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Panacea or Pandora's Box? The Costs of Options in Negotiation

69 Pages Posted: 5 Dec 2002  

Chris Guthrie

Vanderbilt University - Law School

Abstract

The prescriptive literature on negotiation advises negotiators to generate, evaluate, and select from multiple options at the bargaining table. At first glance, this "option-generation prescription" seems unassailable. After all, negotiators can include in their agreements only those options that they actually consider, so the more options they consider, the more likely it seems they will reach an agreement that maximizes their preferences.

Upon closer inspection, however, the option-generation prescription begins to appear vulnerable, for it rests on a questionable premise about negotiator behavior. The option-generation prescription assumes that negotiators will make rational decisions when selecting from multiple options; regardless of the number of options available or the manner in which they are presented, it assumes that negotiators will independently assess the subjective value of each option, rank-order them, and then select the one that offers the most value. In fact, however, people can have great difficulty selecting the value-maximizing option when multiple options are on the table.

The purpose of this article is to describe some of the predictable decision-making problems that can arise as a consequence of option generation in negotiation: namely, option devaluation, context dependence (contrast and compromise), non-compensatory decision making, and decision regret. Taken together, these "option costs" stand for the ironic proposition that negotiators who heed the option-generation prescription may be more likely than those who ignore it to enter into inferior agreements with which they may be less satisfied.

Recognizing the benefits that option generation can provide, the article does not argue that negotiators should cease generating options. Its more modest goal is merely to cast some doubt on the wisdom of the prescriptive negotiation literature's uncritical endorsement of option generation. The article also explores the implications for lawyer-negotiators. It argues that lawyer-negotiators, acting on behalf of their clients, are more likely than non-lawyer-negotiators, acting on their own behalf, to maximize the benefits and minimize the costs of option generation. Specifically, lawyer-negotiators are more likely to assess decision options rationally; because of this, they can help their clients make "better" decisions and can use decision options strategically to influence their counterparts. Thus, this article identifies another way in which lawyers can add value for their clients.

Keywords: negotiation, decision making, context dependence, regret, experimental, agency

JEL Classification: D8, K00, C91, C78

Suggested Citation

Guthrie, Chris, Panacea or Pandora's Box? The Costs of Options in Negotiation. Iowa Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=358406 or http://dx.doi.org/10.2139/ssrn.358406

Chris Guthrie (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-322-6823 (Phone)
615-322-6631 (Fax)

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