I was there when Barry Goldman, M.A., J.D., led a sophisticated roomful of lawyers, mediators, and arbitrators in a negotiation for the sale of imaginary sweatshirts.
These weren’t just any imaginary sweatshirts. They were high-quality, union-made, hooded, 90% cotton (10% artificial fibers to prevent shrinkage), made-in-the-U.S.A. imaginary sweatshirts. Come to think of it, only imaginary sweatshirts are still made in the U.S.A.
Anyway, this negotiation took place at The Institute of Continuing Legal Education’s 2008 Advanced Negotiation and Dispute Resolution Institute. Barry told those on one side of the room that they were the beneficiaries of his largesse. Each would have the gift of the imaginary sweatshirt in the imaginary plastic bag imaginarily sitting on the real table in front of each of them. Unfortunately, Barry advised, he had run out of imaginary sweatshirts. Those on the other side of the room would receive no imaginary gift.
I was on the wrong side. I was disappointed. I like hooded sweatshirts and, in particular, I like free stuff. Too bad Barry hadn’t planned better and brought imaginary sweatshirts for everyone.
But, wait, Barry said, there may be a way – through negotiation – to improve the position of all in the room. After all, negotiation is Barry’s business. Barry is a lawyer, mediator, and arbitrator, and teaches negotiation at Wayne State University Law School. This is good, because if he was in the imaginary sweatshirt business he couldn’t make a living.
So, Barry continued, there likely are those on the one side of the room who would rather have imaginary money than an imaginary sweatshirt and there likely are those on the other side who’d be willing to buy one of the imaginary sweatshirts. Willing sellers and willing buyers. Let’s negotiate.
Barry had the sellers write their selling prices on pieces of paper. He had the buyers write their offers on pieces of paper. Barry collected the papers at the front of the room and read the prices and offers aloud. As Barry knew would be the case from past experiments, almost all the selling prices were higher — considerably higher — than most of the offers.
This always happens, Barry told us. It is the product of a psychological influence called the “endowment effect.” Human beings “tend to overvalue anything perceived as ‘mine.’” So powerful is the endowment effect that it affects the valuation of imaginary sweatshirts. Barry explains this in his new book, The Science of Settlement – Ideas for Negotiators (ALI-ABA 2008):
People who received an imaginary sweatshirt demanded, on average, twice the amount of money to sell it than those who did not get one were willing to pay. They had become attached to an imaginary object they had pretended to own for two minutes.
I saw the point. I wasn’t prepared to part with much imaginary money to buy an imaginary sweatshirt. I’ve got a drawer full of imaginary sweatshirts at home. But when I donate some of my imaginary sweatshirts to Purple Heart, I value them quite highly on my list of imaginary charitable deductions. (Note to the IRS: only kidding).
Why does the endowment effect so reliably influence negotiations, both imaginary and real? This is one of many questions answered in The Science of Settlement. The endowment effect is one of myriad deep-rooted psychological influences that affect human behavior. These influences are grounded not in the cortex, the rational part of the brain, but in the limbic system, “the evolutionarily older, more primitive emotional part of the brain,” formed among the earliest humans, probably in the Pleistocene era. Barry elaborates:
In the ancestral environment it was likely an adaptive strategy to care deeply about your stuff and resist forcefully anyone who wanted to take it from you. Given a population that cared deeply about its stuff and another population that was more blasé, the blasé folks likely did not survive long enough to reproduce and become our ancestors.
Of course, “our evolutionary ancestors are not the ones negotiating the settlement of our lawsuits.” Still, Barry writes, “the endowment effect causes people to put undue value on things that belong to them” and “accounts for some of the value your opponent puts on his case, and it accounts for some of the value you put on yours.”
The endowment effect may be behind your opponent’s assertion that your settlement offer is an “insult.” If an offer is taken as an “insult,” there is something more at work than a dollars-and-cents cost-benefit analysis. Your opponent’s limbic system is telling him that your lowball number disrespects something that “belongs” to him. So, your offer is not merely unacceptable, it is “insulting.” As Barry puts it: “The reaction that says ‘Screw you and your crummy offer’ is an important part of what makes us human.”
Being human is what The Science of Settlement is all about. Barry explains the psychological influences that affect negotiators and negotiations and tells us how to recognize those influences in action and how to deal with them productively. The “science” referred to in the book title is the considerable body of psychological and neuroeconomic research that Barry makes understandable, useful, and, dare I say, fun for reader-negotiators.
The science tells us, Barry reveals, that the assumption that people act in their rational self-interest – the homo economicus model, that the “economic man will always act to maximize his individual economic benefit” – just ain’t so. Barry quotes researchers Douglas Yarn and Gregory Todd Jones: “As behavioral negotiation theory has begun to mature, homo economicus has begun to evolve into homo sapiens.”
The science teaches us, and Barry demonstrates throughout The Science of Settlement, that many difficulties we encounter in negotiations, with the other side and on our own side, have their roots deep in our brains, driven by unconscious influences and cognitive shortcuts – heuristics – developed by our cave-dwelling ancestors, turned into automatic reactions that may not always be productive in the new millennium. This is stuff that every negotiator will find useful, illuminating why people do what they do, both them and us. Barry observes: “A negotiator who proceeds as though it’s all about the money is missing an important feature of human judgment” and “is not doing himself or his clients any favors.” You can do a favor for yourself and your clients by reading Barry’s book.
The endowment effect and the sweatshirt experiment represent only one of the many, many psychological influences addressed in the book. Some of Barry’s section headings provide a glimpse into the book, drawing the reader in to learn more. For example: monkey justice, the Lake Woebegon effect, base rates, overconfidence, self-serving bias, illusion of control, belief in a just world, fundamental attribution error, availability heuristic, probability, the conjunction fallacy, status quo bias, regret aversion, the contrast effect, the similarity-attraction effect, being observed to be listening, anchoring, the winner’s curse, reciprocity, rejection then retreat, packaging effects, framing effects, sunk costs, social proof, timing effects, position effects, counterfactuals, the peak-end rule, post-settlement settlement, the lawsuit market, etc., etc.
You’ve got to read the book to find out what all this means, but here is one example of the “framing effect.” Those physicians in a study told that there was a mortality rate of seven percent within five years for a certain operation were hesitant to recommend that operation to patients. On the other hand, those physicians told that there was a 93% survival rate within five years of the operation were more inclined to recommend it to their patients. Of course, we lawyers — more intelligent than physicians — understand that the seven percent mortality rate is the same as the 93% survival rate. The study proves the point: framing matters. The way an offer is presented, numbers aside, may trigger a psychological response that is the perception difference between a palatable settlement offer and an “insult.”
Barry explores these psychological influences and relates them to negotiation and mediation. In doing so, Barry provides scientific support for some of what is conventional wisdom among negotiators, adding depth to our understanding of why people do what they do. He also debunks some of what is conventional wisdom among negotiators, adding depth to our understanding about why we might want to stop doing what we’ve been doing. Barry’s approach, too, is an antidote to some of the psychobabble that is offered as wisdom by some purporting to educate negotiators.
Barry’s book is practical, accessible and readable, and unique. It also is fun and funny. It will help you become a better negotiator. It will provide you with a wealth of information about interesting things that will improve your status as a cocktail party raconteur and insightful observer of human nature. There’s not much more you can ask from a book.
I need to make a disclosure. I am the editor of Labor and Employment Lawnotes, the quarterly published by the State Bar of Michigan Labor And Employment Law Section. Barry writes a regular Lawnotes column called “For What It’s Worth.” He writes about arbitration and mediation and other topics of interest to lawyers and mediators and arbitrators and judges. I find his column, like his book, useful and insightful, and quite amusing. I like Barry’s column so much that I encouraged him to write his book. He kindly acknowledges my role in making him a star in the aptly-titled “acknowledgments” section of his book. Still, Barry refuses to share his (admittedly paltry) royalties with me. I am not too exercised about Barry’s selfish need to hold on to what he perceives as “his” royalties, because now I understand that it is a product of the endowment effect. On this issue, at least, Barry is stuck in the Pleistocene era.
The Science of Settlement–Ideas for Negotiators is available from Barry Goldman ([email protected]) or from his publisher, American Law Institute-American Bar Association (www.ali-aba.org), where one can read the introduction and “preview” chapters. Good reading.
ALI-ABA, the publisher of The Science of Settlement, is offering a discount to mediate.com readers. Just go to www.ali-aba.com/bk43 and click Order Hard Copy. When you see the box labeled Enter Coupon, enter BK4330. That will get you the book for $29, a $30 savings off the regular price.
If you prefer to order by phone, call ALI-ABA at 1-800-253-6397, ask for The Science of Settlement and give them the Coupon Code BK4330.