The Predictability of Distributive Bargaining

Negotiation Dance

This article examines the predictability of distributive bargaining between two negotiators, and conditions that might distort that predictability. It also introduces the important concept of the ‘negotiation dance,’ which is basic to the study of the negotiation process.         

Negotiation is a social act; of communication and discovery between two or more people, with the goal of agreeing on some as-yet-undecided issue. The parties lack perfect information about one another’s aspiration point (the highest they reasonably expect to get), their reservation point   (below which they will walk away), or the personal factors that could influence one or the other to change those numbers, such as economic hardship making an immediate settlement or sale very attractive.

As disputants interact they exchange information about these things. Some communication is verbal. Just as important as words in shaping expectations is bargaining behavior. For example, a relatively tiny concession at the beginning of the negotiation can be read to say “I’m not really interested in settling with you; I’ll give a little bit to get rid of you.”  Timing is also a factor. The same tiny concession at the end of the day usually means “I’m running out of money to offer you. My final offer is coming soon.”

At its simplest, bargaining involves two people in a negotiating relationship (what academic writers call a dyad). Although there are many instances of cooperation in pursuit of a jointly beneficial outcome, because American society is individualistic, the usual assumption is that negotiation is a competitive, “zero-sum’ game.” (A zero-sum game is a situation in which the dyad members divide a fixed resource, so that a gain for A is a loss for B).

Zero-sum negotiation to divide a fixed resource (or what the academic negotiating literature metaphorically refers to as the ‘pie’) is called distributive negotiation. The distributive negotiator’s goal is to claim the biggest piece of the pie.

An important note here is that Americans avoid bargaining at all in many situations.  Can you imagine your mother bargaining with the grocer over the price of oranges? Probably not.  Americans give themselves permission to bargain in some contexts – like shopping for a used car – but not in others.

Reasons to concede

Distributive negotiation is not just trading numbers, because no one wants to bid against themselves. Bargainers want reasons to move, beyond the desire to settle. Because of this, and to help them gauge value, effective bargainers carefully study all sides of a case before negotiation.

Reasons to move include:

  • Economic – Need to keep the process alive and access settlement money.
  • Normative – Movement in response to expectations of the bargaining ritual.
  • Legal – Movement based on reappraisal of legal strengths or options.
  • Temporal – Movement based on time pressure to get the deal done.
  • Emotional – Movement in response to emotional forces.
  • Communicative – Movement to send a message to other negotiators.

Normative rules of distributive bargaining

Certain expectations apply to distributive exchanges, such as:

  • A concession begets a concession of appropriate size in return.
  • A bargainer will not be expected to concede more than once without response
  • A bargainer will prepare for and participate in the negotiation process, and be ready to discuss the value and merits of his or her dispute.
  • Bargainers will schedule enough time for the session.
  • A bargainer will support positions and proposals with some objective standard or evidence.
  • Bargainers’ proposals will be objectively “fair,”
  • The size of concessions will be significant relative to the dispute.
  • While emotions have their place, they will not be permitted to overwhelm a session.

The negotiation dance

While the pattern of demand and offer may seem random, in fact it is limited by the norms and rituals above. Mathematician and game theorist Howard Raiffa called the interplay of demand and concession “the negotiation dance,” a term now in general use amongst negotiation scholars.  Assuming both parties have prepared well enough, they will know the reasonable range for settlement.  Raiffa showed that the likely settlement will be at the midpoint of the first two reasonable offers.

Nevertheless, one cannot jump to a reasonable midpoint and simply settle at that, because bargaining is the expected behavior. Refusing to negotiate leaves your counterpart frustrated, angry that you are being “stubborn” or “unfair,” and doubtful that you are really at your bottom line. In a “first and final offer” scenario your opponent will likely “move the goal posts,” using your bottom line as a starting point for negotiation.

The drive toward the midpoint is caused by social pressure on the bargainers to share the burden of conceding. Without the communication in the social process of negotiations, the necessary pressure is missing.

The norms discussed above also result in a focus on the midpoint of the reasonable range.   Let’s say you and your neighbor Dave are negotiating the sale of Dave’s car, which is worth somewhere between $15,000 and $19,000.  You are each likely to open at an extreme end of the reasonable range ($15,000 for you and $19,000 for Dave), trying to claim as much value as possible.

Someone will concede first, and the bargaining norms discussed above will create a cycle of reciprocal similar concessions, which average out to somewhere near $17,000. Guasco and Robinson indicate that each concession will be approximately half the size of the last and take twice as long to achieve, something like this:

FIGURE 1—NEGOTIATING FOR DAVE’S CAR

$15,000                                                                           $19,000

$16,000                                                        $18, 000

$16,500                                     $17,500

$16,750                     $17,250

$16,875    $17,125

$17,000

The process need not be absolutely precise, but the final result will approach the midpoint because: a) greatly disproportionate concessions are disfavored, b) negotiators take turns conceding, c) similar concessions, made in turn, result a steady march toward the center by each disputant d) offers must be fair, and e) “splitting the difference” is a very strong fairness norm.

Of course, the gravitational pull of the middle can be distorted by many things.  A defendant’s lack of resources, a plaintiff’s need for money, strong emotions that affect negotiating behavior or a failure to properly value the case can all lead to an atypical outcome.  All other things being equal however, the end result of a distributive negotiation will be at or near midpoint of the first two reasonable offers.