Thinking about Loss Aversion and Negotiation
Loss aversion is a theory about human behavior that postulates people are more motivated to avoid loss than they are to capture gains. Knowledge at Wharton profiles a research project that tests the theory in light of how professional golfers putt, and seems to confirm the theory.
Assuming that decision making is biased this way, we might take another look at some tenets of negotiation theory. These relate to adjusting for potential biases against risk in negotiation planning, and re-evaluating how to work with the bias in communication.
This may put a dent in the rational Fisher model that advocates for finding opportunities based on shared interests — as interest identification itself may be biased against risk. Tactically, this may suggest sharing perceptions of risk may help build trust more than sharing one’s vision of gains. Thus the idea of expanding the pie might be expressed more effectively as shrinking the risk, and then possibly expanding the pie.
FOLLOW - You might expect that CEO’s are aware that the bias agaisnt taking risk interferes with developing innovation within the firm, and Dan Coyle notes that indeed they are, and they talk about it all the time. I liked Dan’s phrase that mistakes are information that speed up learning. It is, of course, counter-intuitive. I had forgotten about Dan’s interesting blog (called Talent Code) and grateful to TomPeters.com for reminding me.
2d FOLLOW - How about this for a policy that “fights against” risk aversion. From K2 (the ski maker) via Business Week
“We’ll try anything once”
K2 has the courage to take risks listening to users of its products.