Capital Ideas Blog


By Alice G. Walton

From: Blog

If you’re planning on taking part in any high-stakes negotiations, pay special attention to the results of a new study by Chicago Booth’s Richard Thaler. He and his team wondered how people’s dickering strategies might change when the stakes get big—really big. It’s a hard question to test in the lab, where payout is typically low, so they looked to the British TV game show Divided to provide them with the perfect setup.

In the show, players jointly answer trivia questions to create a jackpot, which can range up to £225,000. Once the jackpot is determined, the players have to decide who should get what portion—the trick is that the pot is always divided into three unequal portions (for example, 10%, 30%, and 60%), and the players have to talk (or argue) among themselves to reach a verdict. But with each second that ticks by, 1% of the jackpot disappears. At the end of the 100–second negotiating time, there’s nothing left. Deciding quickly on how to divvy up the money is, obviously, key. And it’s apparently easier said than done.

The good news is that the team found that most people were fairly accurate at gauging “moral property rights”—that is, who’s entitled to higher or lower shares, based on how much a person contributed to the trivia portion. Some researchers had argued earlier that this input-output concern, often dubbed equity theory, doesn’t survive when the stakes get high—perhaps because greed or some other motivation takes over. But Thaler and colleagues found that in fact players did continue to value fairness, even at very high stakes, which, they say, “refutes the commonly held view that fairness concerns are unimportant when monetary incentives are sufficiently large.”

The problem was that people often gravitated to a particular negotiation strategy that wasn’t so effective: Hardball. The refusal to budge from one’s initial claim to the largest pot, for example, ended up costing everyone money—and the more one refused to budge, the more the spoils were wasted. Though hardball players might walk away with more money compared to others, everyone’s shares generally plummeted in the presence of one or more hardball players. “Announcing a hardball strategy turns out not to be beneficial,” the authors conclude.

The relevance of the study? It definitely tells us something about human nature: Namely, that even though we might be pretty good at tracking relative contributions, refusing to budge can tear that all down. But it’s also applicable to realms like politics, where long-standing arguments over land have led to serious strife between nations. And in the business setting, the advice might be to pick your battles wisely, since playing hardball can deteriorate negotiations—and relationships.

This is what happens when everyone plays hardball:

This is what happens when players—eventually—strike a deal:

This is what happens when things really end all warm and fuzzy:  


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