Sample frameDay 115·Negotiation · Prepare

Good morning. Both of you will arrive certain that fairness is on your side. Both of you will be sincere.

Negotiation.

The Fairness Standard

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The question

Take the negotiation where you and the other side are furthest apart. Can you state the rule producing their number — market rate, cost plus a margin, precedent, what the last supplier charged, what the outcome is worth to them — in a form they'd recognise as a fair account of their own thinking? An argument about a figure is usually an argument between two rules nobody has named, and until one of them gets named the dispute can run for weeks with neither side ever having to change its mind.

The idea

Linda Babcock, an economist at Carnegie Mellon, and George Loewenstein, her colleague there in economics and psychology, gave experimental subjects a real Texas court case — a motorcyclist suing the driver who hit him — distilled to twenty-seven pages of depositions, expert reports and diagrams. Roles as plaintiff or defendant were handed out at random, and only then did anyone read the file, the same file for both sides. Each subject was then paid for accuracy to predict what the judge had actually awarded, a question about a past fact rather than a preference. Plaintiffs' predictions came in an average of $14,527 above defendants'. The pairs whose views of a fair settlement diverged most were the ones who failed to settle. Reported in 'Explaining Bargaining Impasse: The Role of Self-Serving Biases' in the Journal of Economic Perspectives in 1997, the finding is not that people lie about fairness. It is that they believe themselves. The trap is reading their number as a tactic: it's usually the honest output of a rule, and rules are far easier to argue about than numbers.

The framework

01
Reconstruct their rule before you dispute their number.
A number is the output of a rule, and you can't argue usefully with an output. Work backwards instead: what standard would have to be sitting in their head for that figure to look obvious? Market rate for whom, drawn from where. Their cost plus a margin they consider ordinary. What the last person in your seat accepted. What their board signed off for this line. Then state the rule back to them and invite the correction, because the correction is the most valuable thing you will collect all week. Skipping the step buys you a month of calling the other side unreasonable, which is comfortable, expensive and usually wrong.
02
There is always more than one standard, and each yields a different figure.
Market rate, cost plus margin, precedent, the value delivered, an index, an even split, what a third party would award: most commercial negotiations have all of these available, and they land on different numbers. Each is defensible. And the one you reached for first is the one that suits you, which is the research working on you rather than on them. So write down three, work out the figure each yields, and choose the one that is both favourable and genuinely applicable. Then bring the source rather than the conclusion, because a printout settles more arguments than conviction ever has.
03
Settle the standard first, then let it produce the number.
Sequence is the whole technique. Once two figures sit on the table, any argument about principle sounds like a rationalisation for a position already taken, and it'll be heard that way. So ask before the numbers appear: what basis should we be using here? It sounds procedural and it's the most substantive move available in the meeting, because whoever's standard gets adopted has already won the argument the numbers only report. Where you genuinely can't agree on a standard, agree instead on how one will be chosen — the comparable set you will both accept, or the third party whose figure you will both live with.
04
Their case, in your handwriting, before you commit to a figure.
Babcock and Loewenstein tested the obvious remedy and it failed: subjects told about the bias in detail went on displaying it anyway. What did shift people was being made to write out the weaknesses in their own case before bargaining, and, in a related design, reading the file before learning which side they were on. You can't unlearn which side you're on. You can do the writing. Twenty minutes, on paper, listing their strongest points and your softest ones, before you have committed to a figure in front of anybody. Day 72 gave you the team version of this. This is the one you owe yourself.

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