Judgment Accuracy and the Asymmetric Cost of Errors in Distributive Bargaining

Abstract

Bargainers must generally attempt to judge their counterparts' preferences, beliefs, and alternatives to settlement. Both descriptive and prescriptive theorists have assumed that an accurate perception of the other bargainer's reservation price (r.p.) is advantageous. Yet, unbiased judgments are optimal only when the costs of underestimation and overestimation are symmetric. Optimistic bias has been found to have adaptive value in judgments related to other types of tasks. In two studies we examined the relationship between perceptions of the bargaining zone and settlements in essentially distributive bargaining games. In the largely exploratory study one, bargainers were generally optimistically biased (i.e., they thought their counterpart could concede more than s/he really could) and optimism was positively correlated with profitability. In study 2 we manipulated information to induce accurate or biased perceptions. Optimistically biased negotiators again reached more profitable settlements than accurate or pessimistically biased negotiators. Optimism did not increase the likelihood of impasse in either study. Nor did it damage the relationship between the parties. Initial optimism appears to play an adaptive role in bargaining.