Chapter 3 Distributive Negotiation: Claiming Value

The Mind and Heart of the Negotiator
Seventh Edition, Global Edition
Chapter 3
Distributive Negotiation:
Claiming Value
Copyright © 2022 Pearson Education Ltd.

Part One
Negotiations Essentials

The Bargaining Zone
The bargaining zone, or Zone of Possible Agreements
(ZOPA), represents the range between each party’s
reservation points.
A bargaining zone can be positive or negative:
(see Exhibits 3-1A & 3-1B).
• In a positive bargaining zone, negotiators’ reservation
points overlap.
• In a negative bargaining zone, there is no positive overlap
between the parties’ reservation points; therefore, parties
should pursue other alternatives rather than spending
fruitless hours trying to reach an agreement.

The Bargaining Zone: Positive
Exhibit 3-1A

The Bargaining Zone: Negative
Exhibit 3-1B

The Bargaining Zone: Bargaining
Surplus
• The bargaining surplus is the amount of overlap between
negotiating parties’ reservation points.
• The bargaining surplus is a measure of the value that a
negotiated agreement offers to both parties compared to
the value of not reaching a settlement
• Skilled negotiators know how to reach agreements even
when the bargaining zone is small.

The Bargaining Zone: Negotiator’s
Surplus (1 of 2)
• The negotiator’s surplus is the positive difference
between the settlement outcome and the negotiator’s
reservation point (see Exhibit 3-2).
• The total surplus of both parties adds up to the size of the
ZOPA or bargaining surplus.
• The bargaining surplus illustrates the mixed-motive
nature of negotiation: negotiators are motivated to both
cooperate and compete with the other party.

The Bargaining Zone: Negotiator’s
Surplus (2 of 2)
Exhibit 3-2

Value-Claiming Strategies (1 of 7)
• The most commonly asked question about negotiation
is: How can I claim most of the bargaining surplus for
myself?
• Most negotiators will not reveal their reservation point.
• Even if someone reveals their reservation point, we have
no way to verify whether the information is valid or an
exaggeration.

• Some conditions allow negotiators to be more
confident about the counterparty’s reservation point:
– One party may be able to independently verify price,
terms, or other details of the offer from a 3rd party.
– If a person says something that is not in their interest,
you may have more reason to believe the information.
• Negotiators should be willing to settle for outcomes that
exceed their reservation point and reject offers that are
worse than their reservation point.

If negotiators follow these basic value-claiming
strategies, they can substantially increase the
probability they will obtain a favorable slice of the pie.
1. Accurately assess your BATNA.
2. Unpack your multiple alternatives.
3. Improve your BATNA.
4. Determine your reservation point, but do not reveal it.
5. Research the counterparty’s BATNA and estimate their
reservation point.
6. Set high aspirations (be realistic but optimistic).

• Your aspiration point defines the upper limit of what you
can get in a negotiation.
• Because you will usually never get more than your first
offer, your first offer represents an important anchor point
in the negotiation.
• The Chilling Effect can occur when negotiators make
proposals the counterparty considers extreme and can
cause the counterparty to be offended and walk away (see
Exhibit 3-3).

Exhibit 3-3

• Promotion-focused negotiators conceptualize goals,
ideals, and opportunities and excel at claiming value.
• Prevention-focused negotiators conceptualize goals as
obligations and necessities.
• The Goal Setting Paradox – negotiators who focus on
ideals do not feel as satisfied as negotiators who focus on
their reservation point or BATNA.

• The Winner’s Curse occurs when the negotiator’s first
offer is immediately accepted by the counterparty,
signaling that the negotiator did not set his or her
aspirations high enough.
• Boulwarism is named after Lemuel Boulware, former
CEO of General Electric, who believed in making one’s first
offer one’s final offer; this often unsuccessful strategy
engendered hostility from the counterparty.

First Offers
The practitioner-researcher paradox refers to the fact that
intuition and folklore advise negotiators to never open first,
yet much scientific research argues that negotiators should
always open first due to a “first mover advantage.”

First Offers – The AIM Model
The Anchoring Information Model (AIM) states that first
offers have two effects:
1. They serve as anchors that pull final settlements toward
the initial first-offer value (anchoring).
2. They convey information about the sender’s priorities
which makes the sender vulnerable to exploitation and
increases the risk of a first-mover disadvantage.

First Offers – Symmetric Information
(1 of 2)
• In the situation in which the negotiator has good
information and the counterparty is believed to also have
good information, it is wise to make the first offer (see
Exhibit 3-4).
• When negotiators have good information they are not
likely to fall prey to the winner’s curse or the chilling
effect.
• Instead, they can make an assertive opening offer that
operates as a psychological anchor.

First Offers – Symmetric Information
(2 of 2)
Exhibit 3-4
Blank You have good
information
You do not have good
information
Counterparty has
good information
Make first offer Let other party open first
Counterparty does
not have good
information
Let other party
open first
Make first offer
Unknown Let other party
open first
Let other party open first
Based on: Loschelder, D. D., Trötschel, R., Swaab, R. I., Friese, M., &
Galinsky, A. D. (2016). The information-anchoring model of first offers:
When moving first helps versus hurts negotiators. Journal of Applied
Psychology, 101(7), 995-1012.

First Offers – Asymmetric
Information
• When one party is prepared and has good information and
the counterparty does not, the prepared negotiator does
not run the risk of being anchored by the counterparty.
• In this situation, the non-prepared negotiator can be
anchored by the prepared party and also has a higher
possibility of falling victim to the winner’s curse.
• In this scenario, it is advantageous to the informed party to
prompt the naïve negotiator into making the opening offer.

First Offers – Anchoring Effect
• The first offer that falls within the bargaining zone acts as a
powerful anchor point for the counterparty’s counteroffer.
• Ideally your opening offer should not give away too much
of the bargaining zone.
• Buyers who use the anchoring tactic claim more value
than those who don’t use the tactic, but the counterparty
often believes their own outcome is worse than what they
expected and are less willing to negotiate in the future.

First Offers – Range Offers
• The key disadvantage with stating a range is that the
counterparty may focus overwhelmingly on the attractive
endpoint from their point of view.
• In other words, the counterparty will consider the lower
end of the range and negotiate down from there.
• The tandem anchoring account argues that
counterparties are influenced by both endpoints of the
range as they evaluate the proposer’s reservation price as
well as how polite they believe an extreme counteroffer
would be.

First Offers – Precise vs. Round-
Numbers
• People habitually use round numbers as first offers in
negotiation.
• However, precise offers are more potent than round
number anchors because precise offers are viewed as
based on more information and greater negotiator
competence.
• A word of caution: precise offers work when the
recipient is an amateur, but can backfire when the
recipient is an expert.

First Offers – Early vs. Late First
Offers
• Late first offers are more likely to lead to creative
agreements that meet parties’ interests as compared to
early first offers.
• Late first offers give negotiators more time to learn about
the each other’s interests.

First Offers – Re-anchoring
Even though as a negotiator you have a plan for whether to
open first or not, the counterparty may not follow your plan.
Counteroffers do two things:
• They diminish the prominence of the counterparty’s initial
offer as an anchor point.
• They signal your willingness to negotiate.

Concessions
Concessions are the reductions that a negotiator makes
during the course of a negotiation.
Negotiators need to consider four things when
formulating counteroffers and concessions:
1. Concession reciprocity
2. The pattern of concessions
3. The magnitude of concessions
4. The timing of concessions

Concessions – Reciprocity vs.
Aversion
• Concession reciprocity: the tendency of negotiators to
reciprocate concessions
• Concession aversion: the tendency for some negotiators
to be disinclined to make concessions

Concessions – Pattern
• Unilateral concessions are concessions made by one
party.
• Bilateral concessions are concessions made by both
sides.
• Premature concessions happen when one party makes
more than one concession in a row before the other party
responds or counteroffers.

Concessions – Magnitude
• Another consideration when making concessions is to
determine how much to concede.
• The magnitude of a negotiator’s concessions is a powerful
communication tool and it is unwise to make consistently
greater concessions than the counterparty.
• Negotiators are advised to match the concession
magnitude of the counterparty.
• Negotiators can signal they are getting near their
reservation point by reducing the size of their concessions.

Concessions – GRIT Model
• The Graduated Reduction in Tension (GRIT) model is a
conflict resolution method in which parties avoid escalating
conflict to reach mutual settlement within the bargaining
zone.
• The model, based on the reciprocity principle, calls for one
party to make a concession and invites the other party to
reciprocate with a concession.

Concessions – The Even-Split Ploy
• A common concession technique is called the even-split
ploy where one party suggests “meeting in the middle” of
the offer that is currently on the table.
• However, depending on each party’s concessions leading
up to this “even-split,” the outcome of this division may not
really be fair.

Concessions – Timing
• The time of concessions refers to whether they are
immediate, gradual, or delayed.
• Analysis has shown that sellers who made immediate
concessions received the most negative reactions from
buyers.
• In contrast, when the seller made gradual concessions, the
buyer’s reaction was most positive, with high satisfaction.

Substantiation
• Substantiation refers to the arguments or persuasive
rationale that often accompanies an offer.
• Ideally, a rationale is presented that is objective and invites
the counterparty to buy into the rationale.
• Conversely, if your facts can be easily counter-argued by
the other party, you will not benefit by making arguments.

Substantiation – Power Conversation
Tactics
When first offers are presented in negotiation, they are often
preceded by conversational language.
Negotiators tend to use five different conversation
tactics to gain power:
1. Information-seeking
2. Patronizing
3. Organizing
4. Proposing
5. Sharing

Substantiation – Constraints vs.
Disparagement
Negotiators often use two types of rationales:
• Constraint rationales refer to one’s own limited resources
(Ex: “I can’t pay more…”).
• Disparagement rationales critique the negotiated object
or service (Ex: “It’s not worth more…”).

Substantiation – Agreement vs.
Option
• At some point in negotiation, a negotiator might label a
proposal as an “agreement” or as an “option.”
• Holding the economic value of the proposal constant, the
labeling of that proposal influences acceptance rates.
• Negotiators preferred the word “agreement” over the word
“option.”

Substantiation – Fairness Arguments
Negotiators often use one of three fairness principles
when it comes to slicing the pie:
• Equality rule: prescribes equal shares for all.
• Equity rule: prescribes that distribution should be
proportional to a person’s contribution.
• Needs-based rule: states that benefits should be
proportional to needs.

Substantiation – Judgments of
Fairness (1 of 6)
People’s utility functions are social rather than
individual
• Individual satisfaction is strongly influenced by the payoffs
received by the counterparty, as well as the payoffs
received by the self.
• Discrepancies between payoffs to the self versus the
counterparty lead to lower satisfaction (see Exhibit 3-5).

Fairness (2 of 6)
Exhibit 3-5 Social utility as a function of discrepancy between our own and others’
outcomes
Source: Loewenstein, G. F., Thompson, L., & Bazerman, M. H. (1989). Social utility and
decision making in interpersonal contexts. Journal of Personality and Social Psychology,
57(3), 426–441.

Fairness (3 of 6)
Egocentrism affects judgments of fairness:
• People will reject outcomes that entail one person
receiving more than others and instead take a settlement
of lower joint value but equal-appearing shares
(see Exhibit 3-6).
• People pay themselves substantially more than they are
willing to pay others for doing the same task.

Fairness (4 of 6)
Exhibit 3-6 Profiles of Pie Slicers
Have you ever wondered whether most people are truly interested in other people or are
only concerned about their own profit? To examine this question, MBA students were given
several hypothetical scenarios, such as the situation involving the ski invention, and asked
what division of resources (and, in some cases, costs) they preferred. Further, people made
responses for different kinds of relationships: friendly ones, antagonistic ones, and neutral
ones. Three types of people were identified:
• Loyalists prefer to split resources equally, except in antagonistic relationships (27%).
• Saints prefer to split resources equally no matter whether relationships are positive,
neutral, or negative (24%).
• Ruthless competitors prefer to have more resources than the other party regardless of
relationship (36%).
Source: Loewenstein, G. F., Thompson, L., & Bazerman, M. H. (1989). Social utility and
decision making in interpersonal contexts. Journal of Personality and Social Psychology,
57(3), 426–441.

Fairness (5 of 6)
Egocentric judgments of fairness emerge when people
select fairness rules in a self-serving fashion:
• When people make minimal contributions, they often prefer
equality rather than equity.
• When people’s contributions are substantial, they opt for
equity rather than equality.

Fairness (6 of 6)
• Appeals to equality rules can also be self-serving, very
complex, and not consistently applied to situations.
• Because most situations have some ambiguity, people use
that lack of clarity to construe situations in a way that
favors their own interests.

Substantiation – Relationships &
Fairness (1 of 2)
• People in relationships with others do not consistently
employ one rule of fairness but use different fairness rules
in specific incidences.
• Fairness rules also depend on whether people are dealing
with rewards versus costs.
• Social comparisons also affect negotiators’ perceptions of
fairness (see Exhibit 3-7).

Substantiation – Relationships &
Fairness (2 of 2)
Exhibit 3-7 Self-interest vs. Social Comparison
Imagine that you are being recruited for a position in firm A. Your colleague, Jay, of similar
background and skill, is also being recruited by firm A. Firm A has made you and Jay the
following salary offers:
• Your salary: $75,000
• Jay’s salary: $95,000
Your other option is to take a position at firm B, which has made you an offer. Firm B has
also made your colleague, Ines, an offer:
• Your salary: $72,000
• Ines’s salary: $72,000
Which job offer do you take, firm A’s or firm B’s? If you follow the principles of rational
judgment, you will take firm A’s offer—it pays more money.
However, if you are like most people, you prefer firm B’s offer because you do not like
feeling you are being treated unfairly.
Based on Bazerman, M. H., Loewenstein, G., & White, S. (1992). Reversals of preference
in allocating decisions: Judging an alternative versus choosing among alternatives.
Administrative Science Quarterly, 37, 220–240.

Substantiation – Equity Principle
Equity exists in a relationship if each person’s outcomes
are proportional to his or her inputs:
• Equity refers to equivalence of the outcome/input ratio of
parties.
• Inequity exists when the ratio of outcomes to inputs is
unequal.
Complications arise if two people have different views of
what constitutes a legitimate investment, cost, or reward and
how they rank each one.

Substantiation – Restoring Equity
People use the following means to eliminate the tension
arising from inequity:
• Alter the inputs
• Alter the outcomes
• Cognitively distort inputs or outcomes
• Leave the situation
• Cognitively distort either the inputs or the outcomes of an
exchange partner
• Change the object of comparison

Final Offers
• Making an irrevocable commitment such as a “final offer”
should be done only when you really mean what you say
and are prepared to walk away from the bargaining table.
• You should only walk away from the bargaining table if
your BATNA is more attractive than the counterparty’s
offer.

Final Offers – Face-Saving
“Face” is the value a person places on his or her public
image, reputation, and status vis-à-vis other people in
the negotiation.
• Direct threats to “face” in a negotiation include: making
ultimatums, criticisms, challenges, and insults.
• When a person’s “face” is threatened, it can tip the
balance of their behavior away from cooperation toward
competition, resulting in an impasse.
• The best way to help the other party “save face” is to not
indicate that you think he or she has lost face.

Chapter Capstone
• When it comes to slicing the pie, the most valuable piece
of information is a negotiator’s BATNA.
• Negotiators should not reveal their reservation price and
never lie about their BATNA.
• A negotiator who is well versed in the psychology of
fairness is at a pie-slicing advantage.

Chapter 3 Distributive Negotiation: Claiming Value

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