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Volume III, Number 9 - June 2010 ●   Contact Us  •  Past Issue Archive   ●   

An E-Publication of the Los Angeles County Bar Association
Written by Linda B. Bulmash


This Month's Topic: 
Does a "Take It or Leave It" Offer Work
When You Appear to Have All the Bargaining Power?*
 

It is tempting to make a “take it or leave it” offer when you seem to have all the bargaining power. Yet, studies show the “ultimatum game” quite often backfires, because perceived fairness affects the other party’s response more than logical economic analysis. Acceptance of a deal has as much or more to do with the way an offer is presented than the quantitative analysis of the offer.

The Ultimatum Game: Social scientists and neuroscientists have studied human behavior by observing how control groups play the ultimatum game. In this game, A has a sum of money ($10) and B has nothing. If A can convince B to accept a portion of that money of A’s choosing, both get their share. If A cannot, neither gets any money. For instance, if A offers B even $1, you would think B would accept it, because $1 is better than nothing. However, over 50% of people reject such an offer.

Why is that? While studying the brain activity of A and B as they play this game, neuroscientists made significant discoveries. A fair, mid-range offer triggered the logical parts of B’s brain and a very low offer lit up the emotional parts of B’s brain—the areas that handle conflict, disgust, and resentment.

The bottom line: People would rather scuttle a deal that provides some benefit than pay an emotional cost for accepting what they felt was an unfair offer. Logic plays little or no role in their choice.

Solution: If you want to make a deal, carefully calibrate your offer in such a way that the other side sees a benefit that leaves them with their self-respect intact and triggers the logical parts of the brain rather than the emotional parts. This can be done by:

1. Probing to understand your counterpart’s interests and needs.

2. Framing the offer in terms that meet the other side’s underlying interests or attaching more carrots to the offer, such as creating a longer-term contract. Guarantee certain benefits that cost you little and the other side values—or simply offer them more money but still get a great deal for yourself.



*Negotiation, Program on Negotiation at Harvard Law School, Vol. 13, No. 1, January 2010.

Linda B. Bulmash, Esq.,
writes the Negotiation Tips.
You can contact her at:

lbulmash@adrservices.org
www.bulmashmediation.com
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