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UI study examines deception in business negotiations

A University of Iowa study shows that honesty is the best policy in negotiations, proving that your reputation can be tarnished if you lie or misrepresent facts.

The UI study also found that most people are fairly honest in negotiations, with only one out of seven people in the study resorting to deceptive tactics. However, in high-stakes situations, the subjects in the study resorted to more potent and direct lies.

"In negotiations, there are mixed motives, balancing self-interest while maintaining personal integrity. We found that if you're going to interact with the same person over and over, there's no incentive to be dishonest," said Terry Boles, study co-author and associate professor of management and organizations at the UI's Henry B. Tippie College of Business.

The study not only has implications for traditional business negotiations, but also can be used to understand behavior in online negotiations, such as eBay auctions and other online bidding situations where individuals are anonymous and there is often little opportunity to discover or punish unethical behavior, added Boles.

Boles based the findings of the study entitled "Deception and Retribution in Repeated Ultimatum Bargaining" on an experiment involving 220 UI students engaged in four simulated negotiation games. The negotiations were conducted in the Tippie College's computer lab, with students communicating via instant messaging in an online setting.

The students were paired anonymously in roles of a proposer or a respondent. In each game proposers divided resource "pies" ranging from $13 to $47, with respondents either accepting or rejecting the portion of the pie they were offered. However, the respondents didn't always know the size of the pie to be divided and were not always told these amounts after each round. Proposers had a strategic advantage when they knew that respondents did not know the size of the pie, creating opportunities for proposers to deceive. If the size of the pie was later revealed, this allowed those respondents who learned that they had been deceived to enact punishment on proposers in later negotiations by rejecting their offers (which led to proposers receiving zero dollars).

Boles found that 86 percent of the negotiators didn't deceive their counterpart, lie or misrepresent information, despite being given the opportunity. But when the stakes were high, lies and misrepresentations increased significantly, indicating that the temptation to deceive increases when potential profits are large. Real money was used in the experiment, with students keeping any money they earned in the trial.

Results showed that although proposers and responders chose deceptive strategies almost equally, proposers told more outright lies. When proposers' lies were revealed, responders punished them by rejecting their offers, even when the proposer tried to recompense by offering more than half of the money available.

"This indicates that respondents were willing to take less for themselves in order to punish deceitful behavior," Boles explained. "And they also indicated that they had no desire to interact with dishonest proposers in the future."

Boles co-authored the study with Rachel Cronson at the Wharton School at the University of Pennsylvania and J. Keith Murnighan at the Kellogg School at Northwestern University; it was published in the November 2000 edition of "Organizational Behavior and Human Decision Processes."

For more information, contact Boles at (319) 335-0947 or email terry-boles@uiowa.edu.


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