Knowledge IS Power

I’ve mentioned in previous posts a series of classes I took a couple of years ago at the University of Chicago GSB.

Last week I came across my notes for a series of lectures on the art of negotiation by Professor George Wu.  Those classes changed my entire view of negotiation, and I’ve been spreading his gospel ever since.

His is a deep and highly analytical approach. But the foundation of it rests on a simple philosophy.

We think we know more than we know.

A powerful statement he backed up with facts.

Take a group of 100 people. 50 are risk-takers and 50 are risk averse. If you ask them individually to predict what percentage of the group would accept a 50-50 bet, the answers typically will be:

  • Risk-takers 73%

  • Risk-averse 37%

The real answer of course is 50%. But each group over-values the only piece of evidence they have at their disposal - their own pre-disposition.

If we take this to an empirical situation, the pattern continues.

Which causes more deaths in the U.S. each year?

  • Stomach cancer

  • Motor vehicles

In six different groups, the answer was always motor vehicle. The average differential was 80:20. People think death is 4 times more likely to occur in a motor vehicle than from stomach cancer.

The actual answer, of course, is stomach cancer. By more than 2:1.

But the reason the vast majority of people are so badly wrong in their analysis is because they over-value the information they have readily available. In this case media coverage. On average in any given year. there is typically 139 times more media coverage of motor vehicle deaths than stomach cancer deaths.

In other words we believe what we hear, and then ascribe huge weight to that information.

In any negotiation, the key is to find out the true range of possible outcomes. That means putting aside or minimizing information that is readily available to us or that fits what we want to believe - a mistake that almost every business owner makes. Telling ourselves a story that fits our version of the facts is comforting and easier. It’s also a lie. To ourselves.

Instead, try this:

  • Put yourself fully in the other person’s situation and understanding the facts as they experience them. Not as you want them to.

  • Challenge your own view of the ‘facts’ with more skepticism than the other participant will bring to the table.

  • Negotiate based on the full range of outcomes that is available. 70 percent of participants leaving a negotiation believe they got the better outcome. A mathematical impossibility. And proof that at least one side believed there was less to gain than was actually available.

  • Negotiate towards an outcome, not a position. Positions are intractable, fixed points. Successful negotiations require flexibility and possibility, underpinned by a strong understanding of the value of your next best alternative.

All of this requires objectivity.

Hard to come by in the day to day maelstrom. But worth it’s weight in gold in a negotiation.