Negotiating Tactics: Excessive Dedication to the Agreement: Case Studies
In the realm of negotiations, it's crucial to strike a balance between securing a deal and protecting oneself from escalating commitment. This is a lesson learned by an elderly couple who, six months after selling their Boston home, found themselves in the midst of the subprime mortgage crisis, with the appraised value of their new home dropping below the agreed-upon price.
Avoiding irrational escalation of commitment is key. Researchers have documented this tendency in negotiators, where they persist in a chosen course of action despite mounting evidence of its disadvantageous nature. To combat this, Harvard Business School and Harvard Law School professor Guhan Subramanian suggests following three steps: play "What if...?", reduce the potential for escalation by cultivating your best alternative to a negotiated agreement (BATNA), and negotiate terms that bind both parties equally.
In the case of the elderly couple, they could have insisted on a tighter deal with respect to financing or structured a contingency to bind the seller if the appraised value of the home changed significantly before closing. This would have provided them with a safety net, protecting them from the escalating commitment that ultimately led to their predicament.
The same principle applies to other negotiations. For instance, a young man test-driving a certified pre-owned car at a dealership might find that imposing a deadline on the negotiation made the salesperson more cooperative. Or, a carpenter might insist on upfront payments after being burned by past clients.
When talks get difficult, it can be easy to feel trapped in a disappointing deal. However, if the counterpart insists on unfavorable terms, exploring alternatives to the current deal is essential. The buyers in our example were able to walk away from the deal, losing only their 5% "good faith" payment.
In negotiations, it's important to assess each side's level of commitment. Factors like the difficulty of backing out and potential consequences should be considered. For example, a negotiator who wants to do a deal will listen to you and consider making adjustments. On the other hand, a party reluctant to walk away from the deal may be more likely to accept unfavorable terms.
To manage escalation of commitment, awareness and monitoring of escalation are crucial. Recognize the psychological tendency to stick with a decision due to sunk costs and emotional investment, even when the deal becomes disadvantageous. This helps prevent being trapped in a lopsided or losing deal.
Leveling commitment between parties is also essential. Aim to structure the negotiation so both parties bear similar levels of commitment in terms of resources, obligations, or binding conditions. If one party is much more committed, it creates power imbalances and increases risks of escalation of commitment harming that party.
Focusing on interests, not positions, is another key strategy. Employ integrative negotiation (interest-based negotiation) techniques to create value by exploring mutual gains and trade-offs rather than fighting over fixed resources. This approach encourages balanced, win-win outcomes to reduce adversarial escalation.
Using escalation procedures and clear dispute resolution mechanisms is also beneficial. In formal deal structures like binding term sheets, include clearly defined escalation procedures with triggers and steps for resolving conflicts. This prevents impasses from escalating unduly and allows systematic problem-solving rather than emotional reaction.
Facilitating face-saving and respectful communication is also important. When applying pressure or threats, ensure they are carefully crafted to protect both parties’ dignity, avoid rash or emotional triggers, and enable the other side to comply without humiliation. This helps prevent escalation of conflict and preserves future negotiation possibilities.
Lastly, be willing to walk away. Remind yourself that sunk costs are unrecoverable, and walking away from a bad deal is a valid option—especially if the other party is using your prior commitments against you.
In sum, managing escalation of commitment involves psychological awareness, balanced power dynamics, principled and interest-based negotiation methods, clear procedural frameworks, and maintaining respectful interactions to reach a stable, mutually advantageous agreement that both parties will honor.
- In complex business negotiations, it's essential to avoid irrational escalation of commitment and strike a balance between securing a deal and protecting oneself, as researchers have highlighted this tendency in negotiators due to their persistent nature despite evidence of disadvantageous terms.
- To navigate negotiations successfully, faculty from Harvard Business School and Harvard Law School recommend following three steps: playing "What if...?", reducing potential escalation by cultivating the best alternative to a negotiated agreement (BATNA), and structuring terms that equally bind both parties.
- In the realm of careers, understanding escalation of commitment is valuable for any professional, as it helps prevent being trapped in unfavorable or losing deals, and empowers individuals with the knowledge to walk away when necessary.
- By adopting strategies like leveraging integrative negotiation techniques, using clear dispute resolution mechanisms, and maintaining face-saving and respectful communication, negotiators can reduce the risk of escalation of commitment and pave the way for mutually beneficial agreements.
