Social Preferences for Negotiated Outcomes

Negotiation research and training assumes that utility is only a function of payoffs to oneself. However, the past four decades of research in psychology, behavioral economics, and organizational behavior has documented that individuals actually care about the payoffs of others. Such “social preferences” arise because people are competitive or have a norm of fairness or equality. Negotiations research often examines what types of environments, tactics, or negotiation behaviors produce “good” agreements. However, if social preferences matter, a “good” agreement is determined by what makes negotiators satisfied. As a result, the standard measures for evaluating negotiations (sum of payoffs, Pareto efficiency relative to payoffs) may be inadequate measures of outcome quality. This research seeks to incorporate social preferences into negotiation theory. I estimate the drivers of utility by using individualized regression and statistical clustering methods to sort negotiators’ utility functions into “types”. I identify the relationship between demographic variables such as gender and race and the negotiator types. These groupings are then used to explore how different measures of outcome quality and outcome inequality are affected by utility functions that differ from pure self-interest. Finally, I evaluate whether negotiators perform better using traditional measures of negotiation quality or using the new measures that incorporate “social utility” type preferences. Far more than economic gains are at stake when people negotiate, and if the notion of concern for both self and others is considered in measuring outcome quality, negotiators’ performance may be evaluated more effectively using these new measures.