Dealing with the 'Irrational'Negotiator

RESEARCH & IDEAS

Dealing with the 'Irrational' Negotiator Published: October 3, 2007 Authors: Deepak Malhotra and Max H. Bazerman "Negotiators who are quick to label the other party 'irrational' do so at great potential cost to themselves," say HBS professors Deepak Malhotra and Max H. Bazerman. Their new book, Negotiation Genius, combines expertise in psychology with practical examples to show how anyone can improve dealmaking skills. In this excerpt, Malhotra and Bazerman describe what to do when the other party's behavior does not make sense. Key concepts include: • When people on the other side of the negotiating table appear irrational, reckless, and lacking in self-interest, they may in fact be uninformed.

• Try to recognize and understand their constraints.

• Identify the underlying interests that cause your fellow negotiators to appear irrational.

Editor's Note: What do you do when the people with whom you are negotiating act in ways that can best be called counterproductive?

Before throwing up your hands, take a deep breath and ask yourself 3 questions. Do these people lack good information? Are they operating with constraints you don't know about? Are they holding onto hidden interests?

According to Deepak Malhotra and Max H. Bazerman, chances are the main hurdle to smooth negotiation is behind 1 of these 3 questions. When you label someone "irrational," you limit your own options, as they write in Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond. The following excerpt describes strategies and tactics to overcome another party's counterproductive behavior and keep the deal on track.

These are ideas that anyone can put to use in multiple settings of business. As Malhotra and Bazerman observe, negotiation geniuses are made, not born. "What appears to be genius actually reflects careful preparation, an understanding of the conceptual framework of negotiation, insight into how one can avoid the errors and biases that plague even experienced negotiators, and the ability to structure and execute negotiations strategically and systematically."

"All of the strategies you have described

work when you're dealing with people who will listen to reason," an exasperated executive student remarked recently. "But the people I deal with are completely irrational. How can you possibly negotiate with someone who is irrational?" As the executive's question reveals, negotiators often struggle with the task of trying to negotiate with those who behave recklessly, strategize poorly, and act in ways that seem to contradict their own self-interests, and any would-be negotiation genius needs to understand how to deal with these obstacles.

Our advice is this: be very careful before labeling someone "irrational." Whenever our students or clients tell us about their "irrational" or "crazy" counterparts, we work with them to carefully consider whether the other side is truly irrational. Almost always, the answer is no. In most cases, behavior that appears to be irrational has a rational—albeit hidden—cause.

Here, we will share the 3 most common reasons that negotiators erroneously judge others as irrational.2 We will also describe the dangers of doing so and explain how to avoid making such mistakes.

Mistake 1: They Are Not Irrational; They Are Uninformed An executive (who is one of Deepak's students) was recently involved in a dispute with an ex-employee. The employee claimed that he was owed $130,000 in sales commissions for the work he had done prior to being fired from the firm a few months earlier.

The executive, on the other hand, claimed the employee was owed nothing—in fact, he insisted the employee had been overpaid by $25,000.

What was the reason for the discrepancy?

At the time the employee was fired, the company's accounts were a mess; records had been kept poorly. Since then, the firm had hired a new accountant and updated all of the records.

These records now clearly revealed that the employee's claim was entirely illegitimate; if anyone had a claim to make, it was the firm.

The executive was uninterested in going to court to recoup the $25,000 that the firm was owed and wanted to drop the matter entirely.

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The executive called the employee and told him what the accounting records revealed; he also offered to send a copy of the records. He then made it clear that his case was airtight, but offered to forgive the $25,000 overpayment if the employee agreed to forgo his groundless suit as well. The employee's response: "No way.

I don't need to see the records. I'll see you in court!"

The CEO was very confused. There was no way for the employee to win in court. Why was he behaving so irrationally?

Deepak suggested to the executive that the problem was probably not that the employee was behaving irrationally, but that he lacked credible information. The executive was convinced that the employee would lose the court battle, but it was possible that the employee was still confident that he would win the case because he did not trust the executive or the firm's record keeping. How could the executive educate the employee regarding his prospects for winning in court? Deepak advised him to have an objective third party, specifically a professional accounting firm, conduct an audit of the records pertinent to this dispute and to mail the results to the employee.

(This would be far less expensive than going to court.) Having this information would diminish the employee's perceived likelihood of winning in court and make litigation a less attractive option. What was the result? The employee dropped the suit.

When Deepak was in graduate school, an economics professor began his first day of class with the following statement: "I want you all to remember something—you are not stupid, you are just ignorant. If you were stupid, we could not do much about it. But ignorance we can fix." This insight is as relevant to negotiators as it is to graduate students. Often, when the other side appears irrational, they are in fact uninformed. If you can help educate or inform them—about their true interests, the consequences of their actions, the strength of your BATNA (Best Alternative to a Negotiated Agreement), and so on—there is a strong likelihood they will make better decisions. For example, if someone says "no" to an offer that you know is in her best interest, do not assume she is irrational. Instead, work to ensure that she

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understands why the offer is in her best interest.

She may simply have misunderstood or ignored a crucial piece of information.

Mistake 2: They Are Not Irrational; They Have Hidden Constraints In 2005, the U.S. government passed legislation to increase food aid to countries that were in dire need of such assistance. There was much support among politicians and activists for this initiative. Not surprisingly, however, there were also certain special-interest groups that opposed this legislation. Here's what was surprising: One of the groups that voiced opposition was a consortium of nonprofit organizations whose mission it was to lobby for an increase in food aid to disadvantaged countries! What explains such seemingly irrational and self-defeating behavior? Why would this group oppose legislation that achieves precisely what it purports to want?

The answer lies not in understanding the group's interests but in understanding its constraints. In order to increase the amount of food sent to disadvantaged countries, the consortium had in the past partnered with American farmers to lobby the U.S. government jointly for greater aid. Why did the farmers join in this campaign? Because when the U.S. government increased food aid, it bought more food from American farmers. As a result, both the farmers and the nonprofits got what they wanted.

"The problem was probably not that the employee was behaving irrationally, but that he lacked credible information."

This case, however, was different. Mindful of escalating budget deficits, Congress had decided that the only way to increase foreign food aid was to purchase the food more cheaply—not from American farmers but from developing countries. What would appear to be a double win for the nonprofits (increased food aid and increased support for poor farmers in developing countries) instead created a predicament. If the nonprofits supported the legislation, they would be severing ties with their long-standing coalition partner, the American farmer. Instead, the nonprofits decided that their long-term interests were best served by opposing legislation. This may still seem like a questionable decision on moral, ethical, or other grounds, but it seems irrational only when we overlook the hidden constraints facing the nonprofits.

The problem of hidden constraints is present in many negotiations. When a firm loses a star

employee because it refuses to raise her salary to match a competitor's higher offer, the firm is not necessarily behaving irrationally; it may instead be constrained by an HR policy that restricts it from creating huge pay differentials in the firm.

Similarly, when your counterpart seems unwilling to make even small, reasonable concessions that could seal the deal, you might tell yourself he's a fool, or you might try to discover how much authority he has to negotiate a comprehensive, value-maximizing deal. If he is heavily constrained, you might try to negotiate with someone who has greater dealmaking authority.

In negotiation, a wide variety of possible constraints exist. The other side may be constrained by advice from her lawyers, by the fear of setting a dangerous precedent, by promises she has made to other parties, by time pressure, and so on. Negotiation geniuses try to discover these constraints—and to help other parties overcome them—rather than dismissing others as irrational.

Leslie decided that she would rather quit her job than be treated this poorly. By doing so, she lost 2 years of compensation and also took a hit in her retirement benefits. The managers, who had only the best of intentions, were left asking themselves, "Why did she behave so irrationally?"

What the managers failed to appreciate was that money and status were not the only issues of interest to Leslie. She also cared about perceptions of fairness and equity. The managers felt they had given her more than she even deserved. But in failing to see how their decision would play out in the future, they created a situation in which Leslie felt undervalued, phony, and embarrassed.

More generally, people will sometimes reject your offer because they think it is unfair, because they don't like you, or for other reasons that have nothing to do with the obvious merits of your proposal. These people are not irrational; they are simply fulfilling needs and interests that you may not fully appreciate.

When others appear irrational, negotiation geniuses do not write them off as crazy. Instead, they investigate: "What might be motivating her to act this way? What are all of her interests?"

Mistake 3: They Are Not Irrational; They Have Hidden Interests But What If They Really Are Some years ago, a group of managers Irrational? decided to promote Leslie, one of the firm's administrative assistants. Leslie had worked for the firm for 30 years and was only 2 years away from retirement. She had performed well throughout her career and received salary increases commensurate with her performance.

Because she was already at the top of her salary bracket, it was not possible for the managers to pay her more money; nor was she scheduled for a formal performance appraisal. Rather, the managers simply wanted to do something nice for Leslie, so they decided to surprise her with a promotion. Her job responsibilities would not change, but the new title would give her greater status and prestige.

When she heard of the promotion, Leslie was delighted. She understood that her salary or job responsibilities would not increase, but that was fine with her.

Soon after receiving the promotion, however, Leslie learned that she was among the lowest paid employees with her job title. She also began to feel uneasy about having a "fake" job promotion—she was doing no more work and receiving no more pay than she used to, and this made her feel self-conscious with her coworkers. She asked for a raise and voiced her willingness to accept more responsibilities, but was quickly denied.

"In negotiation, a wide variety of possible constraints exist."

Within a few weeks of her promotion,

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If your counterpart truly is irrational—in other words, he is determined to work against what is in his best interest—then your options will be fewer. You can try to push through an agreement despite his irrationality, you can try to "go around him" by negotiating with someone else with authority who seems more willing to listen to reason (such as his boss or colleague), or you may decide to pursue your BATNA because his irrationality has eliminated all hope of creating value. You might also leverage the various strategies for confronting your counterpart's biases that we have outlined in Chapters 4-6.

But we suggest—again—that you reconsider your assessment. Negotiators who are quick to label the other party as "irrational" do so at greater potential cost to themselves.

When you use the "irrational" label, you limit your options, because there is not much you can say to someone who you truly believe is unable to reason, uninterested in fulfilling her own interests, and incapable of negotiating effectively. Your options greatly increase when you recognize that the other party is not irrational, but simply uninformed, constrained, or focused on interests that you did not anticipate. And as you know, the more options you have, the more effectively you will negotiate.

2. Malhotra, Deepak. (2006). Is Your Counterpart Irrational . . . Really? Negotiation 9 (3).

Excerpted with permission from Random House, Inc. Copyright © 2007 by Deepak

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Malhotra and Max Bazerman. All rights reserved. For online information about other

Random House, Inc., books and authors, see http://www.randomhouse.com.

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