Contingent Behavior , Biases , and Adaptivity in Distributive Negotiation

Behavioral decision making research on negotiation has obtained significant results but has not yet been able to provide a complete picture of the mechanisms underlying the definition, selection and usage of reference points, or to specify the processes responsible for the formulation and evaluation of the negotiators’ offers. We present the results of an experiment, requiring a bargain between a human buyer and a computer-simulated seller, in which we were able to obtain both the notorious biases caused by the initial offer and the framing effect, and an adaptive behavior related to the availability of a discount. The effects of discount, initial offer and framing have been analyzed as a function of both the reference points and the anchors utilized by the participants in the different negotiation phases. The experimental results and the linear models of the buyer support a contingent view of the negotiation behavior that affects the definition, selection and usage of the reference points. Heuristics, Biases, and Reference Points According to the bounded rationality approach, negotiators can be considered decision makers with limited processing capacities that rely on simplifying heuristics, and often take into account only part of the available information. It has been suggested that negotiators focus on a single predominant reference point (White, Valley, Bazerman, Neale & Peck, 1994), that they tend to ignore the opponent’s cognitive processes or that they are prone to simplifying the contingencies of future events (Carroll, Bazerman & Maury, 1988). The use of heuristics is justified by their efficiency, but it could produce various biases in the negotiation behavior (Neale & Bazerman 1991). Among the heuristics that can be found in the literature, here we focus on (a) the framing effect, and (b) the anchoring and adjustment process. The framing effect arises from the evaluation of an option in relation to a reference point. If the option is considered as a gain, it is assumed that the negotiator assumes a risk-averse attitude and is leaning towards accepting the option. If the option is considered as a loss, on the other hand, it is supposed that the attitude becomes a risk-seeking one and the negotiator is likely to look for further concessions from the opponent. Another explanation for the framing effect is related to the greater significance of loss than of gain. The adopted frame influences the concessions made by the negotiators and the likelihood of agreement (Neale & Bazerman, 1985). The use of the anchoring and adjustment heuristics has been proposed as a partial explanation for some relevant effects, such as the influence of the initial offer and the reference points (Kristensen & Gärling, 1997d; Yukl, 1974). This heuristic assumes that negotiators start from a value that is considered as an “anchor”, and adjust it to provide the subsequent offers or estimates. The anchor is set on the basis of the information, sometimes objectively irrelevant, available to the negotiator. Generally, the adjustment made during the process is insufficient, with the negotiator remaining too close to the anchor. Both anchoring and adjustment and the framing effect are grounded on the definition and adoption of reference points. Research on reference points highlighted the role of the initial offer and the market price (Kristensen & Gärling, 1997a), of the negotiator’s reservation (White, Valley, Bazerman, Neale & Peck, 1994; Kristensen & Gärling, 1997b) and aspiration price (White & Neale, 1994), and of the opponent’s reservation price (Kristensen & Gärling, 1997c). While behavioral decision research on negotiation has obtained significant results, we still lack a complete picture of the process and of the relations that exist among its phases. (Van Poucke & Buelens, 2002). Among the issues that need to be further investigated we can mention: (a) the mechanisms for the definition and selection of the reference points, (b) the criteria for evaluating the received offers, and (c) the processes underlying offer formulation, as well as anchoring and adjustment. In this paper we analyze the processes of definition, selection and usage of the reference points, and their relationship with the biases and the adaptive behavior shown by the negotiators. To this end we present an experiment and some linear models of the negotiator that have been used to test some specific hypotheses concerning the reference points and the anchoring and adjustment process.