The risks of high-pressure negotiation tactics

A few days ago I discussed how Treasury Secretary Paulson came to the negotiation with an extreme, highly “anchored” opening move, and how negotiations research shows that anchoring works. Why, then, don’t we always use absurd opening moves when engaging in a negotiation over used cars or other purchases? The answer is that the party making the offer can lose credibility with or respect of the other party, and the chances of reaching an agreement can go down. That’s precisely what happened when the House rejected Paulson’s plan — even as modified — on Sunday.

By including unacceptable terms — most notably, non-reviewability — Paulson et.al. were perceived as overreaching. Even though the Administration quickly gave up those terms, the mistrust was already sown, especially because the proposal echoed the earlier “trust me” terms of the Iraq war authorization.

Maintaining a strong working relationship with the other party in a negotiation is critical to successful outcomes for both parties. In this case, by playing chicken with Congress, the Administration may have precipitated the worst outcome for both sides: failure to reach an agreement. Let’s hope our economy can survive the results.

Update: More (and better) analysis of this situation from a negotiations POV from my friend and colleague, Erin Ryan, at the Harvard Negotiation Law Review Blog.

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One thought on “The risks of high-pressure negotiation tactics

  1. First thing is to remember that if you aren’t prepared to walk away from the negotiation you are not negotiating, and Paulson should know this.

    The house is surely not just going to take what Paulson says and “hope for the best”. For the House to successfully negotiate they need to have a “walk away” position… and they did and that’s exactly why there was no agreement made.

    The Republican party has lost trust in general with Democrats, the House and a growing number of Americans. I’m very hopeful that Obama & Biden will take the presidency and start to rebuild our struggling economy, standing in the world and the country in general.

    Pouring $700 Billion into the bailout is insanity in my opinion. That’s enough money to bring water to every city, state and village in the world, it’s enough money to feed and clothe every homeless person on the planet… I’m not saying that a bail out shouldn’t happen at all I’m just saying that 700 Billion seems like a huge over-spend.

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