BazermanMoore

160 Chapter 9: Making Rational Decisions in Negotiations
television markets in the United States (Bazerman & Gillespie, 1999; based on a case by
Tenbrunsel & Bazerman, 1995). The parties differed in their predictions of the ratings
the sitcom would obtain in syndication: the seller argued that the show would receive at
least a nine share rating (meaning that 9 percent of all American households with televisions
would tune into the show), while the buyer countered that they expected the show
to obtain no more than a seven share. Both parties agreed that each rating point was
worth about $1 million in advertising revenue to the television station. After many heated
debates about future ratings, the parties reached an impasse. The show was not aired in
this market, and the television station bought a less attractive program. This negotiation
failure resulted from an honest difference of opinion about how well the show would
perform. Bazerman and Gillespie argue that the parties should have made the price that
the station would pay the production company contingent on the show’s performance.
That is, their disagreement about the expected quality of the show could have been resolved
by an agreement in which the payment price went up with the ratings.
Bazerman and Gillespie (1999) describe a number of ways in which contingent
contracts can improve the outcomes of negotiations for both sides, four of which are
outlined here.
Bets build on differences to create joint value. Bets can be extremely useful in
short-circuiting debates over the likelihood of future uncertain events. Once parties
have agreed to disagree, they will be able to design a contingent contract based
on their differing predictions.
Bets help manage biases. In previous chapters, we have documented a number
of common decision-making biases, including overconfidence, the endowment effect,
and egocentric interpretations of fairness. As we will discuss further in Chapter
10, these biases form strong barriers to negotiated agreements. Interestingly,
contingent contracts allow agreements to be formed despite these biases. Rather
than requiring the parties to be debiased, contingent contracts allow parties to bet
on their own (biased) beliefs.
Bets diagnose disingenuous parties. Contingent contracts are a powerful tool
for identifying bluffs and false claims by one’s negotiation opponent. When someone
makes a claim, and you ask for a (costly) guarantee on that claim, if he is bluffing,
he will typically back off of the claim. Interestingly, when you propose a bet,
you do not need to know whether the other party’s prediction is sincere. If it is, you
have made a nice bet. If it isn’t, his rejection of the bet reveals the bluff.
Bets establish incentives for performance. Contingent contracts are also an excellent
technique for increasing the parties’ incentives to perform at or above contractually
specified levels. Sales commissions are a common type of contingent
contract designed to establish an incentive for high performance.
Summary
Getting a good deal in negotiation is not simply about claiming as much value as you
can. Frequently, a much more important task is to increase the pool of resources to be