Bargaining for Advantage

by G Richard Shell

  In the bargaining game, it is understood that both sides might be bluffing. Bluffs disguise a weak bargaining hand, that is, the limited or unattractive alternatives you have away from the table, your inability to affect the other side’s alternatives, and the arguments you have to support your demands. Unlike poker players, negotiators always attempt to disclose a good hand if they have one in the bargaining game. So the most effective bluffs are realistic, attractive, difficult-to-check (but false) alternatives or authoritative (but false) supporting standards. Experienced players know this, so one of the key skills in the bargaining game is judging when the other party’s alternatives or arguments are really as good as he or she says. If the other side calls you on your bargaining bluff by walking away or giving you a credible ultimatum, you lose. Either there will be no deal when there should have been one, or the final price will be nearer to their last offer than to yours.

  As mentioned above, the Poker School believes in the rule of law. In poker, you are not allowed to hide cards, collude with other players, or renege on your bets. But you are expected to deceive others about your hand. The best plays come when you win the pot with a weak hand or fool the other players into betting heavily when your hand is strong. In bargaining, you must not commit outright, actionable fraud, but negotiators must be on guard for anything short of fraud.

  The Poker School has three main problems as I see it. First, the Poker School presumes that everyone treats bargaining as a game. Unfortunately, it is an empirical fact that people disagree on this. For a start, neither the idealists nor the pragmatists (more on these below) think bargaining is a game. This problem does not deter the Poker School, which holds that the rules permit its members to play even when the other party disagrees about this premise.

  Second, everyone is supposed to know the rules cold. But this is impossible, given that legal rules are applied differently in different industries and regions of the world.

  Finally, as you now know (having read about the legal treatment of fraud), the law is far from certain even within a single jurisdiction. So you often need a sharp lawyer to help you decide what to do.

  THE “DO THE RIGHT THING EVEN IF IT HURTS” IDEALIST SCHOOL

  The Idealist School says that bargaining is an aspect of social life, not a special activity with its own unique set of rules. The same ethics that apply in the home should carry over directly into the realm of negotiation. If it is wrong to lie or mislead in normal social encounters, it is wrong to do so in negotiations. If it is OK to lie in special situations (such as to protect another person’s feelings), it is also OK to lie in negotiations when those special conditions apply.

  Idealists do not entirely rule out deception in negotiation. For example, if the other party assumes you have a lot of leverage and never asks you directly about the situation as you see it, you do not necessarily have to volunteer information weakening your position. And the idealist can decline to answer questions. But such exceptions are uncomfortable moments. Members of the Idealist School prefer to be candid and honest at the bargaining table even if it means giving up a certain amount of strategic advantage.

  The Idealist School draws its strength from philosophy and religion. For example, Immanuel Kant said that we should all follow the ethical rules that we would wish others to follow. Kant argued that if everyone lied all the time, social life would be chaos. Hence, you should not lie. Kant also disapproved of treating other people merely as the means to achieve your own personal ends. Lies in negotiation are selfish acts designed to achieve personal gain. This form of conduct is therefore unethical. Period. Many religions also teach adherents not to lie for personal advantage.

  Idealists admit that deception in negotiation rarely arouses moral indignation unless the lies breach a trust between friends, violate a fiduciary responsibility, or exploit people such as the sick or elderly, who lack the ability to protect themselves. And if the only way you can prevent some terrible harm like a murder is by lying, go ahead and lie. But the lack of moral outrage and the fact that sometimes lying can be defended does not make deception in negotiations right.

  Idealists strongly reject the idea that negotiations should be viewed as “games.” Negotiations, they feel, are serious, consequential communication acts. People negotiate to resolve their differences so social life will work for the benefit of all. People must be held responsible for all their actions, including the way they negotiate, under universal standards.

  Idealists think that the members of the Poker School are predatory and selfish. For its part, the Poker School thinks that idealists are naive and even a little silly. When members of the two schools meet at the bargaining table, tempers can flare.

  Some members of the Idealist School have recently been trying to find a philosophical justification for bluffs about bottom lines. There is no agreement yet on whether these efforts have succeeded in ethical terms. But it is clear that outright lies such as fictitious other offers and better prices are unethical practices under idealist principles.

  The big problem for the idealists is obvious: Their standards sometimes make it difficult to proceed in a realistic way at the bargaining table. Also, unless adherence to the Idealist School is coupled with a healthy skepticism about the way other people will negotiate, idealism leaves its members open to exploitation by people with standards other than their own. These limitations are especially troublesome when idealists must represent others’ interests at the bargaining table.

  Despite its limitations, I like the Idealist School. Perhaps because I am an academic, I genuinely believe that the different parts of my life are, in fact, a whole. I aspire to ethical standards that I can apply consistently. I will admit that I sometimes fall short of idealism’s strict code, but by aiming high I hope I am leaving myself somewhere to fall that maintains my basic sense of personal integrity.

  I confess my preference for the Idealist School so you will know where I am coming from in this discussion. But I realize that your experience and work environment may preclude idealism as an ethical option. That’s OK. As I hope I am making clear, idealism is not the only way to think about negotiation in ethical terms.

  THE “WHAT GOES AROUND COMES AROUND” PRAGMATIST SCHOOL

  The final school of bargaining ethics, the Pragmatist School, includes some original elements as well as some attributes of the previous two. In common with the Poker School, this approach views deception as a necessary part of the negotiation process. Unlike the Poker School, however, it prefers not to use misleading statements and overt lies if there is a serviceable, practical alternative. Uniquely, the Pragmatist School displays concern for the potential negative effects of deceptive conduct on present and future relationships. Thus, lying and other questionable tactics are bad not so much because they are “wrong” as because they cost the user more in the long run than they gain in the short run.

  As my last comment suggests, people adhere to this school more for prudential than idealistic reasons. Lies and misleading conduct can cause serious injury to one’s credibility. And credibility is an important asset for effective negotiators both to preserve working relationships and to protect one’s reputation in a market or community. This latter concern is summed up in what I would call the pragmatist’s credo: What goes around comes around. The Poker School is less mindful of reputation and more focused on winning each bargaining encounter within the rules of the “game.”

  What separates the Pragmatist School from the Idealist School? To put it bluntly, a pragmatist will lie a bit more often than will an idealist. For example, pragmatists sometimes draw fine distinctions between lies about hard-core facts of a transaction, which are always imprudent (and often illegal), and misleading statements about such things as the rationales used to justify a position. A pragmatic car salesman considers it highly unethical to lie about anything large or small relating to the mechanical condition of a used car he is selling. But this same salesman might not have a problem saying “My manager
won’t let me sell this car for less than $10,000” even though he knows the manager would sell the car for $9500. False justification and rationales are marginally acceptable because they are usually less important to the transaction and much harder to detect as falsehoods than are core facts about the object being bought and sold.

  Pragmatists are also somewhat looser within the truth when using so-called blocking techniques—tactics to avoid answering questions that threaten to expose a weak bargaining position. For example, can you ethically answer “I don’t know” when asked about something you do know that hurts your position? An idealist would refuse to answer the question or try to change the subject, not lie by saying “I don’t know.” A pragmatist would go ahead and say “I don’t know” if his actual state of knowledge is hard to trace and the lie poses little risk to his relationships.

  What would the pragmatists make of Sifford’s lie about his catalog price? My guess is that they would not consider this move an ethical problem. There were no relationship risks involved in Sifford’s fib. There was no question of constructing a good working relationship, no reputational interests at stake, and the salesman seemed to know exactly what Sifford was up to. He did not violate the salesman’s trust. An idealist, by contrast, would object to Sifford’s tactic on ethical grounds because it involved a lie designed to gain selfish advantage. Case closed.

  The Ethical Schools in Action

  As a test of ethical thinking, let’s take a simple example. Assume you are negotiating to sell a commercial building and the other party asks you whether you have another offer. In fact, you do not have any such offers. What would the three schools recommend you do?

  A Poker School adherent might suggest a lie. Both parties are sophisticated businesspeople in this deal, so a lie about alternatives is probably legally “immaterial.” But a member of the Poker School would want to know the answers to two questions before making his move.

  First, could the lie be easily found out? If so, it would be a bad play because it wouldn’t work and might put the other side on guard with respect to other lies he might want to tell. Second, is a lie about alternatives the best way to leverage the buyer into making a bid? Perhaps a lie about something else—a deadline, for example—might be a better choice.

  Assuming the lie is undetectable and will work, how might the conversation sound?

  Buyer: Do you have another offer?

  Poker School Seller: Yes. A Saudi Arabian firm presented us with an offer for $______ this morning, and we have only forty-eight hours to get back to it with an answer. Confidentiality forbids us from showing you the Saudi offer, but rest assured that it is real. What would you like to do?

  How would an idealist handle this situation? There are several idealist responses, but none would involve a lie. One response would be the following.

  Buyer: Do you have another offer?

  Idealist Seller 1: An interesting question—and one I refuse to answer.

  Of course, that refusal speaks volumes to the buyer. Another approach would be to adopt a policy on “other buyer” questions.

  Buyer: Do you have another offer?

  Idealist Seller 2: An interesting question, and one I receive quite often. Let me answer you this way. The property’s value to you is something for you to decide based on your needs and your own sense of the market. However, I treat all offers with the greatest confidence. I will not discuss an offer you make to me with another buyer, and I would not discuss any offer I received from someone else with you. Will you be bidding?

  Of course, this will work for an idealist only if he or she really and truly has such a policy—a costly one when there is another attractive offer he or she would like to reveal.

  A final idealist approach would be to offer an honest, straightforward answer. An idealist cannot lie or deliberately mislead, but he is allowed to put the best face he can on the situation that is consistent with the plain truth.

  Buyer: Do you have another offer?

  Idealist Seller 3: To be honest, we have no offers at this time. However, we are hopeful that we will receive other offers soon. It might be in your interest to bid now and take the property before competition drives the price up.

  How about the pragmatists? They would suggest using somewhat more sophisticated, perhaps even deceptive, blocking techniques. These techniques would protect their leverage in ways that were consistent with maintaining working relationships. Once again, assume that the buyer has asked the “other offer” question and there are no other offers. Here are five ways a pragmatist might suggest you block this question to avoid an out-and-out factual lie about other offers while minimizing the damage to your leverage. Some of these blocking techniques would work for idealists, too.

  • Declare the question out of bounds. (“Company policy forbids any discussion of other offers in situations like this”—note that, if untrue, this is a lie, but it is one that carries less risk to your reputation because it is hard to confirm. If there really is such a company policy, an idealist could also use this move to block the question.)

  • Answer a different question. (“We will not be keeping the property on the market much longer because the market is moving and our plans are changing.” Again, if untrue, this statement is a mere lie about a “rationale” that troubles pragmatists less than idealists.)

  • Dodge the question. (“The more important question is whether we are going to get an offer from you—and when.”)

  • Ask a question of your own. (“What alternatives are you examining at this time?”)

  • Change the subject. (“We are late for our next meeting already. Are you bidding today or not?”)

  Blocking techniques of this sort serve a utilitarian purpose. They preserve some leverage (though not as much as the Poker School) while reducing the risk of acquiring a reputation for deception. Relationships and reputations matter. If there is even a remote chance of a lie coming back to haunt you in a future negotiation with either the person you lie to or someone he may interact with, the pragmatists argue that you should not do it.

  So—which school do you belong to? Or do you belong to a school of your own such as “pragmatic idealism”? To repeat: My advice is to aim high. The pressure of real bargaining often makes ethical compromisers of us all. When you fall below the standard of the Poker School, you are at serious risk of legal and even criminal liability.

  Bargaining with the Devil: The Art of Self-defense

  Regardless of which school of bargaining ethics you adopt, you are going to face unscrupulous tactics from others on occasion. Even members of the Poker School sometimes face off against crooks. Are there any reliable means of self-defense to protect yourself and minimize the dangers? This section will give you some pointers on how to engage in effective self-defense against unethical tactics at the bargaining table.

  First, let me relate a couple of stories of questionable bargaining behavior to see what the potential victims did to avert disaster. Then we will see how they could have perhaps done better. After that, I will list and describe some of the more common unethical gambits so you can recognize them when someone uses one against you.

  “That Was Just My Personal Price”

  The first story involves a used-car purchase. A St. Louis newspaper reporter named Dale Singer went out to buy his daughter a used car. After some shopping, he found a perfectly suitable vehicle on the used-car lot of a luxury-car dealership. The sticker price: $9,995. Singer haggled with the salesman, and the price quickly dropped to $9,000. Singer haggled a little more, and the salesman excused himself to visit with the sales manager. The salesman returned after a few minutes with a question.

  “Would you buy it today for $8,500?” the salesman asked.

  Singer liked the sound of that, but he was still shopping. He said he would get back to the salesman after he had looked around a bit more.

  A full day of car shopping turned up nothing more attractive than the first car. That evening Singer call
ed the salesman back and offered $8,300. “I figured he probably wouldn’t budge from his $8,500 offer, but I knew that this was how the game was played,” he later explained.

  The salesman coolly replied that the price was now $8,900. When Singer protested, the salesman explained that the $8,500 figure had been his “personal offer” but that price had not been approved by the sales manager. Singer reminded him that the $8,500 figure had been mentioned just after a visit to the manager, and the salesman was sympathetic. He could sell the car for $8,700, but that was the best he could do.

  Outraged, Singer demanded to speak with the sales manager himself. The sales manager came on the line and explained that $8,500 was his cost, so $8,700 was his final price. Singer asked for the name of the general manager of the dealership, received it, and hung up.

  A few minutes later the telephone rang again. It was the sales manager. Because there had been a genuine misunderstanding over the price, he said, Singer could have the car for $8,500.

  Singer bought the car, but the dealership later balked at giving him full warranty service on the vehicle because of the low price he had paid. Singer ended up with a fully functioning car at the price he wanted to pay, but he was left wondering “Why should a customer have to work so hard to be treated fairly?” He felt abused and bitter.

  Singer did not know it, but the dealer “lowballed” him, tricking him into becoming committed to the car at a bargain price, then nudging the price up to exploit Singer’s rising interest in the vehicle. Lowballing is a classic, proven manipulative sales technique based on a hidden psychological premise. Singer was alert enough to reject it, but it works against many customers.

  The Bidding War