A consulting client recently accepted a very attractive offer to settle a lawsuit despite their pretty accurate analysis that the case – if they took it through trial – would almost certainly result in a much better result.
This seems illogical. Yet they were quite satisfied with the settlement.
Why? And what can we learn from this?
1. Logic doesn’t always drive negotiation actions
Spock in the smash TV and movie series Star Trek famously relies on logic to make his decisions and actively spurns the emotions that sometimes drive human decision-making.
Of course, we are not of mixed Vulcan/human heritage like Spock – and yet some of us tend to overly rely on logic and rationality in making significant negotiations decisions.
Here’s an example. In the above lawsuit, I pointed out that my client’s leverage was particularly strong by their own analysis as their Plan B – going through trial – was highly likely to result in millions more for their clients than the settlement on the table. And the risk was pretty small that they would get a worse result.
Based on pure logic and a risk analysis, it would have made sense to reject the offer on the table and negotiate aggressively for more.
Yet my clients took the offer – the bird in the hand. Why? Because even though they very likely would have done better with their alternative/Plan B, it still involved some risk. And they just didn’t want that risk.
Plus, the settlement was in the millions and would transform their lives anyway. Millions more wouldn’t have likely made much difference for them.
It’s seems logical – but also illogical.
Fortunately, there’s a lot of psychological research in risk aversion. The bottom line negotiation-wise: truly evaluate your capacity and interest in risk and the potential outcomes resulting from it. Then make your decisions based on your Plan B and the risks associated with it.
My clients made the right decision for them, given their risk aversion. Others might have made a different decision – which also could have been right for them.
2. Feelings and emotions legitimately impact negotiation decisions
“I just have a good feeling about this potential partner,” a purchasing director might note concerning a possible new supplier. Or “I know this company doesn’t quite add up on paper like the others, but this deal just feels right.”
Spock, of course, would point out the unscientific nature of these feelings and lay out the logical, rational course of action. And sometimes Spock would be right.
But sometimes Spock would be wrong, too. A big part of the negotiation process involves feelings and emotions. And it would be wrong to completely discount them.
On the other hand, we also shouldn’t solely rely on them to drive our decisions.
What should you do? One, drill down and ascertain WHY you have that good feeling about that potential partner or WHY that deal just feels right. Consider brainstorming on this with a colleague, too, as others’ objective analysis may be quite helpful.
And two, consider the intensity of the feeling or emotion and any possible feelings of regret you might have if you don’t get the negotiation or deal closed.
When my wife and I were looking for a house and we walked into the house that we eventually bought, my wife turned to me and said she “loved it.” (Fortunately the selling real estate agent was not there at the time!). I knew then that her intensity was such that – even though other homes may seem like they satisfied more of our interests – my wife had already formed a strong emotional attachment to this house.
My consulting clients felt like they were getting a very sizable settlement. So they took it despite their strong leverage. I doubt they will regret it.
Published August 3, 2014 The Arizona Republic