The Norm of Reciprocity Revisited

MBS Reciprocity
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The norm of reciprocity is a law of human behavior that is found in all cultures. Previous research on the norm of reciprocity applied in the business context has mostly focused on not being tricked into feeling obliged. However, it can be utilized proactively by conceding strategically. A set of practical negotiation tactics, such as “good cop, bad cop”, the “Bogey” and the “Decoy”, along with psychological the phenomena “Hyperbolic Discounting” and “Prospect Theory” are being scrutinized in order to maximize the effect of reciprocity.

The old “good cop, bad cop” ploy is a means to create the feeling on indebtedness in the other party. Otherwise, the value of a concession depends on perception., receiving more than giving can be achieved by using the Bogey/ Decoy ruses as well as Hyperbolic Discounting and Prospect Theory.

The Bogey ruse suggests that nothing should be conceded without receiving something in return, the Decoy implies that concessions should even be invented.

According to Hyperbolic Discounting, the negotiators who offer their concession immediately but are patient to receive theirs in the future, will receive a higher yield. Prospect Theory suggests that negotiators who grant their concessions piece by piece will be perceived as being more generous and will receive more in return.

While each of these phenomena has been explored before, much can be gained by combining them in the context of a negotiation, particularly by maximizing the effectiveness of the norm of reciprocity.

Introduction

I own a black leather jacket and when I wear it, I look like a bouncer, but no one knows, because I’ve never worn it outside my four walls. Was it a gift or have I bought it many years ago, when fashion was still subjected to different aesthetic laws? No, I bought it not too long ago, at the grand bazaar in Istanbul, after a friendly dealer handed me a tiny glass of tea, hardly worth a Euro, and I don’t even like tea.

MBS ReciprocityNevertheless, I would have felt miserable just leaving without buying anything. What was so surprising about this incident is the enormous power of the norm of reciprocity.[1] Enormous, because I write and lecture on the subject of negotiation and it still worked on me. It is rare that a psychological effect works so strongly that even when we are aware of it and of the other party using it on us, it does not lead to a reactance, a counter-reaction, but still succeeds.[2]

You have probably experienced something similar when you tasted a piece of cheese at the market and purchased two kilograms, even though you were leaving for your summer holiday the next day.

The principle of reciprocity is a law of human behavior that is found in all cultures, as it was the reliance of others reciprocating to our actions that helped civilizations bloom and according to evolutionary psychologists even ensured our survival.[3]

In China, the principle of reciprocity in the form of “Guanxi” is a veritable institution that permeates society.[4] If a favor is made, a thread is spun in a large Guanxi network. There are annual Guanxi lists, listing those with the densest network of favors owed to.

How can this strong principle effectively be used in the context of negotiations?

The Norm of Reciprocity and Negotiations

Previous research on the norm of reciprocity applied in the business context has mostly focused on not being tricked into feeling obliged to someone.[5] However, it can easily be utilized proactively by conceding strategically.

The value of a concession depends on perception: “Reactive Devaluation” refers to the tendency of negotiation partners valuing the other’s concession less than it actually is, mainly due to distrust.[6] Furthermore, if the concession is made too easily, the other party may interpret it as weakness and will tend to aim for more instead of reciprocating. A quick concession may also lead to suspicion that the initial offer was a dishonest anchor.

If immediate yielding is considered worthless and perceived leverage is reduced, slow movements on the other hand increase the perceived value. It is thus advisable to make concessions hesitantly and stingily instead of starting generously and then to suddenly become stubborn.[7]

Even if one negotiation item is insignificant to one party, it should not be given away too easily. What is irrelevant for one negotiating party may be crucial for the other and vice versa. The buyer, for example, may not care to sell the car with VAT, but to the potential buyer it may be the decisive criterion. If the seller gives in immediately, the buyer will not appreciate the concession. When the seller later asks for immediate payment, he may not receive it, as there is nothing valuable to “swap” it in for.[8]

Never should a concession be made before the counterpart has given something back. The norm of reciprocity can be summed up in two words: “if…then…”:[9]

  • “If you want to pay 10% less, then you order 100 units.”
  • “If you want delivery to India, we expect insurance.”
  • “If you want to move in on the 22nd already, then you will have to paint the rooms yourself.”

This approach is also suitable for complex negotiations[10]: “If you accept stock options instead of money, we can pay 5% more and we will still offer a consultancy contract for the next year.”

Using this approach, the other party will be conditioned to always offer something before asking for anything. It is of vital importance, however, to immediately ask for something in return as the effect evaporates quickly.[11]

Good Cop – Bad Cop

A subtle way to utilize the principle of reciprocity is the, “good cop – bad cop” ploy which is well known from crime movies: one officer is very rude, bangs the table, and almost gets violent with the interviewee. The “good” cop pulls his colleague back, telling him that he should even go for a walk in order to cool down. He then faces the interviewee, offering him a cup of coffee and a cigarette and apologizes for his aggressive colleague. The interviewee is now subject to the norm of reciprocity: he feels obliged to the good cop, who is so kind to him, even putting his own relationship to his colleague at stake.[12]

This method is old but effective and leads to measurable success.[13] It can be easily utilized for negotiations in teams of at least two. The “bad cop” makes outrageous claims and introduces extreme anchors. The “bad cop” leaves the meeting but the “good cop” stays. If the leaving “bad cop” is held back by the other party, the ploy is unnecessary. If not, however, the “good cop” is left to conclude the deal without anyone having to return to the table. Now, the “good cop” can say: “He’s a hothead, I am sorry. But I think we could come to a deal if you came down just a bit with your price.”[14] His claims now appear more reasonable due to the contrasting effect. Also, the other party is now grateful to him and feels obliged to cooperate.[15] In order to not ruin a long-term relationship with the other party, it is useful to utilize easily replaceable negotiators for the role of the “bad cop”, such as a lawyer or a consultant.

In order to maximize the effect of reciprocity, receiving more than giving would be the royal road. Two trader tricks, the Bogey and the Decoy and two psychological phenomena, Hyperbolic Discounting and Prospect Theory, will be scrutinized.

The Bogey and the Decoy

A “bogey” is an old trader ruse with which one pretends that something actually insignificant is of great importance.[16] A bogey turns every little concession into an event in order to get a maximum return. If the seller’s warehouse is piled up with stock and immediate delivery would be an actual advantage, by using the bogey, the seller would say something like: “Oh, this will not be easy, but I will do everything in my power to make it happen.” He would then be in an excellent position to ask for a concession in turn, such as increasing the number of items or payment terms.

MBS-Reciprocity-2The “decoy” is another old ruse, which goes even a step further. When Gene Hackman played the role of villain Lex Luthor in the first Superman film, he refused to shave off his moustache. Director Richard Donner visited him in his dressing room and proposed a deal: if Hackman got rid of his beard, he’d shave off his – a great sacrifice in 1978. Hackman had his moustache shaven off right there from the makeup artist, when Donner just peeled his off – he had only glued it on this morning for the negotiation. The decoy hence not only overplays one’s own concession, but actually invents one.

To sum up, an effective negotiator gets a high value for a low value. It is thus not the objective value of the concession that matters but the way it is granted.[17]

Hyperbolic Discounting

A few years ago the so-called marshmallow test caused a stir: four year old children were left alone in a room with a marshmallow in front of them: if they could resist it just a few minutes, they would receive a second one.[18] The children were filmed through mirror windows: most showed expressions of pain and were even crying, some could not resist, others licked it and put it back. One girl ate the interior and placed the empty shall back.

The effect does not work on children, but individuals in general tend to overestimate immediate benefits and underestimate benefits in the future. In a study, participants were asked if they would rather receive $ 100 today or $ 200 tomorrow.[19] Most could wait one day. But if asked whether they would prefer to receive $ 1000 today or $ 1100 in a month, most preferred the $ 1000, despite of a remarkable 10 % interest rate in one month.

This suggests that negotiators who are willing to give up their concession immediately and are patient to receive theirs in the future, will receive a higher yield. The author of this paper has talked to many used car dealers who all are certain that cash has a certain mystique and that purchasing prices are massively lowered by paying immediately. This can be attributed to the effect of Hyperbolic Discounting.

Negotiators must be careful to not underestimate concessions in the future. Just because they pose no immediate threat does not rate them irrelevant. The Marshmallow Test shed light on something very interesting: the children were visited after many decades and it became apparent that the children who exerted self-control were much more successful later on. Understanding the effect and acting accordingly will thus lead to tangible benefits.

Prospect Theory

Participants were asked: “Which scenario would make you happier?”[20]

Scenario A: “You go for a walk and find a €10-bill. The next day you are somewhere else and find another €10-bill.”
Scenario B:”“You go for a walk and find a €20-bill.”

Most people are happier in Scenario A.

Which scenario would make you unhappier?

Scenario Y: “You open our wallet to find that you have lost a €10-bill. On the next day you lose another €10-bill.”
Scenario X: “You open our wallet to find that you have lost a €20-bill.”

Most people are unhappier in Scenario Y.

Individuals prefer to receive something pleasant in incremental steps, which is why 2 x 10 Euro creates more happiness than 20 Euros at once, even if the result is identical. The pain of losing something is worse when felt twice than when felt at once.

For negotiation purposes, the indications are rather clear: if concessions are dissected into small pieces, the other party will perceive them as more valuable than when bundled. Instead of adding a “service package”, each benefit should rather be listed separately. Bad news or disadvantages, however, should be presented at once and in one big cluster.

Conclusion

Savvy negotiators will try to use the norm of reciprocity. In order to neutralize the impact, one may be aware of the effect.[21] As the effect may work nonetheless, active intervention may be more useful: as soon as one is been presented with a “gift”, one should either decline or swiftly offer an equivalent. Going back to the prologue, I should have either declined the cup of tea or insisted on paying it.

However, the skillful application of the norm of reciprocity is a key to successful negotiation, even when the stakes are very high. During the Cold War the American Charles Osgood developed the concept of GRIT (Graduated and Reciprocated Initiatives in Tension Reduction) for the de-escalation of conflicts.[22] When negotiations are about to fail, one party may make a concession in order to show good will – increasing the chances of receiving a concession from the other party. Instead of a downward spiral, an upward spiral is now triggered, set in the direction of an agreement.

Former Prime Minister of Egypt, Anwar Sadat, flew to Jerusalem on November 19, 1977, to meet his Israeli counterpart Menachem Begin. With this visit in which he was cheerfully greeted by Israelis, he was the first Arab head of state to accept Israel’s right to exist. The historical visit led to the peace agreement of Camp David.[23] A concession can take many forms, what is vital is that it is used strategically in order to reach a negotiation goal.

While each of the described phenomena has been explored before, much can be gained by combining them in the context of a negotiation.[24]

Research Limitations and Direction for Further Research

The Bogey/ Decoy should be scrutinized through scientific experiments, isolating the necessary factors. While Hyperbolic Discounting and Prospect Theory are well corroborated, the effects of interaction of the phenomena should be scrutinized.

[1] Blau (1964).
[2] Brehm (1966); Brehm & Brehm (1981).
[3] Aronson (2007); Axelrod (2006).
[4] Shell (2000), p. 71f. The Japanese, Kashi is a rather similar but less formalized concept.
[5] Especially noteworthy is Robert Cialdinis work, e.g. Cialdini (1984).
[6] Stillenger, Epelbaum, Keltner & Ross (1990); Lewicki, Barry & Saunders (2010), p. 160; Neale & Bazerman (1992).
[7] Kwon & Weingart (2004).
[8] Lax & Sebenius (2006), S.211.
[9] Kennedy (2008), p. 140; also see Kennedy, Benson & McMillian (1982); Shell (2000), p. 169.
[10] Shell (2000), p. 170.
[11] Dawson (1995), S.61.
[12] Other effects at work here are the fear of having to deal with the ‘bad cop’ and the contrast effect, making the ‘good’ cop almost appear angel-like.
[13] Brodt & Tuchinsky (2000); Hilty & Carnevale (1993).
[14] Dawson (1995), S. 196.
[15] Shell (2000), p. 173.
[16] Lewicki, Barry & Saunders (2010), p. 65.
[17] Lewicki, Barry & Saunders (2010), p. 241.
[18] Mischel & Ayduk (2004).
[19] Loewenstein & Prelec (1992).
[20] Thaler (1985); Kahnemann & Tversky (1979); Malhotra & Bazerman (2008).
[21] Lewicki, Barry & Saunders (2010), p. 241.
[22] Osgood (1962).
[23] Shell (2000), p. 189 f.
[24] Kennedy (2008), p. 291.

References

  • Aronson, W. A. (2007). Social Psychology 6th Edition. New Jersey: Pearson Education, Inc.
  • Axelrod, R. (2006). The Evolution of Cooperation. Revised edition. New York: Basic Books.
  • Baumeister, R. F.; Vohs, K. D. (2004). Handbook of self-regulation: Research, Theory, and Applications. Guilford, New York.
  • Blau, P. M. (1964). Exchange and Power in Social Life. New York: John Wiley.
  • Brehm, J. W. (1966). A theory of psychological reactance. Academic Press.
  • Brehm, S. S., & Brehm, J. W. (1981). Psychological Reactance: A Theory of Freedom and Control. Academic Press.
  • Cialdini, R.B. (1984). Influence: The Psychology of Persuasion. New York: William Morrow.
  • Dawson, R. (1995). Secrets of Power Negotiating. Inside secrets from a master negotiator. Second edition. Franklin Lakes, NJ: Career Press.
  • Hilty, J. A., & Carnevale, P. J. (1993). Black-hat/white-hat strategy in bilateral negotiation. Organizational Behavior and Human Decision Processes, 55, 444-469.
  • Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision Risk. Econometrica, 47, 2, 263-291.
  • Kennedy, G. (2008). Everything is Negotiable. How to get best deal every time. 4th edition. London: Random House Business Books.
  • Kennedy, G., Benson, J., & McMillian, J. (1982). Managing Negotiations. Englewood Cliffs, N.J.: Prentice-Hall.
  • Kwon, S., & Weingart, L. R. (2004). Unilateral Concessions From the Other Party: Concession Behavior, Attributions, and Negotiation Judgments. Journal of Applied Psychology, 89(2), 263-278.
  • Lax, D., & Sebenius, J. K. (2006). 3-d Negotiation: Powerful tools to change the game in your most important deals. Boston, Mass.: Harvard Business School Publishing.
  • Lewicki, R. J., Barry, B., & Saunders, D. M. (2010). Negotiation. International Edition. 6th edition. New York: McGraw Hill.
  • Loewenstein, G.; Prelec, D. (1992). Anomalies in Intertemporal Choice: Evidence and an Interpretation. The Quarterly Journal of Economics, Vol. 107(2), p. 573-597.
  • Malhotra, Deepak K. and Bazerman, Max H. (2008). Psychological Influence in Negotiation: An Introduction Long Overdue, Working Paper, January 28.
  • Mischel, W., & Ayduk, O. (2004). Willpower in a cognitive-affective processing system: The dynamics of delay of gratification. R. F. Baumeister & K. D. Vohs (Ed.): Handbook of self-regulation: Research, Theory, and Applications (p. 99-129). New York: Guilford.
  • Neale, M. A., & Bazerman, M. H. (1992). Negotiator cognition and rationality: A behavioral decision theory perspective. Organizational Behavior and Human Decision Processes, 51, 157-175.
  • Osgood, C. E. (1962). Reciprocal Initiative. The Liberal Papers, New York: Doubleday Anchor.
  • Shell, G.R. (2000). Bargaining for Advantage: Negotiation Strategies for Reasonable People. New York: Penguin Books.
  • Stillenger, C., Epelbaum, M., Keltner, D., & Ross, L. (1990). The “reactive devaluation” barrier to conflict resolution. Working paper, Stanford University, Palo Alto.
  • Thaler, R.H. (1992). The Winner’s Curse: Paradoxes and Anomalies of Economic Life. New York: Free Press.
Prof. Dr. Jack Nasher
About Prof. Dr. Jack Nasher 10 Articles
Jack Nasher is the Professor for Organization and Leadership at MBS. He studied law, philosophy, psychology, and management in Vienna, Trier, Frankfurt and at Oxford University, where he also taught as a tutor. He gives talks and trainings for international corporations on communication and management and runs the NASHER Negotiation Institute. He also regularly conducts doctoral seminars at TU Munich. His books where national bestsellers and were published in about a dozen countries, among them Russia, Korea, and China. Articles by and about him appeared in Germany’s premier publications, such as Harvard Business Manager, ZEIT and Handelsblatt.