What do snap judgements, gut feelings and stereotypes have in common?
They are all forms of heuristics.
Heuristics is a term psychologists use to describe the mental shortcuts, which are often unconscious, used to make decisions and solve problems.
We use many shortcuts to make decisions daily. Sometimes when we are faced with a difficult situation with a client, or even with a colleague, we use these shortcuts to find answers quickly and without deeply considered thought.
Often it’s an automatic response.
The challenge here is that these shortcuts were perfect when we lived in a world where problems were simple, and we could make decisions, mostly about our survival, quickly.
The actions we took were simple – we ran or we fought.
Today we live in an uncertain world and using caveman strategies to solve complex problems can let us down at the worst time.
Sometimes the actions we take are based on past experiences, and at times they don’t work, yet we keep repeating the same pattern, operating on a hope and a prayer.
This way of thinking costs opportunities and reinforces ineffective thinking habits and behaviours without us being consciously aware that this has happened.
It is self-defeating to always refer to the past as a way to deal with the present. Our biases affect our decision-making process as well as the client’s in negotiations.
Psychologists Daniel Kahneman, (who won the Nobel Memorial Prize in Economics in 2002) and Amos Tversky’s landmark work explored why the human mind struggles with rationality, which often results in poor decision making.
Their work has a tremendous impact in the area of negotiation and relationships.
In this article we want to be specific in developing self-awareness and understand what rational thinking is and when it goes missing, so we can avoid “winging it” and believing that we can come up with the right answer under pressure.
One of the benefits of developing this awareness and the skills is you can begin to see patterns in your clients and yourself, which makes interactions more predictable.
This helps to keep you calm in the heat of a deal, to create value and negotiate well.
When you examine the challenges and the mistakes that salespeople make, they are often repeated and predictable.
Here we will examine some specific biases that affect salespeople and negotiators, and prevent them from thinking rationally and creating value in the deal for all parties.
Let us examine why biases can be a problem.
The Fixed Pie Bias assumes that if there is an advantage to one party, the other will lose.
This can apply to the vendor and the agent.
It starts with the salesperson assuming that if the client wants something, then it’s a loss for them, rather than an opportunity to create value.
Often agents can approach the negotiation with a fixed pie mentality, assuming their interests do not match the vendors’ interests.
This can escalate into becoming a competitive win-lose situation, rather than a win-win situation.
Unfortunately, value is subjective and prone to self-interest.
This means that the agent doesn’t value concessions the client makes and its importance diminishes.
This can also apply to the vendor.
Think about it this way instead.
Both parties want an outcome: the agent wants the listing and the vendor wants to sell their property.
The solution is to create value and look for ways to make the pie bigger so that everyone is better off.
You will be surprised with the result of this thinking during negotiations. With this frame of mind, your communication and behaviour can often lead to closing deals faster, better fees, and a deeper, long-term relationship with the client.
The Vividness Bias refers to being influenced by the superficial, rather than digging deeper.
A great example is many management students who are often offered great jobs, great salaries and are lured into consultancies with the big names.
Once they start working within the business, they find that the hours demanded and the pressures of the job are not what they
wanted or expected, leading to dissatisfaction and even leaving the coveted job.
They paid attention to the salary and perks, but they forgot to pay attention to what would make them happy in the job.
In the real estate market, a practical example would be buyers who view a property and seem very keen, ask a lot of questions and then disappear.
The agents are puzzled as to what happened when they don’t get a response from the buyer.
The agent was taken in by the false exterior of extreme interest without digging deeper into why and what type of property they are interested in, or if they are even interested in buying at all rather than just coming to an open house in the area.
The sales agent failed to dig deeper, question the buyer and pay attention to some key fundamentals in the negotiation process that the buyer needed to commit to.
To overcome The Vividness Bias, you can examine your thoughts by:
1. Separating information from influence.
Identify the facts, not the story, by asking the right questions to get the true picture.
2. Learn to rate in importance, on a scale of 1 to 10, all the aspects that are part of a successful deal.
This is a pattern that once you know, you can plan for. It helps you focus on the important things in the sales negotiation process.
Nonrational Escalation of Commitment Bias comes in the ‘sell at any cost’ mentality, where the salesperson can fall victim to doing the deal at a low fee and perhaps even lose money on the deal.
This mentality of wanting to make a deal on any terms affects how we think rationally and prevents us with creative deal-making, because we want the deal too much.
Once the salesperson falls into the trap of wanting a deal too much, they now have a determined need to justify their decision to themselves and their team, psychologically.
Admitting that you made a mistake at this stage becomes difficult.
This mentality reaches fever heights when competitors are involved; time has been spent, so winning at any costs is a must.
The result can often be a fee reduction. Who wins here?
Another example of Nonrational Escalation of Commitment Bias is during auctions where the bidding war can get out of hand.
This bias is often seen in mergers and acquisitions in the corporate world, custody battles between separating parents, and the list goes on.
Irrationality rules and common sense ceases to exist.
How do you know if this bias affects your negotiations?
Review all your low-profit deals and think about what emotions you were feeling and the actions you took.
Were your responses rational? Would you make the same decision again? Did you create value in the deal or not?
Once identified, this pattern of behaviour can be managed and corrected through behaviour modification training and learning better negotiation frameworks to create value throughout the whole process.
The solution to prevent irrational decision making in the heat of a deal is:
1. Always have a plan B
A planned exit strategy. Not all business is good business.
2. Have someone review your deals and cross-examine your negotiation processes.
It is preferable that the person is impartial. I do this with my mentoring clients and the benefits of having an objective opinion are felt immediately.
3. Identify the irrational tripwires that will impact you in advance.
Self-awareness is often mentioned, and everyone talks about how you need to become aware of your emotions, to change.
However, you need to be specific in what aspect of self-awareness you are going to work on to improve.
Biases or patterns are often specific to particular situations and so are your responses.
Being present is not just about breathing, or being in the moment, it’s about identifying your habitual bias patterns and being taught skills that blend tactical and psychological techniques to create change within yourself, so you become a better negotiator and a better person.