The debt-ceiling debacle in Washington serves as a reminder of what can happen if negotiations are handled badly. If the issues they were dealing with were not so serious, I would think that the parties did not actually want to reach an agreement. More likely the parties have chosen to ignore important negotiating principles for the purpose of trying to score political points.

What lessons can entrepreneurs learn from the mistakes the president and Congress have made? Once parties have come to an impasse, how can they get beyond that and come to an agreement?

The budget talks illustrate two fundamental mistakes that negotiators often make. The first is to think that you can pressure the other side to agree by issuing threats. Threats generally cause the other side to harden their position rather than being seen as caving in. The second is to make proposals that you are forced to back off from because you cannot deliver the other parties who need to agree to them.

Even if you do a better job negotiating than the folks in Washington, you can still run the risk of reaching a standoff at some point. Too often this results in the parties walking away without an agreement. Ordinarily this is a bad outcome for everyone involved. In high-stakes negotiations, it can be ruinous. Here are some tips to help you get beyond an impasse.

• When you have reached a stalemate and things have gotten heated, take a break. Defuse the emotions. Let everyone cool down.
• When you come back, set aside the issue causing the impasse. Talk about other things. Focus on items where you have mutual interests and agreement can be more readily reached. Keeping everyone talking and moving the negotiations in a positive direction builds momentum. As progress is made on other issues, the parties become invested in finding a way to resolve issues that previously seemed unresolvable.
• Allow the other side to change their position without looking like they are giving in. People hate to admit they were wrong. Introducing new information, allowing them to blame someone else, changing approaches or changing your position to incorporate aspects of their proposal can allow the other side to gracefully modify their position.

Sometimes negotiations fail because there really is no agreement that satisfies the needs of all parties. More often, negotiations fail because to reach an agreement one party is made to feel like they have lost. Impasses get resolved when you offer the other party a way to agree that allows them to feel like everyone is a winner.

Article source: Entrepreneur.com

 

One of the most important things that impacts us in personal, professional, and financial life is an effect called confirmation bias.  Put more simply, this is a tendency for people to only seek out information that confirms what they already think.  In many cases, people will examine the same information and come to wildly different conclusions because of their internal biases.  Naturally, this makes objective thought and analysis extremely difficult to perform since we are not always the best judge of ourselves.

This effect becomes especially dangerous when it enters the financial arena.  When evaluating investment strategies, many people (such as Robert Merton and Myron Scholes of Long-Term Capital Management) fail to examine possibilities that lay outside of their theory.  Many hedge funds and derivatives traders create highly complex formula’s based on many assumptions that are usually true, but not always true.  These financial models typically use large amounts of leverage, and are prone to tremendous losses if market movements do not match the model assumptions. Another iteration of this self-delusion is the tremendous run-up in housing prices that was based on the assumption home prices would never go down.  There was ample evidence to indicate that housing prices could not increase forever, but it was completely ignored in favor of self-delusion by the government agencies, financial institutions, and borrowers who perpetuated the financial crisis.

The impact of confirmation bias also enters the political sphere on a regular basis.  There are Nobel laureate economists in favor of higher taxes who claim to have evidence in support of their position and Nobel laureate economists in favor of lower taxes who also have evidence in support of their claim.  When the government funds research studies, it is not surprising that the results of the study almost always come back confirming the original theory or hypothesis.  Other ways that this phenomenon works its way into the political landscape is through metrics that are impossible to prove or disprove.  One of the most famous is an ambiguous employment metric of “jobs created or saves”.  It is impossible to objectively define a “saved” job, so the intellectual delusion is perpetuated.

The confirmation bias effect has even found its way into the scientific domain, as demonstrated most prominently in the climate science movement.  What used to be called “global warming” has now been changed “climate change”.  This makes every observation of temperature a “confirmation” of the hypothesis since the climate by its very nature is always changing.  It should not come as any sort of surprise that the so-called “consensus” concerning climate change was completely fictional.  It only resulted from suppressing voices of dissent and stifling debate so that the self-delusion of confirmation bias could continue without restraint.  If the science was so strong, then it should be able to withstand a rigorous debate.  If the proponents of the theory are not willing to debate, then it stands to reason that the science is not very strong.

In the end, it is and always will be extremely difficult to be objective.  As astute individuals, we must learn to recognize the impacts of confirmation bias in ourselves and in the world around us.  Since most of us do not possess the ability to change the world, we must squarely focus on the things that we do have the power to change . . . namely ourselves.  When making an important decision, it is imperative to ‘step back’ and determine whether there is something we haven’t thought of that could squash our plans.  By actively avoiding the bias of confirmation, it will help us to make more informed decisions and live a more fulfilled life.

 

One of the most prescient concepts in economics is the notion that “all changes occur at the margins”.  Expressed another way, this means that when things change, it happens in small incremental movements.  One of the commonly cited axioms of economics is that “rational people think at the margin”.  What this means is that our decisions should be framed in the context of what impacts our next action or decision, and ignore costs that are sunk or decisions that have already been made.

The importance of this concept comes into play when making both personal and financial decisions.  When deciding whether to fix an old car that has broken down, the only factors relevant to the decision should be the facts at hand.  It does not matter how much money you have already spent to fix the car . . . it only matters what you do with the current situation.  (Note that from a financial perspective, it is optimal to repair your existing automobile unless the cost of repairs exceeds the value of your car in reasonable working order.  The decision to get rid of your old car and buy a new one is almost never financial optimal.  This doesn’t mean that you should never get a new car, only that the purchase is a ‘lifestyle’ decision and not a ‘financial’ one.)

The inevitable result of thinking ‘at the margin’ is a narrowing of focus onto the decisions and opportunities at hand instead of dwelling on mistakes and missed opportunities of the past or fantasizing about expected opportunities in the future.  The only time that anybody ever has to act is now.  The past is gone, and the future has not yet come.  Action must always occur in the present tense.  This is not a renouncement of the benefits that come from planning for the future, but a realization that the future is built on many successive decisions, and that each decision we make builds the road for future decisions.

By zeroing-in on the decisions that you can influence today, it will create a remarkable degree of emotional freedom.  This liberation will come when you are no longer shackled by old decisions and no longer nervous about what will come in the future.  The future is and has always been uncertain.  However, people who have grown accustomed to making rational decisions develop the confidence that they can adapt to whatever future situations unfold.  The most important thing is to use the information and resources at hand to make the best decisions possible.  This crystallizes a seemingly infinite number of possible future options into one decision . . . your next one.  The result of that decision will set the stage for future decisions, but so will external events that are beyond your control.

The single area where most people run into trouble is that they under-estimate the extent to which their future will be shaped by things that they do not control.  Thinking about the unknown is inherently frightening, because we cannot plan for something we do not know will happen.  However, the unknown should not be allowed to become a crutch that scares us into inaction, but should also be appropriately heeded so that actions are not taken that greatly depend on a specific future outcome that is far from guaranteed.

The extent to which we can control our lives always is, always has been, and always will be at the margins.  We can influence small iterative changes that compound over time to produce tremendous results.  On balance, it is best if our actions create outcomes that are robust or adaptable to future changes in the marketplace.  While we may not know what these changes will be, we can be confident in our ability to adapt to them.  By shifting our focus to present things that happen ‘at the margin’ it will allow us to enhance our circle of influence by improving the effectiveness of our decision making.