Negotiating the Irrational

Being irrational is a fantastic place to negotiate from. An irrational person is unconstrained by the normal rules of the negotiating table and therefore has a power advantage over the other side. However, when faced with an irrational agent on the other side of the table the natural instinct is to either give in, or give up. In this article, we’re going to explore a paradigm shift and give you a few tools to get you through this seemingly impossible situation.

While it might seem on the face of it that the irrational negotiator is not acting in his best interest, or in a profit-maximizing manner, often there is either a constraint or a hidden motivation that is preventing the deal from going through. The best way to deal with a person who doesn’t seem to be acting in his own best interest is to analyse the situation without the assumption that the other side is irrational, and try to find a justification for their behavior. Once you have done this a solution will fairly quickly present itself.

Reasons they might seem irrational are many, here are a few so you know what to look out for next time you’re dealing with some one who seems self-defeating.

Reason 1: They’re looking at a bigger picture

It often happens that you’ve made every concession that you could, you’ve got your back against the wall, they have the absolute lowest quote, you know they could not possibly get a better deal, but they reject you.

A common reason for this is when the other side has a bigger picture in mind that you are not privy to. This is when they are profit-maximizing in the long-run, while you’re looking only at the short-run scenario.

A common example is the hotel industry, where an empty hotel room is a perishable commodity. Logically, if you go to a hotel at mid-night, and they have a room free, you should be able to negotiate a fantastic deal with them, since even one dollar in revenue at that time is more than their best alternative of having an empty room. However, you know that a hotel is never going to give you a room for $1, even if it is in the middle of the night, because if they started this no one would ever agree to the rack rate. This is an obvious example of a difference in profit maximizing behavior between the short-run and long-run, but sometimes this situation might present itself in a less patent form.

Suggestion: Try to find a way to fit into their ‘big picture’: once you understand their long-term goals, you should look for a creative solution to try to make an offer that suits those goals.

Reason 2: The negotiator has nothing to gain

Often, when you’re negotiating with a large organization, there is a lack of congruence between the goals of the individual you’re dealing with and the organization. This happens for a number of reasons: the negotiator might feel that if the deal goes through it would add to his burden of work without any increase in credit or compensation. Or he might feel that your deal would hurt his position in the company in some way.

Reason 3: They’re being competitive

Many negotiators enjoy the process of negotiating. They get so caught up in the back and forth of the negotiation that they forget their goals. The negotiation becomes a game to the other stakeholder: he wants to win at any cost.

Reason 4: They need to be seen as tough

One of the most valuable assets for people who are serial negotiators is a reputation. So, keep an eye out for someone trying to be difficult because they have a desire to create a reputation.
Reason 5: They’re biased

The other side could have a hidden bias against you. Perhaps someone has spread some mis-information about your organization to them, or perhaps, they have a bias in favor of a competitor.

Reason 6: You’re misreading their goals

This happens when your assumptions about their intentions and goals is wrong. This can happen, for example, when you think they are looking for the cheapest bid so you keep lowering your price, when what they are really looking for is a reliable partner, even at a premium.

Dealing with seeming irrationality

If you can’t understand the motivations of someone who appears totally irrational, ask yourself: are they really being irrational, or is there something else at work? Try to find an insider to give you a glimpse into their world and motivations. If they seem like they are not working in their own best interests, do one of the following: i) Work around the employee and talk to someone else, ii) Let it go; forget this one and move on. Additionally, be aware if you’ve created a situation where you are stuck in an ego loop—don’t ‘make’ the person irrational.

In dealing with someone who appears to be irrational, use logic and justification to highlight your own statements. Don’t say “I want.” Say “I want, because…” This increases your odds of persuading and enhances your credibility.

Before giving up on the deal with an irrational negotiator, ask yourself some key questions. Is he or she misinformed in some way? Do they have hidden motives that you’re unaware of? Are they under some constraints that they aren’t letting on about? Trying to find an answer to one of these questions may help you discover that there are understandable reasons behind someone’s apparent irrational approach to a negotiation. If you manage to spotlight the correct reason behind their approach, odds are you’ll be able to make the deal much more smoothly.

Asking these questions is important; if you don’t, you may be limiting yourself by labeling someone irrational too early, instead of trying to investigate their motives. Be very, very careful while assuming that someone is being irrational. It may seem logical to make the assumption that someone is being irrational if their actions seem to be any of the following: (1) they are acting recklessly (2) they seem to be going against their own best interests (3) they are negotiating with strategies that seem counter-productive. It may be more viable to see such behavior as an obstacle to be overcome rather than a symptom of irrational behavior.

You may want to consider the possibility, for example, that the person you’re negotiating with is not irrational, but just has the wrong information. For example, an agent who’s helped you work out a construction project may be insisting that you owe him $50,000 for the deal in addition to what he’s already been paid. Your accounts manager, on the other hand, tells you that not only do you not owe the man anything, but that in fact you have already given him $20,000 more than he asked for as a bonus. The agent tells you that when the deal was made six months ago, you had a different accounts manager. He insists that the new accounts manager is making a mistake, or that the old one did not maintain an accurate record of the transactions that were made. You look up your previous accounts manager and go over the records to ensure that your firm is not at fault. You find that everything is as it should be: the agent’s claim is baseless.

When you point this out to the agent, he is in no mood to listen. He threatens to sue you. You are bewildered because there is no way he can win a lawsuit against you: your records show that his claim is unjustifiable. Then you try to approach the situation from the agent’s point of view. He probably thinks that your records are not credible or have not been accurately maintained. So he thinks that he may still win that lawsuit. He is not really being irrational. You call him in for a meeting, sit him down and work out the records with him. He has no choice but to walk away quietly.

Let’s consider another scenario. You run a successful chain of optician’s stores. You want to buy out a smaller store to add it to your chain, and learn that a small optician is broke and nearly going out of business. You offer to make his store a franchise in your chain. In spite of the fact that you’re willing to offer him twice as much as what his store is worth, he refuses to sell. You learn that he’s considering a lesser offer by one of your main competitors. Why is he behaving irrationally? His attitude seems to be totally self-defeating.

The answer in this case may lie hidden not in the other stakeholder’s best interests, but in what his constraints are. You learn that the smaller store has not been able to pay your competitor an earlier debt. Your competitor wants him to forego his store as part of the deal. They want to buy him out; they won’t accept payment for the earlier deal. They’ll clear the debt by paying him for his store, but they want the store. In this case, he has no choice but to take up their offer, even though yours is better. His motivations lie in his constraints, and not in his desire to make a profit. In this deal, your figuring out that there are hidden constraints may not help you make the deal. But in many other cases, it may. If you find that you can make him a viable offer taking his constraints into consideration, you may still be able to cinch the deal.

Hidden constraints may be of various types. A firm may lose a strategic employee because their employment policies restrain them from offering her a bigger salary. Or some one you are negotiating with may not be able to give you any concessions at all; not because he doesn’t want to, but because he is under orders from those he is representing not to make any compromises. Someone may act irrational by not giving you something that is of no value to them. For example, let’s say you’re buying five hundred computers from a dealer for your new office downtown. You want him to throw in a seventy five CD writers for free, something he has already done the last time you bought computer systems from him. This time around, he refuses. He knows that if he doesn’t grant your request, you’ll go to his competitor—who’ll happily give you what you want.

Why is he seemingly being irrational? He isn’t giving you a small concession, despite the fact that you’re one of his best customers and he’ll lose out on future deals with you by not making the concession. You learn that a legal arrangement he’s made with the supplier of the CD writers forbids him from giving them away for free. He’d love to give you the concession, but his hands are tied. You then make him a revised offer based on what you’ve just learnt: you’ll pay for the CD writers, but maybe he can give you seventy five UPS systems for free instead? He jumps at the offer and you sign the deal. He’s happy and you both get a profitable outcome.

What if he is actually irrational?

If the person you’re negotiating with has no hidden interests or constraints, then your options become very limited. In this case, you may want to (1) work around him and move to someone else who has the authority to make the deal (2) drop him and go for your BATNA instead. You may want to choose the second option if you’ve covered all the bases and still feel that there’s no way to create value out of this deal.

It is important to learn from your past experiences as a negotiator, but also keep in mind that your experience may not have covered all the bases. Keep in mind that expertise is more important than experience. What matters is not so much what you’ve experienced in the past, but how you’ve honed your negotiation skills to prepare yourself for the sometimes irrational aspects of negotiation that you are going to encounter.

Think about what makes people behave irrationally. Use your own irrationalities as pointers. When have you been at your rational best, and which are the times at which you’ve thrown logic and caution to the winds and acted irrationally? Most people use intuition to respond to their everyday concerns. When you’re buying a new suit or driving a car, your instincts take over. Irrational negotiators may be working on autopilot, and may be driving by their instincts rather than by logical or cognitive thinking.
One way in which you can prevent yourself from becoming an irrational negotiator is to prepare well in advance for a negotiation, so that you rely less on your gut feelings and more on your predetermined, logical course of action during an investigation. This is not to say that you should neglect your instincts completely, but more to suggest that your instincts should listen to your voice of reason as well. Having pre-negotiation sessions with your stakeholders may be beneficial since you get an opportunity to discuss what you will be negotiating, and it gives you the chance to sit down on your own or with your team and consider all your options before you move on to the actual negotiation. Never be unprepared to face a negotiation if you can help it. The more you know about your options and the other party’s motivations, the better the negotiation will go for you.

Don’t negotiate at a time when you know that you are likely to be placed under time pressures. Don’t set up a negotiation meeting for one hour; schedule an entire morning instead. If you start a negotiation at 10 a.m. and have to meet another client at 11 a.m., you may find yourself acting illogically just because you need to wrap up this deal in an hour. Additionally, don’t allow yourself to be cornered into making a decision by a particular deadline if it seems unreasonable. For example, a potential employer may tell you that you have 48 hours to accept their offer, or it will be invalid. This may not be enough time for you to make your decision; you may have another job interview the next day that may change your BATNA, or you may just want more time to think it over.

A negotiator may also act irrationally if there are personal or emotional concerns at stake. For example, let’s say you and your close buddy from business school set up your own firm. After a decade, you decide to part ways for various reasons. You get into negotiations about how to split the profits and resources. You’ve been the thinker throughout, but he’s been the go getter who’s got you many of the biggest deals. How do you divide your assets in this case? You can’t quantify your brains or his expertise. In a such a case, your logic may get befuddled by the fact that you and he share a history of successfully working together. Your kids go to the same school and you’ve been friends forever. Think carefully before you act or give in to any unreasonable concessions.

Sometimes, when it’s difficult to look at a situation objectively, ask for a third person’s perspective on the situation. Even if it’s the other stakeholder and not you who seems to be acting irrationally, you may be too close to the transaction to look at it clearly and impartially. Let’s say a friend is buying a new apartment. You may be in a better position to gauge her cost overruns than she is herself. But if you’re buying your own apartment, you may not be the best person to judge cost effectiveness. Similarly, in a business deal, a third party such as an expert in your firm or a professional consultant may be able to offer you more objective perspectives on the situation. If you can’t or don’t want to approach a third party, you may want to ask yourself what advice you would give to a friend who was in your situation and wanted your opinion.

You may also be tempted to think that dealing with an irrational negotiator who doesn’t care about his own best interests is to your advantage. After all, here is this guy making no effort at all to get himself a better deal. You’re enticed into thinking: Why shouldn’t I make the most of the situation? However, keep in mind that the irrational negotiator may not care if the deal falls through—but you do. His hidden motives or concerns or the fact that he is merely uninterested in the consequences of the negotiation may cause you to lose a valuable deal. Additionally, he may not be interested in creating value if he is acting irrationally. So tread carefully when dealing with an irrational negotiator.

Remember, though, that negotiators who appear irrational are usually operating out of hidden interests or prior commitments that they can’t get out of. Before labeling someone as irrational, try to work out their motives. You might discover something about their approach that will broaden your options considerably. If it doesn’t work, so be it. But do your groundwork before you give up on the negotiation—you may just get a good deal out of it!.

Summary
• Remember some of the common reason’s why a person might seem irrational
• Never assume irrationality
• Once you have discovered the reason for the persons actions, try to think creatively to come up with a solution
• Never assume a zero sum condition
• Keep personal preferences and remarks off the table
• Make concessions graciously rather than stubbornly
• Keep your points concrete and specific, not arbitrary and generic
• Understand the objectives of the other party
• Know when to walk away

This article is a copyright Sharik Currimbhoy 2009

Tagged as: negotiation