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Negotiation is a critical skillset in business and in society. Negotiation is a complicated, joint decision problem where parties can, potentially, make each other better off—but also have some competing interests. For example, you might want a higher bonus while your boss wants to keep expenses low.
Much of the advice about how to negotiate focuses on the terms of the negotiated deal. You might think, then, that more—and more aggressive—negotiations would always lead to better outcomes. Einav Hart, assistant professor of management at George Mason University, suggests that our relationships and context influence how we should negotiate—and even whether it is a good idea to negotiate at all.
“The idea that we can ‘win’ a negotiation reflects a belief that we are competing and need to take as much as we can,” said Hart, “but focusing on the short-term gains might lead to worse outcomes in the long term.”
For example, negotiating aggressively with a new hire might cause them to agree to a lower salary, but it might also harm their morale, their commitment to the organization, and their work effort. As a result, your outcome—even if you saved a few thousand dollars on salary—may be worse than it would be if you had built a relationship through a more collaborative negotiation process.
Hart’s research introduces the concept of “ERRO”—the “Economic Relevance of negotiators’ Relational Outcomes”—to help us decide when and how to negotiate. These decisions should depend on how much your relationship with your negotiation counterpart matters economically.
“When you buy a barbecue grill, for instance, the price you pay may determine your economic outcome more than your relationship with the seller,” said Hart. “However, when you hire a service provider—such as a babysitter, a caterer, or a contractor—a poor relationship following the negotiation may harm the economic value you derive from the agreement, and a positive relationship might increase the economic value you derive.”
Thus, buying a grill has low ERRO, but hiring a babysitter has high ERRO.
In a low ERRO context (like that BBQ grill), aggressive or competitive negotiation tactics that sacrifice relational outcomes may work just fine. But in high ERRO contexts (think babysitter), negotiating aggressively is likely to backfire in the long term. Collaborative tactics ,such as asking questions, expressing empathy, and making concessions (or even not negotiating), may get you the best outcome overall—even if you seemingly leave some money on the table.
In most cases, Hart said, the real value of a negotiation is created after parties leave the bargaining table. Thus, the decision to enter a negotiation is a decision that should be made carefully and strategically.
Hart’s research on organizational behavior and decision making explores how people communicate about conflict and sensitive topics, and how negotiating affects people's future, post-agreement relationships and performance. Her work integrates insights from psychology, and game theory. Prior to joining Mason, Hart was a data scientist at Uber and a visiting scholar at Wharton.
To reach Einav Hart directly, contact her at ehart8@gmu.edu.
For more information, contact Benjamin Kessler at bkessler@gmu.edu.
About George Mason
George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls nearly 40,000 students from 130 countries and all 50 states. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity and commitment to accessibility. Learn more at www.gmu.edu.