In some instances, negotiators may agree to an outcome that is worse than their BATNA. In our example, the student could agree to a set of employment terms at company B that are actually worse for her than what company A is offering. A second problem is that negotiators may often reject an offer that is better than their BATNA. For example, the MBA student may reject an offer from company B that is actually more attractive than the offer from company A. Although this example may seem implausible, the incidence of agreeing to something worse than one’s BATNA and rejecting an offer better than one’s BATNA is quite high. To avoid both of these errors, we suggest that the negotiator follow the steps outlined in Exhibit 2-1.

Negotiators who make the mistake of not developing a reservation point before they negotiate often focus on an arbitrary value that masquerades as a reservation price. Such arbitrary points are focal points. Focal points, like anchors, are salient numbers, figures, or values that appear to be valid but have no basis in fact. A good example of the arbitrariness of focal points is provided by an investigation in which people were asked for the last four digits of their Social Security number.¹⁴ They were then asked whether the number of physicians in Manhattan was larger or smaller than the number formed by those last four digits. Finally, they were asked to estimate how many physicians were located in Manhattan. Despite the fact that it was obvious to everyone that Social Security digits are random and therefore, could not possibly be related to the number of doctors in Manhattan, a strong correlation emerged between the digits and people’s estimates.

Sunk costs are just what they sound like—money you have invested that is, for all practical purposes, gone. Economic theory asserts that only future costs and benefits should affect decisions. However, people have a hard time forgetting the past, and they often try to recoup sunk costs. One type of sunk cost is the purchase price that home sellers paid for their house. Sellers and buyers in a simulated real estate negotiation were given the same Multiple Listing Service (MLS) sheet describing a house. However, negotiators were given different information about their previous purchase price.¹⁵ Buyers offered significantly higher amounts for a condominium with larger sunk costs, indicating that the seller’s sunk costs influenced the buyer’s behavior. Moreover, sellers’ BATNAs and final settlements were significantly lower when they had low, as opposed to high, sunk costs. Thus, sunk costs influence not only our own behavior but also the behavior of the counterparty.

Negotiators often make the mistake of using their target point as their reservation point. This can result in one of two undesirable outcomes. The negotiator who lacks a well-formed reservation point risks agreeing to a settlement that is worse than what he or she could do by following another course of action. In another case, the negotiator may walk away from a potentially profitable deal. For example, many home sellers reject early offers that are superior to their reservation point, only to be forced to accept an offer of less value at some later point in time.

It is a grave mistake to focus on a single issue in a negotiation because single-issue negotiations are purely fixed-sum. By identifying other issues, negotiators can create integrative potential. Negotiators should take time to brainstorm how a single-issue negotiation may be segmented into multiple issues or they should attempt to add issues.¹⁶

Once the negotiator has identified the issues to be negotiated, it is a good idea to identify several alternatives within each issue. For example, in a job negotiation, all of the following have a range: salary, vacation days, and so on. Negotiators can formalize the issues and alternatives by creating a matrix in which the issues are located along the columns and the alternatives specified along the rows.

The next step of preparation is to determine a variety of different combinations of the issues that all achieve the target or aspiration point. For example, an MBA student might identify salary, signing bonus, and vacation days as key issues in a job negotiation. The student might then take the step of identifying highly attractive packages that she could present as opening offers in the negotiation. For example, a starting salary of $90,000, three weeks of vacation per year, and a signing bonus of $10,000 might be subjectively equivalent to a starting salary of $100,000, 10 days of vacation per year, and a signing bonus of $12,000. By identifying multiple-issue packages, negotiators expand their options. The most important aspect of identifying packages of offers is that the packages should all be of equivalent value or attractiveness to oneself. This requires that negotiators ask themselves some important questions about what they value and what is attractive to them. (As a first step, consult Appendix 1, which helps prepare a negotiator to identify packages of equivalent value by testing the negotiator’s rationality.)

We strongly discourage negotiators from stating a range (e.g., a salary range). By stating a range, the negotiator gives up important bargaining ground and moves too close to his or her BATNA. This is known as a premature concession. By stating a range (“I would be interested in a salary between $90,000 and $100,000”), a negotiator has already made a concession (implicitly agreeing to a salary of $90,000). Another benefit of identifying packages of offers is that the negotiator does not give the counterparty the impression that he or she is positional (won’t budge on any issue).¹⁷ By identifying multiple issues and multiple alternatives within each issue, a negotiator is more likely to achieve his or her target.

Suppose you are offered a choice between the following two options:

• Option A: Receiving a cashier’s check for $5,000

• Option B: Playing a game that offers a 50% chance of winning a $10,000 cashier’s check and a 50% chance of winning nothing

When presented with a choice between a sure thing and a gamble of equivalent value, most people choose option A, the sure thing. Note that the expected value of each choice is $5,000, which would mean that negotiators should be indifferent (or risk-neutral) between the two. However, the strong preference for option A over B reflects a fundamental principle of negotiator behavior: risk aversion.

Now, imagine yourself facing the following unenviable choice:

• Option C: Losing $5,000 because of an unexpected expense

• Option D: Playing a game that offers a 50% chance of losing nothing and a 50% chance of losing $10,000

Most people find it difficult to choose between options C and D because both choices are undesirable. However, when forced to make a decision, the majority of negotiators choose option D, even though the expected value of C and D is exactly the same: $5,000. Option D represents the “risky” alternative. The dominant choice of D over C reflects a fundamental principle of human psychology: risk-seeking behavior in the face of loss.

Thus, most people are risk seeking when it comes to losses, and risk averse when it comes to gains. A reference point defines what a person considers to be a gain or a loss. Thus, rather than weighing a course of action by its impact on total wealth, people generally “frame” outcomes as either “gains” or “losses” relative to some arbitrary reference point.¹⁸

What are the implications for negotiation? Negotiators should consider the differential impact of three sources of risk in any negotiation: strategic risk, BATNA risk, and contractual risk.¹⁹

The value of an object should be about the same, whether we are a buyer or a seller. (Note: Buyers and sellers might want to adopt different bargaining positions for the object, but their private valuations for the object should not differ as a consequence of who has possession of it.) However, negotiators’ reference points may lead buyers and sellers to have different valuations for objects. Someone who possesses an object has a reference point that reflects his or her current endowment. When someone who owns an object considers selling it, he or she may view the situation as a loss. The difference between what sellers demand and what buyers are willing to pay is a manifestation of loss aversion, coupled with the rapid adaptation of the reference point. Therefore, sellers demand more than buyers are willing to pay.

One example comes from a class of MBA students who were “endowed” with coffee mugs worth $6, as charged by the university bookstore.³² The students who were not given a coffee mug were told they had the opportunity to buy a mug from a student who owned one, if the student who owned the mug valued it less. The buyers’ willingness to pay for the mug and the sellers’ willingness to sell the mug were inferred from a series of choices (e.g., “receive $9.75” versus “receive mug,” “receive $9.50 versus a mug,” etc.). Basic rationality predicts that about half of the buyers will value the mug more than the seller and therefore trade will occur; similarly, about half of the sellers will value the mug more than the buyer and trade will not occur. The reference point effect, however, predicts that because of the loss-aversion behavior engendered by the seller’s loss frame, trade will occur less than expected. Indeed, although 11 trades were expected, on average, only four took place. Sellers demanded in excess of $8 to part with their mugs; prospective buyers were only willing to pay list price.³³

If sellers are risk seeking by virtue of their endowment, how can it be that horses, cars, furniture, companies, and land are bought and sold every day? The endowment effect operates only when the seller regards himself or herself to be the owner of the object. If a seller expects to sell goods for a profit and views the goods as currency (e.g., when MBA students are endowed with tokens rather than coffee mugs), the endowment effect does not occur. Endowment effects prevent negotiators from reaching agreement in negotiations; however, by changing the sequencing proposals so that the first one is conceived as a loss and the second as a gain, the endowment effect may be mitigated.³⁴

What determines whether we feel we did the right thing (e.g., took the right job, married the right person) or we feel regret? An important component in determining whether a person experiences regret is counterfactual thinking.³⁵ Counterfactual thinking, or thinking about what might have been but did not occur, may be a reference point for the psychological evaluation of actual outcomes. In negotiation, immediate acceptance of a first offer by the counterparty often means a better outcome for the proposing negotiator; however, the outcome is distinctly less satisfying.³⁶ One of the benefits of having a first offer accepted is that it can improve preparation. Negotiators whose first offer is accepted by the counterparty are more likely to prepare longer for a subsequent negotiation; it also makes negotiators reluctant to make the first offer again.³⁷

Consider feelings of regret experienced by athletes in the Olympic Games.³⁸ Although silver medalists should feel happier than bronze medalists because their performance is objectively superior, counterfactual reasoning might produce greater feelings of regret and disappointment in silver medalists than in bronze. Specifically, the bronze medalist’s reference point is that of not placing at all, so winning a medal represents a gain. In contrast, the silver medalist views himself or herself as having just missed the gold. With the gold medal as the referent, the silver medalist feels a loss. Indeed, videotapes of medalists’ reactions (with the audio portion turned off) reveal that bronze medalists are perceived to be happier than silver medalists.³⁹ Further, silver medalists report experiencing greater feelings of regret than do bronze medalists.

Imagine you face a decision between going to graduate school X on the East Coast or graduate school Y on the West Coast. You must make your decision before you find out whether your start-up company has received funding from a venture capitalist. In the event you get the funding, the East Coast provides access to many more of your potential customers. In the event that funding does not come through, by going to the East Coast you would be closer to your family, who could help you with finances. This sounds pretty straightforward so far: School X is your dominant choice no matter what the venture capitalist does. In other words, you have chosen school X regardless of whether you get funding. Making a decision between X and Y should not be hard—or should it?

When faced with uncertainty about some event occurring (such as whether your company will be funded), people are often reluctant to make decisions and will even pay money to delay decisions until the uncertain event is known. This is paradoxical because no matter what happens, people choose to do the same thing.⁴⁰ Consider a situation in which a student has just taken a tough and exhausting qualifying examination.⁴¹ The student has the option of buying a very attractive five-day Hawaiian vacation package. The results of the exam will not be available for a week, but the student must decide whether to buy the vacation package now. Alternatively, she can pay a nonrefundable fee to retain the right to buy the vacation package at the same price on the day after the exam results are posted. When presented with these three choices, most respondents (61%) choose to pay a nonrefundable fee to delay the decision. Two other versions of the scenario are then presented to different groups of participants. In one version, the student passed the exam, and in the other version, the student failed. In both of these situations, respondents overwhelmingly preferred to go on the vacation. Thus, even though we decide to go on the vacation no matter what the results of the exam, we are willing to pay money to delay making this decision.

This behavior violates one of the basic axioms of the rational theory of decision making under uncertainty: the sure thing principle.⁴² According to the sure thing principle, if alternative X is preferred to Y in the condition that some event, A, occurs, and if X is also preferred to Y in the condition that some event, A, does not occur, then X should be preferred to Y, even when it is not known whether A will occur.

Why would people pay a fee to a consultant or intermediary to delay the decision when they would make the same choice either way? Violations of the sure thing principle are rooted in the reasons people use to make their decisions. In the Hawaii example, people have different reasons for going to Hawaii for each possible event. If they pass the exam, the vacation is a celebration or reward; if they fail the exam, the vacation is an opportunity to recuperate. When the decision maker does not know whether he or she has passed the exam, he or she may lack a clear reason for going to Hawaii. In the presence of uncertainty, people may be reluctant to think through the implications of each outcome and, as a result, they violate the sure thing principle.

How accurate are people in judging probability? Judgments of likelihood for certain types of events are often more optimistic than is warranted. The overconfidence effect refers to unwarranted levels of confidence in people’s judgment of their abilities and the likelihood of positive events and underestimates the likelihood of negative events. For example, in negotiations involving third-party dispute resolution, negotiators on each side believe the neutral third party will adjudicate in their favor.⁴³ Obviously, a decision favoring both parties cannot happen. Similarly, in final-offer arbitration, wherein parties each submit their final bid to a third party who then makes a binding decision between the two proposals, negotiators consistently overestimate the probability that the neutral arbitrator will choose their own offer.⁴⁴ Obviously, the probability is only 50% that a final offer will be accepted; nevertheless, both parties’ estimates typically sum to a number greater than 100%. When we find ourselves to be highly confident of a particular outcome occurring (whether it be our opponent caving in to us, a senior manager supporting our decision, etc.), it is important to examine why. On the other hand, overconfidence about the value of the other party’s BATNA might serve the negotiator well. Negotiators who are too optimistic (i.e., they think their counterpart will concede more than he or she really can) have a distinct bargaining advantage.⁴⁵

A party is a person (or group of people with common interests) who acts in accord with his or her preferences. Parties are readily identified when they are physically present, but often the most important parties are not present at the negotiation table. Such parties are known as the hidden table.⁴⁶ When more parties are involved in the negotiations, the situation becomes a team or multiparty negotiation, and the dynamics change considerably. A variety of issues crop up as more parties enter the bargaining room. For example, with more than two parties, coalitions may develop, and teams of negotiators may form. Team and multiparty negotiations are so important that we devote an entire chapter to them in this book (Chapter 9). Sometimes, it is obvious who the other parties are, and they have a legitimate place at the table. However, in other situations, the other parties may not be obvious at all, and their legitimacy at the table may be questionable.

Monolithic refers to whether parties on the same side of the table are in agreement with one another concerning their interests in the negotiation. Frequently, the parties are composed of people who are on the same side but have differing values, beliefs, and preferences.

A negotiator should do as much research and homework as possible to determine the counterparties’ interests in the negotiation. For example, which issues are most important to the other party? What alternatives are most preferable to the other party? Rony Ross, founder of Panorama Software (20 employees), found herself in a tenuous position with software giant Microsoft after successfully resisting a full buyout offer. Realizing that her company could be swallowed up or have its business software market destroyed by its suitor, she opted to spell out her interests and concerns in full. When she did so, Microsoft came back the next day and provided her with contact information of parties they had closed deals with to assure Ross they were not out for blood. Ross was able to form an alliance with Microsoft that addressed her key interests.⁴⁸

Probably the most important piece of information a negotiator can have in a negotiation is the BATNA of the other party. Although it is unlikely the counterparty will reveal his or her BATNA, most negotiators severely under research their counterparty’s BATNA. For example, when purchasing cars, most people have access to a wealth of information about dealers’ costs; however, they do not access this information prior to negotiating with car salespersons. This lack of information, of course, limits their ability to effectively negotiate. Similarly, many people do not adequately utilize real estate agents when purchasing houses. Real estate agents can provide valuable information about the market and the history of a house—all of which can be informative when trying to determine the counterparty’s BATNA. The other party’s aspiration point will be quite clear; however, the negotiator who determines only the other party’s aspiration point, but not their BATNA, is in a severely disadvantageous negotiation position because the counterparty’s aspiration may act as an anchor in the negotiation process.

In a one-shot negotiation, a transaction occurs, and no future ramifications accrue to the parties. One of the few situations that have been identified as a truly one-shot negotiation is the interaction that occurs between customers and wait staff at interstate roadside diners—neither party will likely ever see each other again. (Incidentally, economists are baffled as to why diners leave tips—because tipping is usually a mechanism used in long-term relationships.)

However, most negotiation situations are not one-shot situations. Most people negotiate in the context of social networks, and reputation information is carried through those social networks. Repetitive negotiations are situations in which negotiators must renegotiate terms on some regular basis (e.g., unions and their management). The link between reputation and behavior is stronger for people who are more well known in communities.⁵⁰ In long-term and repetitive negotiations, negotiators must consider how their relationship evolves and how trust is maintained over time. One of the most important long-term relationships is the employment negotiation. Because people want to negotiate economically attractive deals but not sour long-term relationships, job negotiations are generally regarded to be uncomfortable. This topic is so important that we devote an entire chapter to trust and relationships (Chapter 6) and a separate appendix on negotiating a job offer.

The two major types of conflict are consensus conflict and scarce resource competition.⁵¹ Consensus conflict occurs when one person’s opinions, ideas, or beliefs are incompatible with those of another, and the two seek to reach an agreement of opinion. For example, jurors’ beliefs may differ about whether a defendant is innocent or guilty; two managers may disagree about whether someone has project management skills; two people may argue over whether gun ownership should be controlled. Consensus conflict is about ideology and fundamental beliefs and as you might imagine, is difficult to resolve because it involves values and morals. Indeed negotiating over “values” is more difficult than negotiating over “interests,” and people are less likely to reach integrative agreements when values are at stake.⁵²

Scarce resource competition exists when people vie for limited resources. For example, when business partners are in conflict concerning how to divide responsibilities and profits, each may feel he or she deserves more than the other feels is appropriate.

Many conflict situations involve not only scarce resources but also ideologies. People who are in conflict about interests (e.g., money and resources) are more likely to make value-added trade-offs and reach win-win outcomes than are people in conflict about values or beliefs.⁵³ For example, the Israeli-Palestinian conflict involves the allocation of land (a scarce resource) but stems from fundamentally different religious beliefs and ideologies. When negotiations involve such “sacred issues,” more impasses, lower joint profits, and more negative perceptions of the counterparty result; however, this is only true when both parties believe they have attractive BATNAs.⁵⁴ (See also the discussion of sacred issues in Chapter 10.)

In many cases, we must negotiate; in other situations, negotiations are more of a luxury or opportunity. The recognition of negotiable opportunities is a key predictor of success in negotiation. People who do not recognize a potential negotiation opportunity are unlikely to make a request. Many people avoid negotiations of opportunity because they feel they lack skills. Indeed, having confidence in oneself as a negotiator is important for success.⁵⁵ People who recognize opportunity and are high in self-efficacy (i.e., they believe they can do well) are more successful.⁵⁶ Airbus and Delta Airlines married necessity and opportunity in a negotiation deal involving the purchase of 40 jets. Airbus sought a billion-dollar contract and offered Delta a substantial discount to build the fleet of planes; because Delta had one of the oldest fleets in the airline industry, they saw an opportunity to upgrade at a substantial discount.⁵⁷

In a typical negotiation, parties come together to exchange resources, such as when a buyer sees greater value in a seller’s goods than the seller wants for them, and an exchange takes place (money is paid for goods or services). These situations are known as transactional negotiations. In other situations, negotiations take place because a claim has been made by one party and has been rejected by the other party. These situations are known as disputes.⁵⁸ For example, the Choctaw and Chickasaw nations in Oklahoma claimed water rights on their land; however, the state of Oklahoma disputed the claim and conflict escalated. The Native American nations argued that the state of Oklahoma should obtain permits to withdraw the water; the state refused.⁵⁹

The difference between transactions and disputes concerns the alternatives to mutual settlement. In an exchange situation, parties simply resort to their BATNAs; in a dispute, negotiators often go to court.

Linkage effects refer to the fact that some negotiations affect other negotiations. One example is in the case of law and setting precedent. Resolutions in one situation have implications for other situations. For example, in 2013 Time Warner Cable’s retransmission contract with CBS expired, and negotiations began between the two companies for a new contract. When the two companies were unable to reach an agreement by their self-imposed deadline, Time Warner Cable dropped CBS programs from their programming lineup. As a result, more than 3 million Time Warner Cable customers in eight major markets, including New York City, Los Angeles, and Dallas, were unable to watch CBS programming, which included some of the nation’s most popular shows including certain National Football League (NFL) games. The blackout lasted longer than anticipated, and both parties started to lose the lucrative advertising revenues that NFL games generate. The negotiations were closely followed by other companies in the television industry, interested in the details of the new retransmission contract, as the pact would set a precedent for future negotiations between different networks and cable or satellite companies. Facing pressure from angry NFL fans and consumer groups, the loss of shareholder revenue, and the risk of defecting customers, Time Warner Cable and CBS reached agreement just before the start of the regular NFL season.⁶¹

Often direct linkages will occur when a multinational firm has operations in several countries and a decision made in one country carries over to other countries. Sometimes, indirect linkage effects occur, such as when a decision made at the negotiation table affects some interest group in a fashion that no one anticipates fully. A key reason why mergers are often unsuccessful is that companies do not think about linkage effects with current employees. In most merger scenarios, employees of the purchased company are given little information about the turn of events until well after the deal is settled. Rumors fly about what’s going on, and employees are left in limbo, bitter about changes, and worried about their jobs. For this reason, human resource specialists may be involved in the negotiation process to make the linkages for parties smoother.

In many negotiation situations, reaching agreement is a matter of preference. For example, in a salary negotiation, a person might be willing to decline an offer from one company and either stay with the current company, start his or her own company, or delay negotiations indefinitely. However, in other situations, reaching an agreement is not just the only course of action—it is required. For example, on August 17, 1981, when more than 85% of the 17,500 U.S. air traffic controllers went on strike for better working conditions and improved wages, President Ronald Reagan told the controllers to return to work or the government would assume the striking controllers had quit. By the end of that week, more than 5,000 Professional Air Traffic Controllers Organization (PATCO) members received dismissal notices from the FAA. Reagan stated that Congress had passed a law in 1947 forbidding strikes by government employees, including a nonstrike oath that each air controller must sign upon hiring. Another example: The State of New York’s Public Employee’s Fair Employment Act, better known as the Taylor Law, was enacted to create a fair process for negotiating contracts in the public sector. The law established basic labor rights for public employees; however in a balancing act intended to protect the community services these employees provide, the law took away one labor right that empowers private sector employees: the right to strike. Public employees, according to the original legislative proposals, have considerable power because they are in charge of state services, and they must therefore be prohibited from striking because a work stoppage can be costly and paralyze the community. Under the Taylor Law and its Triborough amendment, the law allows public employers to maintain the terms and conditions of an expired contract and extend negotiations between parties until an agreement can be reached and new contract established.⁶³

In the United States, it is illegal to negotiate the sale of human organs. In September 1999, the online auction house eBay had to retract a seller’s posted auction for a human kidney.⁶⁴ The bidding went up to $5.7 million before eBay called off the auction. (For another story about controversial negotiation in the United States, see Exhibit 2-2: “Is It Legal to Negotiate?”) Sometimes, no specific laws govern what can or cannot be negotiated; rather, individuals rely on strong cultural norms that are highly situation specific. For example, most people in the United States do not negotiate the price of fruit at major grocery stores, but they do it freely in farmer’s markets, such as the Pike Place Market in Seattle, Washington. But farmer’s markets are not the only place to haggle. Most home electronic stores will negotiate, as will stores that sell large, durable goods. When it comes to financial aid packages, families have more options than they realize. Financial aid officers have some latitude in how they award financial aid, and special family circumstances are often taken into consideration. When a student receives multiple admissions, parents have been known to tell one college about the financial aid package being offered by the other in hopes of the school bettering that offer.⁶⁵

Ratification refers to whether a negotiating party must have a contract approved by some other body or group. For example, a corporate recruiter may need to have the salary and employment packages offered to recruits ratified by the company’s human resources group or the CEO. In some circumstances, negotiators may tell the other side that ratification is required when it is not.

Virtually all negotiations have some time-related costs. Although the negotiator who desperately needs an agreement, or for whom the passage of time is extremely costly, is likely to be at a disadvantage, more time pressure is not necessarily bad.⁶⁸ Final deadlines are distinct from time-related costs. ⁶⁹ Two negotiators may face radically different time-related costs, but a deadline for one is a deadline for the other. The shortest final deadline is the only one that counts, and if they don’t have a deal by that point, the two negotiators must exercise their BATNAs.

Many negotiation situations, such as the purchase of a house or a job offer, involve official contracts that legally obligate parties to follow through with stated promises. However, in several negotiation situations of equal or greater importance, negotiations are conducted through a handshake or other forms of informal agreements. Considerable cultural variation surrounds the terms of what social symbols constitute agreement (handshakes vs. taking tea together), as well as which situations are treated officially or unofficially. Awkwardness can result when one party approaches the situation from a formal stance and the other treats it informally. Obviously, ill will can result when implicit contracts are broken. (We take up the topic of broken trust in Chapter 6.)

There does appear to be a home-court advantage when it comes to negotiation. In one simulation, residents of an office space outperformed a visiting party. The performance advantage of the negotiator is partly due to the increased confidence that comes from negotiating on your own turf.⁸¹ Not surprisingly, great preparation and expense are undertaken to find neutral ground for important negotiations. For example, for the summit between former president Ronald Reagan and Soviet leader Mikhail Gorbachev, the site was carefully selected. The two met at the Chateau Fleur d’Eau in Geneva, Switzerland. Similarly, the multiparty Irish talks were stalled in 1991 when conflict broke out concerning where the next set of talks would be held. The Unionists, who agreed to talk directly to Irish government ministers about the future of Northern Ireland, were anxious to avoid any impression of going “cap in hand” to Dublin and, therefore, wanted the talks held in London, the capital to which they were determined to remain connected. In contrast, the Social Democratic and Labor Party, which represented the majority of Catholic moderates in the province, preferred that the talks be held in Dublin, the capital to which they felt a strong allegiance.⁸² In another instance, when Israeli and Palestinian leaders held peace talks in conjunction with United States in 2013, the rounds of talks were strategically held in locations symbolically powerful to each side. The first talks were held in Washington, D.C. Then the venue of the meeting shifted between Israeli-controlled West Jerusalem and the West Bank city of Jericho, a Palestinian-controlled city since 2005. After these three sessions of talks, the U.S. Secretary of State John Kerry met with each negotiating team separately in a new location, beginning with Palestinian Authority president Mahmoud Abbas in London, and then with Israeli prime minister Benjamin Netanyahu in Rome in October 2013.⁸³

In many areas, the negotiation dance takes place in the public eye. In other negotiation situations, negotiations occur privately. In contrast, one of the unique aspects of sports negotiations is that they take place in a fishbowl, with fans and the media observing every move at the bargaining table.⁸⁵ This kind of attention can lead to a media circus, with owners and players projecting their opinions on issues and events:

In some negotiations, political actors make public commitments not to negotiate with adversaries whom they label as being “beneath diplomacy,” such as terrorists. Such public commitments are sometimes made even as they are being broken.⁸⁶ When a negotiator denounces an adversary, this increases motivation to reach a negotiated settlement if negotiations are undertaken.

In many negotiation situations, third-party intervention is commonplace (and even expected). The mere presence of third parties may escalate the tension in negotiation situations if the initial parties egocentrically believe that third parties will favor their own position. In other situations, it is less common (and perhaps a sign of personal failure) to involve third parties. (Third-party intervention is so important that we devote Appendix 3 to it in this book.)

In many negotiations, people have complete freedom of process. However, in other negotiations, strong conventions and norms dictate how the process of negotiation unfolds. For example, when people buy or sell houses in the United States, the first offer is typically made by a prospective buyer and all offers are formalized in writing. However, marked differences characterize the process across the country with some home negotiations conducted via spoken word and some via official contract.

In some situations, parties banter offers back and forth several times before a mutually agreeable deal is struck. In other situations, this type of dealing is considered unacceptable. In the real estate world for example, buyers and sellers expect to negotiate. However, these same people would not dream of negotiating in an upscale department store.

As another example, many employers now expect that job candidates will attempt to negotiate what is initially offered to them, but extensive haggling is not acceptable for many. Consider what happened to Jay Kaplan, a real estate entrepreneur.⁸⁸ He traveled through the southeastern United States for eight consecutive days and met with five different owners, trying to purchase apartment buildings and shopping centers. Each meeting was a marathon session with offers and counteroffers, lasting until dawn before an agreement was made. By the eighth day, with one meeting left, Kaplan was tired and decided to use a single-offer strategy. After asking for some aspirin and putting on his most exhausted face, Kaplan said to the other party, “You’re asking $4.3 million for your property. I want to buy it for $3.7 million. Let’s save ourselves the trouble of a long negotiation. I’m going to make you only one offer. It will be my best shot, and it will be a fair one. If you’re a reasonable man, I’m sure you’ll accept it.” The strategy backfired. Kaplan then offered the other party $4.025 million, and the other party rejected it. They haggled for four hours until they agreed on $4.275. The opponent later told Kaplan there was no way he was going to accept the first offer made—no matter what it was.

Turning points are the events that occur either outside or inside negotiation talks that alter its course. Crises, as opposed to breakthroughs, produce more movements in negotiations with high-trust and low-power parties.⁸⁹

In a typical buyer–seller negotiation or employment negotiation, negotiators communicate explicitly with one another. However in other situations, communication is not explicit but tacit, and people communicate through their actions. This issue is so important that we devote an entire chapter to it (Chapter 11, in a discussion of social dilemmas).

Technically, negotiation occurs between people who are interdependent, meaning the actions of one party affect those of the other party and vice versa. If one person has complete authority over another and is not affected by the actions of others, then negotiation cannot occur. However, it is often the case that low-power people can affect the outcomes of high-power others. For example, a CEO has more power than a middle-level manager in the company, but the manager can undoubtedly affect the welfare of the company and the CEO. The presence or absence of a power differential between negotiating parties can strongly affect the nature of negotiations. This topic is so important that we devote an entire chapter to power and influence in this book (Chapter 7).

In many negotiation situations, precedent is important, not only in anchoring negotiations on a particular point of reference but also in defining the range of alternatives. In a sense, the negotiator fears that making a decision in one case will set him or her up for future negotiations. Precedent can also encourage negotiation agreements. For example, in a simulated Israeli versus Palestinian negotiation, negotiators who were told that previous dyads were successful in reaching agreement were more likely to accept deals than those who were merely “urged” to reach agreement.⁹⁰