Valuation of gains and losses, fairness and negotiation outcomes

Abstract

Reports the results of two experimental tests of the extent to which the large disparity between people’s valuation of gains and losses, and related fairness determinations, are used in judging the acceptability of alternative negotiating or conflict resolution proposals. Participants acted as arbitrators and selected their preferred resolution of conflicts, involving either the division of gains or sharing responsibility for losses. Different cases were presented in which one or the other party incurred varied combinations of direct or opportunity costs, or received varied forms of payments. Contrary to conventional economic assumptions, but consistent with earlier behavioural findings, direct costs incurred by one party to the negotiation were far more important than opportunity costs in setting the terms of a more acceptable resolution. The results strongly suggest that recent behavioural findings might be used to improve the design of negotiating and conflict resolution proposals.