The Danger of Too Many Choices

Posted By Kristin Charbonnier, Jan 25, 2013

The option-generating negotiation, whereby many possible resolution options are brainstormed and considered by the negotiating parties, can be a great way to develop creative solutions to seemingly intractable problems.  But it can also lead negotiators astray. In Panacea or Pandora’s Box?: The Costs of Options in Negotiation, Professor Chris Guthrie describes how despite the fact that many experts exalt the option-generating negotiation model, it can lead to sub-optimal negotiation outcomes. He goes on to prescribe how lawyers can negotiate on behalf of their clients to maximize the benefits of option-generating negotiations, while avoiding many of the common pitfalls. 

Many experts agree that successful negotiation outcomes depend on generating a large number of relevant options and selecting from among those options. Negotiators who heed to the option-generating method may identify novel alternatives that effectively reconcile the parties’ differing interests. However, the option-generating model has pitfalls and negotiators that use the option-generating model model may enter into an inferior agreement with which they feel less satisfied than those negotiators that do not use the option-generating model. [Prof S finds this a bit redundant already]

There are four common pitfalls negotiators fall into when dealing with multiple options: option devaluation, context dependence, non-compensatory decision making, and decision regret. 

The first pitfall, option devaluation, is a phenomenon that causes negotiators to unwittingly devalue an option once it becomes part of a set of options. This occurs because options that look attractive by themselves often look less attractive when compared to other options. Contrary to the rational ideal, comparisons influence the way people evaluate an option. In fact, comparisons can decrease the attractiveness of all options being compared. To illustrate option devaluation, consider the following scenarios. In the first scenario, a prospective law student is admitted only to Harvard Law School. In the second scenario, the same prospective law student is admitted to Harvard and Stanford. The student prefers a school with a large enrollment and temperate climate. Thus, she will view Harvard’s large size as an advantage over Stanford, and Stanford’s temperate climate as an advantage over Harvard. At the same time she will perceive Harvard’s climate to be a disadvantage to Stanford, and Stanford’s size to be a disadvantage to Harvard. The process of comparison will bring to mind the relative advantages and disadvantages. Each option’s “losses” are likely to loom larger than its gains.  When comparing law schools, Harvard’s cold climate will decrease its attractiveness more than its large enrollment will increase its attractiveness. Therefore, the prospective student was better off in the first scenario when she was admitted only to Harvard.

The second pitfall, context dependence, is a phenomenon that occurs when a new option is added to an existing choice set. Research demonstrates that people are likely to evaluate an existing option more favorably when a similar, but inferior option is added to the choice set. Chris Guthrie illustrated context dependence in a negotiation experiment he performed with first-year law students. In the negotiation two law partners decided to part ways. They both wanted a lobby painting worth $40,000. In the two option scenario, Lawyer A could sell the painting to Lawyer B for a $20,000 lump sum cash payment. Or they could sell the painting to the artist and each receive a $20,000 lump sum cash payment. 65% of the subjects preferred to sell the painting to the artist and 35% preferred to sell the painting to sell the painting to the law partner. The three option scenario adds a third inferior option: Lawyer A can sell the painting to Layer B and receive $20,000 in installment payments. Adding the third inferior option dramatically changed the results. In the three option scenario, 30% of the subjects preferred to sell the painting to the artist, and 70% of the subjects preferred to sell the painting to the partner.

The third pitfall, non-compensatory decision making, simply means that when many options are available, people have a difficult time evaluating all the available information.

The fourth pitfall, decision regret, is implicated in multiple-option negotiations because negotiators are likely to compare the option they have selected to those they have rejected. These comparisons can produce post-decision regret.

Be aware of these pitfalls in the option-generating model. They can lead a negotiator to select a sub-optimal outcome or experience post-decision regret.

Sophisticated negotiators, such as lawyers, are more likely than inexperienced negotiators to maximize the benefits and minimize the costs of option-generation in negotiation. First, sophisticated negotiators are more likely to make rational decisions; and evidence suggests that clients want their agents to evaluate decision options rationally. Second, because sophisticated negotiators can make rational decisions they can help clients faced with multiple options make better decisions during negotiations. Sophisticated negotiators, such as lawyers, can provide contextual information, such as data on jury verdicts and settlements, to help their client make a rational decision. Additionally, clients often experience feelings of regret after selecting one option at the expense of the other. Lawyers can, and should, help their clients make peace with the decisions they’ve made in the negotiation. One way to do this is to work with clients to construct a rationale supporting the choices they have made.

For more information about the potential dangers of option-generating negotiations, see Chris Guthrie, Panacea or Pandora’s Box?: The Costs of Options in Negotiation,  88 Iowa L. Rev. 601(2003).