Article

Risk in Negotiation

Richard P. Larrick and George Wu

in The Oxford Handbook of Economic Conflict Resolution

Published in print September 2012 | ISBN: 9780199730858
Published online December 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199730858.013.0020

Series: Oxford Handbooks

 Risk in Negotiation

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  • Microeconomics
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This article describes how individuals perceive and evaluate risk and the implications for biases in risk perception on negotiation. It starts with a review of likelihood, followed by a review of value. Overconfidence, self-serving interpretations of fairness, anger, and power tend to expand negotiator perceptions of likelihood. Negotiation advice strongly emphasizes offsetting the focus on outside options with a focus on high aspirations. The absence of feedback on an uncertain outside offer effectively enlarges the surplus available from the deal—it protects negotiators from worries about what might have been and frees them to agree to certain but inferior offers. Internal beliefs about fairness can be the source of reference points. Overconfidence, self-serving interpretations of fairness, and momentary feelings of anger and power can lead negotiators to take more risks in negotiation than may be merited by the actual probabilities of success or value of outcomes.

Keywords: risk; negotiation; biases; likelihood; value; overconfidence; fairness; anger; power

Article.  5931 words. 

Subjects: Economics ; Microeconomics ; Econometrics and Mathematical Economics

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