Negotiations and Decision-Making: how cognitive biases affect negotiations.

Negotiation can be and has been defined in various ways. A definition that I quite like is from Leigh Thompson, a professor at the Kellogg School of Management at Northwestern University: "An interpersonal decision-making process necessary whenever we cannot achieve our goals alone."

Before, during, and after a negotiation process, several decisions need to be made: from values, deadlines, and the team that will negotiate, to how to react to unforeseen events, how much to be flexible with your initial proposal, and decisions at the moment of drafting the contract and during the implementation and execution of the agreement.

Values, deadlines, the negotiating team, how to respond to unforeseen circumstances, how flexible to be with your initial proposal, and decisions at the time of contract drafting and during the implementation and execution of the agreement are just a few of the decisions that must be made before, during, and after a negotiation process.

With so many decisions impacting the process directly and indirectly, it is necessary to prioritize efficient decision-making processes and avoid certain common traps that are invisible to many.

A particularly pernicious set of traps are cognitive biases, which are predictable patterns of failure in the way the brain functions, resulting in systematic distortions in the perception and processing of information.

Avoiding them is a difficult task, but not impossible, and the effort brings good rewards. There are some remedies are worth using.

The anchoring bias is one of the main biases that interfere in negotiation processes. So important that it deserves a text just for it.

Another bias, which often accompanies anchoring, is confirmation bias, which is the tendency to seek information that corroborates an initial assumption or point of view, while disregarding contrary evidence.

The choice of sources for seeking information and opinions is influenced by this bias, as well as the way of interpreting the data, perspectives, and suggestions received.

The main tool to be employed to avoid falling victim to this bias is to cultivate the habit of seeking other viewpoints. This can be done in different ways.

Creating the habit of thinking about arguments against your own opinions and viewpoints, assigning someone from the team to be the devil's advocate, and avoiding surrounding yourself with people who always agree with what we say are powerful strategies to gain perspective.

The sunk cost bias is also important, as it can greatly impact the overall business perspective and the negotiation process.

Sunk cost is the investment of time, money, and/or energy that cannot be recovered. This bias involves the tendency to justify the continuation of the direction chosen in the past, even when the conditions that justified that decision are no longer present.

Hence comes the inclination to remain in businesses that are no longer profitable, in commercial partnerships that no longer work, and in negotiations that are showing signs of not meeting your interests and needs, that is, they will not be beneficial for us.

The difficulty, whether conscious or not, of recognizing mistakes, the tendency to remain in the status quo, and the avoidance of situations that involve the risk of judgments and criticisms are characteristics that explain the sunk cost bias. Since the decisions made in the professional sphere are public, it becomes even more difficult to deviate from the chosen path.

The sunk cost bias is often accompanied by the escalation of commitment bias, characterized by the tendency to continue investing resources in projects that are not producing the expected effects, in an attempt to recover the initial investment.

Emotional attachment or ego investment in the project, large initial investments, and prospects of significant profits are some of the factors that make it difficult to abandon a project and fuel the desire to salvage sinking investments.

Warren Buffet said, "when you find yourself in a hole, the best thing to do is stop digging." There are ways to put the shovel (or backhoe) aside.

Once again, it is necessary to gain perspective. Consulting people who have no emotional or ego involvement with the project is always a good alternative. To calm your own ego, it's worth remembering that intelligent people make bad decisions and that even smart choices can lead to negative consequences. Self-awareness is always important, so reflect on the reasons that are leading you to cling to the project.

Decisions are vital in business and negotiations. Taking care of the quality of the decision-making process starts by avoiding predictable mistakes that can accumulate over time. Knowing and avoiding cognitive biases is an important part of ensuring the quality of decisions.

By Alessandra Corrêa

This post was originally published in Portuguese on the Head Energia blog.