How to get a better deal: New PLOS ONE economics study examines negotiation strategies

Though the evidence shows the United States economy has been getting stronger, we still hear the same dire news: wages have been stagnant since the 1970s, 14 percent of the labor force is unemployed or looking for full time work while working part time, and new graduates are burdened with massive student debt. With all of these factors still weighing on consumers and employees, whether buying a house or negotiating a salary, it is more important than ever to negotiate a good deal. A study recently published in PLOS ONE provides another clue to help people profit.

The Ultimatum Game

In their PLOS ONE study, Fatfouta and colleagues used an economic experimental game called the ultimatum game (also referred to as ultimate bargaining) to see if spatial distance cues can influence economic decisions. The game itself is simple. One player (the proposer) is given an amount of money, for example $10, and is instructed to split the money between herself and another player (the responder). The responder can accept the offer proposed by the first player, so both players keep the money, or the responder can reject the offer, so neither player gets any money. You can imagine a real life negotiation as a series of ultimatum games, where the negotiators are constantly swapping roles.

When the first ultimatum game was published in 1982 by Güth and colleagues, the results were surprising. At the time, game theory was the prevailing economic theory. Game theory predicts that people will always act in their own self-interest, i.e. offer as little as possible as a proposer and always accept as a responder. Instead, responders often rejected low offers. Güth and colleagues suggested that participants considered fairness when playing the game. This is a robust finding: in our example of $10, responders reject a majority of $1-2 offers.

Since 1982, the ultimatum game has become a ubiquitous tool for experimental economics. The game examines many facets of decision-making beyond fairness. An article could be written on the findings derived from the game alone, so I encourage you to look at reviews here and here for information on how this game has been expanded. One finding they all have in common is this propensity for fairness, including Fatfouta and colleagues’ experiment. A study by Boarini and colleagues involving French and Indian players (countries with high and low levels of income, respectively) helps flesh out the details of this fairness component. The researchers used $10 as the amount to split, and also informed participants of the currency exchange rates, GDP, and price of goods (e.g. groceries, entertainment costs) of the other country. The authors found that a fair deal corresponds to how many goods each player can buy with the money, rather than an even numerical split or a split based on income level.

A single ultimatum game is similar to dealing with Internet providers, where you need to be willing to walk away to get the best deal. Other negotiations, such as buying a car, are more like repeated ultimatum games, where the same proposer and responder go through multiple rounds of the game. The studies by Güth et. al. and Boarini et. al. found that pairs reached an equilibrium split after several rounds. The proposer learned the responder’s threshold for rejection, and repeatedly offered just above it. Naturally, you would expect the situation to change if you were dealing with a friend or family member, in other words, someone you are socially close to. In fact, Campanhã and colleagues found that responders do reject fewer unfair offers made by friends. In other words, the rejection threshold is lower. Fatfouta and colleagues sought a way to replicate this result in socially distant people and reasoned that spatial distance cues would do so.

Brains are funny things

The brain is fairly easy to trick using the senses. Have you ever seen the museum exhibit that has three water pipes with different temperatures? Grab the hot one with one hand and the cold one with the other hand for a few minutes. Next, touch the middle temperature with both hands. Your brain thinks your hands are touching different temperatures. Optical illusions are based on an analogous trick for vision; the brain can be tricked into thinking, for example, that straight lines are curved in an optical illusion. It turns out these physical sensory tricks can be extended to psychological concepts as well. It’s not so surprising when you think about it; many of our metaphors are based in sensory information. For example, we describe empathetic people as warm, violent people as rough, and friends as close. An experiment by Williams and Bargh shows that priming people with hot or iced cups of coffee influenced how they perceived other people and their own level of warmth. People given hot coffee judged another person as warmer (an increase in social closeness) and chose to be generous with a reward, while people given iced coffee judged the person as colder and chose to be selfish with a reward. In a haptic sensation study published in Science, Ackerman and colleagues also demonstrated similar results using three other contradictory sensation pairs: heavy/light, rough/smooth, hard/soft. In particular, when subjects sat on hard chairs, they were more rigid in their offers for a new car. When the subjects sat in soft chairs, their offers were less rigid.

When it comes to psychological distance, such as closeness to a person or an event in time, you might guess that spatial distance would influence perceptions. Indeed, when Williams and Bargh performed another study involving distance cues, they found that emotional responses were dampened when the subjects were cued with distance. In this way, the experiment objectifies the metaphor “taking a step back.” More so, this study also found that people primed with distance felt less attached to their family and hometown. Drawing from these sensory experiments, Fatfouta and colleagues reasoned that spatial cues would be able to induce social closeness and create better outcomes for the proposer in the ultimatum game.

Results

Fatfouta et. al. used a web platform to administer the ultimatum game to participants. Proposals were generated by the computer, so the participants only played the role of responder. Each participant received 50 offers with two variables: circular visual cues close together or far apart and money splits (5€:5€, 6€:4€, 7€:3€, 8€:2€, 9€:1€, offered: kept). The participants were also asked follow up questions to gauge perceived social closeness based on the spatial cues.

The authors analyzed the results with a repeated measures two factor ANOVA and found a main effect of fairness (as expected) and a main effect of cue condition (as hypothesized), but no interaction effect. Based on the follow-up questions, the closeness cue invoked social closeness and the distance cue invoked social distance, as the researchers had expected. However, when the results were controlled for social closeness, nothing changed qualitatively. This suggests that spatial distance affected the results independently of perceived social distance. To confirm this, the authors repeated the study using visual cues that were diamonds instead of circles and got the same results.

Negotiating Negotiations

All of these studies suggest that spatial distance might influence negotiations on its own. This seems very similar to the studies by Ackerman and colleagues that I mentioned earlier, which correlate seemingly unrelated physical sensations to social judgments. However, it is possible that the effects of social closeness were implicit, and therefore study participants were unable to acknowledge it in the follow up questions. A meta-analysis compared virtual negotiations (psychological distance) to face-to-face negotiations (psychological closeness) and found that face-to-face negotiators obtained better outcomes and that participants behaved less aggressively. This might not be surprising on an intuitive level, but it is controversial in the literature.

The collective conclusion that closeness leads to more favorable outcomes in a deal, as synthesized from various studies, should be taken with a grain of salt, as it doesn’t quite fit with the prevailing theory of psychological distance, construal level theory. Construal level theory says that people conceptualize distant events in more general, big-picture terms, while they conceptualize close events with specific details. For example, people tend to stereotype others that are more socially distant as opposed to looking at their specific personalities. It predicts that distance should improve negotiations, which opposes the findings of Fatfouta’s study, as well as the findings of the meta-analysis. A study on distance in virtual negotiations supports the prediction from construal level theory. However, the author does acknowledge that there is a lack of consensus on how distance impacts negotiation outcomes.

We’ve reviewed the evidence, but what does all this mean for you when it comes time to negotiate a deal? The science essentially says to trick the other party into treating you like a friend. Bringing your negotiating partner a hot coffee could make you seem warmer (and therefore socially closer). Finding a soft seat could make both parties more flexible and thus more likely to reach a fair agreement. Cueing your negotiating partner subliminally with closeness could make them more willing to accept deals that are favorable toward your interests. Here’s hoping these three tips can help you get that better deal.

References

Ackerman JM, Nocera CC, Bargh JA (2010) Incidental Haptic Sensations Influence Social Judgments and Decisions. Science 328, 1712-1715.

Boarini R, Laslier J-F, Robin S (2009) Interpersonal comparisons of utility in bargaining: evidence from a transcontinental ultimatum game. Theory and Decision 67: 341-373.

Campanhã C, Minati L, Fregni F, Boggio PS (2011) Responding to Unfair Offers Made by a Friend: Neuroelectrical Activity Changes in the Anterior Medial Prefrontal Cortex. The Journal of Neuroscience 31(43), 15569-15574.

Fatfouta R, Schulreich S, Meshi D, Heekeren H (2015) So Close to a Deal: Spatial-Distance Cues Influence Economic Decision-Making in a Social Context. PLoS ONE 10(8): e0135968. doi: 10.1371/journal.pone.0135968.

Güth W, Kocher MG (2014) More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature. Journal of Economic Behavior & Organization 108: 396-409.

Güth W, Schmittberger R, Schwarze B (1982) An Experimental Analysis of Ultimatum Bargaining. Journal of Economic Behavior and Organization 3: 367-388.

Handgraaf MJJ, Van Dijk E, De Crème D (2003) Social Utility in Ultimatum Bargaining. Social Justice Research 16(3): 263-283.

Henderson MD (2011) Mere physical distance and integrative agreements: When more space improves negotiation outcomes. Journal of Experimental Social Psychology 47(1), 7-15.

Stuhlmacher AF, Citera M (2005) Hostile Behavior and Profit in Virtual Negotiation: a Meta-Analysis. Journal of Business and Psychology 20(1), 69-93.

Williams LE, Bargh JA (2008) Experiencing Physical Warmth Promotes Interpersonal Warmth. Science 322, 606-607.

Williams LE, Bargh JA (2008) Keeping One’s Distance: The Influence of Spatial Distance Cues on Affect and Evaluation. Psychological Science 19(3), 302-308.