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Volume IV, Number 2 - March 2011 ●   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" impacts the 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 and neuroscientists have studied human behavior by observing 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? When the brain activity of "A" and "B" while playing this game is studied, neuroscientists have discovered the following: when "Bs" encountered a "fair" mid-range offer, the logical parts of the brain were triggered and when they encountered a very low offer, the emotional parts of their brain (the areas that handle conflict, disgust, resentment) lit up.

The bottom line: People would rather scuttle a deal that provides some benefit than pay an emotional cost for accepting what they "felt" an unfair offer. Logic played 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 to themselves 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 and;

2. Framing the offer in terms that meet their underlying interests and/or attaching more carrots to the offer (creating a longer-term contract; guaranteeing certain benefits that cost you little and the other side values) or simply offering them more money but still getting a great deal for yourself.

*Negotiation, Program on Negotiation at Harvard Law School, Vol. 13, Num. 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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