Much of the materials with the tag bfa comes from the Bargaining for Advantage book.
The more ethical you are, the higher the cost you’ll pay in transactions. The less ethical you are, the lower your reputation, and the higher the likelihood of dealing with low lifes.
Regardless of your place in the ethical spectrum, you must obey the law.
In the US, fraudulent bargaining is when the party knowingly misrepresents a material fact on which the victim reasonably relies, causing damage.
Misrepresentation: In many commercial deals, negotiators try to be as silent as possible in order not to misrepresent.
But silence is not always enough protection:
- If you claim you are profitable, and you have a loss in the next quarter, you are required to inform the negotiators if the deal has not closed.
- If parties have a fiduciary relationship to one another. See the book for details.
- Vital information about the transaction is not available to the other party. There is a greater duty to disclose a hidden defect than a hidden treasure. If someone wants your land because they think there is oil under it, they (usually) need not disclose it. But you need to disclose any problems you know of about the land.
- Special cases (e.g. selling home) are codified into law.
Material: Statements like ‘I am not authorized to sell for less than $1200’ when they are authorized are usually OK. However, it can be a gray area. There are two examples where the courts ruled fraud when this occurred. The author thinks this is due to a lack of symmetry, where the guilty party was much “bigger” than the other (either in power, in knowledge, or in abilities).
Fact: Merely couching it as an opinion or intention is insufficient to avoid fraud. If you state an intention, and know at the time that the intention is false, that is fraud (e.g. saying you want a loan for a business when you do not). Even false opinions may be fraudulent. It is not clear to me what the criterion is.
Reliance: Negotiators can not always get away with “If the opponent accepted such a dumb offer, then it his fault!” However, a common tactic is to say one thing but then modify it in written form (e.g. in a contract). The courts have ruled you are stuck if you sign such an agreement. Be wary of any assurances that the written contract matches the verbal one.
Causation and Damages: You cannot sue unless there was damage or loss.
Everyone feels they are acting ethically and that the other party is either naive or dishonest! They will think the same of you. Do not expect the other party to share your values!
Author’s advice: Aim high on ethics. When pressured, people normally slide down somewhat, so it is best to be as high as possible to begin with.
The Poker School:
- The rules are defined. Anything is allowed as long as you stick to the rules.
- Bluffing is expected.
- It is a game. Treat it as such.
- Deception is expected.
The problems with the poker school:
- Many people will not view it as a game.
- The rules are not universally agreed upon, nor are they explicit.
- The law may take issue with the tactics.
The Idealist School:
- They definitely do not view it as a game.
- The conduct in bargaining should match that in all other social situations.
- Deception is allowed only through silence. Lying is inappropriate.
It is difficult negotiating with the idealist school.
Pragmatist School: They have ethical standards, but do not aim for the ideal. They do care about their reputation.
Tactics low ethics people use and how to react to them:
Lowballing merely to get interest (e.g. offering you a low price and then adding lots of other fees towards the end)
Bid rigging: Multiple people will make low offers to what you are selling to make it appear as if you have priced too high. However, all these people are acting in collusion.
Unethical behavior is very common with Transactions where future relationships do not matter.
One way to avoid unethical behavior is to use the relationship network. Get a referral for a business and mention the referral. They may not want to sour the relationship they have with their friend.
If you found the other party is lying, it may or may not be a good idea to confront them with it. There is no universal rule.
If someone is screwing you, persist directly or indirectly on fairness.
Avoid the trap of responding in kind (unethically) if that is not your norm. Your reputation is still at stake. In the future, insisting on high moral ground will have little weight if you have caved in.
A tactic to avoid a lie: Find something else to tell the truth about!
Copy Figure 11.1