SEC Rule 156 requires investment companies to tell investors that past performance does not guarantee future results. However, we humans have a cognitive bias that almost guarantees we look at the future based on our past performance.
We all have blind spots in our skills and competencies. Those blind spots can be exacerbated by our inability to accurately assess our own capabilities. This is known as the Dunning-Kruger effect, which leads individuals to inaccurately assess their expertise or skills, further causing them to overestimate their knowledge or abilities. When people are overly confident in their ability to negotiate, they may prepare inadequately, make wildly incorrect assumptions, or completely underestimate the other side.
The polar opposite of the Dunning-Kruger effect is imposter syndrome. This is usually defined by insecurity or self-doubt. For some, it can be paralyzing, which, in a negotiation, could lead them to be conflict-adverse and avoid the negotiation altogether. For others, it can lead to thinking their success was “dumb luck” and had nothing to do with their skill set, which could lead them to prepare inadequately and rely on fate instead of their abilities to succeed at the negotiating table.
Typically, our experience with a person will inform and influence our belief regarding how the next conversation with them will go. However, our expectations don’t always align with reality.
For instance, which of the following scenarios do you think will go well?
Scenario #1: You have a longtime client whom you’ve always had pleasurable dealings with. However, you need to negotiate new terms on a deal that every other client of yours has taken issue with.
Scenario #2: You have a longtime client who’s been extremely difficult to deal with, and you need to negotiate new terms on a deal that all your other clients have happily agreed to.
Will the good relationship be more important than the difficult issue, or will the easy issue outweigh the difficult relationship? The only way to find answers is to consider these questions independently of the person and the issue:
- What’s been your experience? Is the person friendly and collaborative or adversarial and competitive? When you’ve talked about the issues with others, has it been difficult or easy to discuss?
- What’s been effective? Does your person like small talk before business, or do they prefer you to be direct? Have you found success talking about the issue when you have supporting data or visuals?
- What adjustments can you make? Based on your experience and what’s been effective, identify adjustments you can make to your approach with the person or how the issue will be addressed to increase your chances of success.
Bringing in others will help you get beyond your own perspective. Discuss your findings, particularly with those experienced with the person or issue. Talk to your trusted advisors or colleagues and share your thinking with them. Ask for their advice and constructive feedback.
By separating your experiences with the person and the issue, you can mitigate some of your cognitive bias. Going the extra step to reflect and find ways to adjust your approach to the person and the issue will help you leverage your past to set you up for success.
We Can Help You Manage Cognitive Bias in Your Negotiations.
Everybody has cognitive bias. Bring in an expert perspective to clarify your approach. We can help! Draw on Scotwork’s nearly 50 years of real-world negotiating experience to get better deals, save time, and create value that preserves and strengthens relationships. Partner with one of our advisers to ensure you have the optimum view of your deal.