Negotiator Risk: Sources of Uncertainty and the Impact of Reference Points on Negotiated Agreements

The settlement of a complex business negotiation inevitably requires the parties to assume substantial risks. Bargaining experiments, including those studying framing effects, have not. Two experiments examined the impact of reference points on negotiator tactics, concessions, and settlements in games with nondeterministic payoffs. In these experiments, subjects negotiated over chances to win a prize rather than directly over shares of the prize. In a reversal of the conventional findings with deterministic games, loss frame negotiators were more cooperative and more likely to settle. In the second experiment, subjects negotiated simultaneously over three linked lotteries, providing an opportunity to create value through risk spreading. In another reversal from deterministic games, loss frame negotiators created more integrative agreements. The impact of framing is clearly not uniform across all types of negotiations. It depends on the source of uncertainty confronting the parties. These experiments further establish and clarify the importance of variable risk preferences in understanding the negotiator framing effect. They also modify the conventional prescriptions given to negotiators and mediators regarding how to frame outcomes. Copyright 1998 Academic Press.