Do you trade well? He is sure?

We all overestimate our abilities in various activities. This phenomenon is so well known and scientifically proven that it has received a specific name: “overconfidence bias”. This bias, in a universe of dozens of biases already mapped by Science, due to its importance is considered “the father of all biases” by many researchers in Judgment & Decision Making, Psychology and Behavioral Finance.

Just one striking example: a survey by the Global Entrepreneurship Monitor with entrepreneurs in Brazil and published in 2015 revealed that “… 58,3% claimed to have the necessary knowledge, skills and experience to start a new business”. However, the IBGE also in 2015 published that the mortality rate of companies in Brazil in the first 4 years of life is 52,5%. Definitely, the Overconfidence bias can “hurt in the pocket”. Is very.

The ability to negotiate is one of the many subjects subject to the Overconfidence bias. And, certainly, one of those with the greatest potential for losses for individuals and organizations due to its inadequate exercise. Whether negotiating with suppliers, customers or even a salary increase with the boss. Over a 24-year career as an executive, 21 as a graduate professor, and 11 as a consultant, I have never (yes, never!) met anyone who admitted they were bad at negotiating. And at the same time I met very few executives really proficient in negotiation.

Why do the vast majority of us negotiate badly?

Based not only on my professional experience (particularly in Purchasing/Supply and in Business/Sales) but mainly on my research since 2016 (including during my PhD from 2016 to 2020 at COPPEAD/UFRJ) in Judgment & Decision Making, I understand that there are 3 preponderant explanatory factors:

1. “Bounded rationality”: pioneering concept created by Herbert Simon in 1957 and which resulted in the Nobel Prize in Economics with which he was awarded in 1978. It highlights the cognitive limitations of human beings that originate all heuristics (simplifying devices of intuitive thinking to facilitate decision making) and biases (systematic errors in decision-making and resulting from the heuristics used) inherent in judgment (about everything and everyone, including oneself) and decision-making (in negotiations, for example).

2. Complexity: Trading is a much more complex activity than most people, experienced traders included, realize. Require strategic and behavioral skills, analytical reasoning, self-control, creativity, empathy, technical knowledge and other competencies that are capable of being developed only after many years of practical exercise, study and training.

3. Poor training: despite the availability of disciplines and negotiation courses, their quantity and, even worse, their quality and approach are mostly deficient. Because they do not develop the breadth of necessary skills and also as a result of approaches that are almost always simplistic and “normative” (prescriptive based on a reductionist and deterministic view of the world). Along the lines of “follow this recipe and you will succeed”. And this serious gap is not adequately filled by training"on the job“, whose role is also crucial in training capable negotiators.

The results? Just look around us. Marriages and partnerships in ventures unnecessarily broken up; buyers who boast that they have “kicked the hide out of the supplier” but who harm your company by forging a predatory and mutually disadvantageous long-term relationship with strategic suppliers; employees who are frustrated with not being able to get a pay raise after negotiating with their boss and who later change jobs (often to a job that turns out to be inferior over time); lengthy and costly litigation that could have been avoided through a prior agreement acceptable to the parties; and a myriad of other situations in which “the battle was won but the war was lost” or, even worse, both were “lost”.

How can we improve our negotiation skills?

First, the bad news: there is no “shortcut”, which is frustrating for the short-sighted culture that is almost omnipresent in the frenetic world of the XNUMXst century. Now, the good news: it is possible to improve considerably in the medium and long term.

I glimpse 4 fundamental axes for a trajectory of continuous improvement:

1. Behavioral skills: it is the most relevant axis, but also the most challenging as it requires two of the most difficult things for any human being: self knowledge (especially about their values, virtues, flaws and biases) and behavior change (which implies going against our nature accustomed to inertia, the main source of the paralyzing “status quo bias”). Developing behavioral skills for negotiation purposes also includes improving oneself in self-control, open-mindedness, creativity, empathy, flexibility, communication and interpersonal skills, to restrict myself to the most relevant ones. There is no “cake recipe” here, but certainly the maturity progressively acquired with professional and life experience and empirical and theoretical knowledge – the classic works “Emotional Intelligence” by Daniel Goleman and “Fast and Slow: Two Ways of Thinking ” by Daniel Kahneman (2002 Nobel Prize laureate in Economics) are valuable “starting points” – they are preponderant instruments of development.

2. Negotiation techniques: there are a number of principles (integrative versus distributive negotiations), "tools" (strategies and tactics), critical variables (power, time and information) and concepts (BATNA, ZOPA, etc.) that need to be thoroughly known and exercised a lot. Also in this case, it is essential to invest both in “formal and structured” knowledge – books such as “Negotiating Rationally” by Bazerman & Neale and “How to Get to Yes” by William Ury, courses, etc. – and in empirical knowledge, the latter not only through practice but also direct and attentive observation of negotiators who have already reached superior levels of excellence.

3. Analytical capacity: develop the ability to define which information is a priority; to obtain them in a timely manner with the necessary breadth, depth and reliability; and analyzing them in an appropriate and differentiated way is far less trivial than the exuberant and instantaneous abundance of information provided by modern disruptive technologies makes it seem. Require reflection, method, critical view and logical and analytical reasoning that few people have and that formal education rarely manages to develop to a satisfactory level. Once again: empirical and theoretical knowledge (from Statistics, Philosophy, qualitative and quantitative methods, etc.) needs to be accumulated and refined.

4. Strategic planning: identify the interests of participants based on their profiles and the “context” (“environment”); anticipate their movements (strategies and tactics); simultaneously consider the most likely and potentially harmful scenarios; define the appropriate strategic and tactical actions; etc. Every negotiation is, to a greater or lesser extent and from the perspective of strategic complexity, a “chess game” and not a “game of dominoes”. Most people negotiate “playing dominoes” and thinking they will “win” (like the histrionic Donald Trump), only a minority negotiate as if they were in front of a chessboard (like Vladimir Putin, shaped by decades of career as a spy of the KGB). Empirical and theoretical knowledge, this is the “name of the game”.
As one of the most brilliant minds of the XNUMXth century put it: “Either you have your own strategy, or you are part of someone else's strategy” (Alvin Toffler).

Developing in the medium and long terms in the 4 fundamental axes above is an arduous but rewarding task. Yes, the effort will be worth it, as negotiating is an activity that we all carry out on a daily basis, both professionally and personally, and its results are decisive for our well-being and that of society as a whole.

I cover all the topics covered in this article in a broader and deeper way in short courses (12h in the live online modality) Negotiation and Decision Making e Strategic Management of Purchasing and Supplies that I teach periodically at ILOS and also in the in-company format in companies that want to close specific classes and receive an approach adapted to their particular needs.