How Negotiators Can Deal With “The Winner’s Curse”

How Negotiators Can Deal With “The Winner’s Curse”

So how can you make sure that you don’t get a worse deal than you deserve?
So how can you make sure that you don’t get a worse deal than you deserve?
Image Credit: Steven Lilley

What would the perfect negotiation look like to you? Would it happen if you sat down at the negotiating table, presented the other side with an offer without using any of your negotiation styles or negotiating techniques, they accepted it and everything was over and done? Immediately sensing that you asked for too little, you would probably feel as though you had screwed up. In a negotiation, we’re often excited to close a deal. But at times, the fact that we’ve “won” a prize means that we’ve become the latest victim of the “winner’s curse”. The good news for you is that there are steps you can take to avoid the winner’s curse in negotiations.

What Is This “Winner’s Curse” Thing?

During a negotiation, we can encounter the winner’s curse when we set our goals for the negotiation too low. We’ll know that we’ve done this when our offer to the other side is accepted by them immediately. Likewise we can run into the winner’s curse if we end up overbidding on something simply because we didn’t take the time to consider the fact that the other side knew more than we did. We may fail to consider that the other party is most likely to accept our offer when we have offered too much (or asked for too little).

When we find ourselves involved in an auction that has multiple bidders or when we are part of a negotiated auction, the winner’s curse can show up when a winning bidder’s assessment of the value of an item is higher than that of other bidders. If you were to find yourself in a room full of people is bidding for a painting of unknown value, for instance, the average of all of their bids is likely to be closest to the painting’s actual value, research shows. What this means is that the person who makes the highest bid likely will have paid too much —and will probably end up regretting it.

What Can We Do To Avoid The Winner’s Curse?

Let us all agree that we would prefer to not become the next victim of the winner’s curse. How can we make this not happen to us? It turns out that the secret is taking the time to add additional negotiation skills to your bag of tricks. The first thing that you are going to have to learn to do is to anticipate how you’ll feel if your offer was to be immediately accepted. People who fall prey to the winner’s curse in a one-on-one negotiation typically are surprised when their counterpart quickly accepts their offer. In order to make sure that you are not going to be surprised , before making an offer, take the time to imagine how you’d feel if the other party jumped at your offer. Once you’ve done this, ask yourself, “Would her quick acceptance mean they know more about the item’s value than I do?” If you believe this to be the case, then make sure that you adjust your offer and take the time to search for new sources of value creation.

Next, you are going to want to reach outside of the negotiations. You will want to look for objective, expert advice. If it turns out that there’s a chance the other party knows more about the value of the item at stake than you do, you need to seek out an unbiased valuation from an expert. Use the internet to research the value of the item being negotiated. An unbiased, expert estimate can level the playing field and help you to avoid the winner’s curse.

Finally, you are going to have to spend some time trying to figure out if you have an edge. The good news is that the winning bidder in an auction is not always cursed. It could be as simple as being that you value an item more than other bidders do. For sentimental reasons, you may value a rare painting made by your great-uncle more than other bidders do. At other times, you may be more knowledgeable than other bidders about an item’s value. When you have this type of edge, the winner’s curse may not need to be a concern.

What All Of This Means For You

The last thing that any negotiator wants to encounter is the so-called “winner’s curse”. This can happen when you make an initial proposal to the other side and they immediately accept it. When they do this, you start to wonder if you were asking for too little. In order to prevent this from happening, you are going to have to learn some new negotiating skills.

During a principled negotiation, we can encounter the winners curse when we set our goals for the negotiation too low or if during an auction we end up bidding too much. If we want to prevent this from happening, then we need new negotiating skills. When we fall prey to the winner’s curse in a one-on-one negotiation we typically are surprised when the other side quickly accepts our offer. In order to make sure that you are not going to be surprised, before making an offer, take the time to imagine how you’d feel if the other party jumped at your offer. The last thing that you want to be doing is negotiating with someone who knows more than you do. If it turns out that there’s a chance the other party knows more about the value of the item at stake than you do, you need to seek out an unbiased valuation from an expert. Keep in mind that if you end up paying more for something than other people do, it could be as simple as being that you value an item more than other bidders do.

At some point in time we all experience the winner’s curse. We get what we wanted, but once we have it we are filled with doubts about how we got it. As negotiators we need to understand that this can happen and take steps to prepare for it. Adding new skills to our negotiating toolbox can ensure that we are always satisfied with the deals that we get.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: If the other side agrees to your offer, do you think that you could make another offer to them?

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What We’ll Be Talking About Next Time

You might think that every principled negotiation starts out the same way: with a blank sheet of paper. However, in a number of situations that I’ve found myself in this is not the case. Instead, what has happened is that for whatever reason because of the negotiation styles and negotiating techniques being used, my client allowed themselves to get sucked into signing a bad deal. Now they find themselves living with a deal that is not in their best interests and they want to have it changed. Enter the (re) negotiator. What’s the best way to turn a bad deal into a better deal?

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