The power of phantom alternatives in negotiation: How what could be haunts what is

Organizational Behavior and Human Decision Processes 151 (2019) 34–48

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The power of phantom alternatives in negotiation: How what could be haunts what is☆

T

Robin L. Pinkleya, , Donald E. Conlonb, John E. Sawyerc, Dustin J. Sleesmand, Don Vandewallea, Maribeth Kuenzia ⁎

a

Southern Methodist University, Edwin L. Cox School of Business, PO Box 750333, Dallas, TX 75275-0333, United States Michigan State University, Eli Broad Graduate School of Management, 632 Bogue Street, East Lansing, MI 48824, United States c University of Delaware, Alfred Lerner College of Business and Economics, 325 Hullihen Hall, Newark, DE 19716, United States d University of Delaware, Alfred Lerner College of Business and Economics, 223 Alfred Lerner Hall, Newark, DE 19716, United States b

ARTICLE INFO

ABSTRACT

Keywords: Negotiation BATNA Alternatives Perception Power

We examine the notion of a Phantom BATNA – a negotiation alternative that may or may not materialize – and its impact on a current negotiation. Across three studies, we investigate the impact of such alternatives on negotiation, and compare them to when negotiators have a certain BATNA, when they have no BATNA, or when they are provided no information whatsoever regarding a BATNA. We demonstrate that perceptions of power mediate the effects of BATNA likelihood on the performance-related outcomes (final settlements or counteroffers) of negotiators. We establish these effects when the alternative has a known or an unknown likelihood of occurring. Additionally, BATNA likelihood influences the extent to which negotiators mention the possibility of an alternative to their counterpart during the negotiation. Based on our investigation, we offer BATNA likelihood as an important dimension of BATNA influence that can enhance theoretical and practical understanding, and stimulate future research.

1. Introduction Power continues to serve as an important construct underlying and explaining interpersonal and organizational exchanges (Pfeffer, 2010), and is a topic of particular prominence in the negotiation literature (Kim, Pinkley, & Fragale, 2005). Numerous scholarly and practitioneroriented works discuss the role of power in influencing outcomes (e.g., DeRue, Conlon, Moon, & Willaby, 2009; Galinsky, Gruenfeld, & Magee, 2003; Lewicki, Barry, & Saunders, 2015; Magee, Galinsky, & Gruenfeld, 2007). Whether power is derived through structural (e.g., hierarchical role differences or control over resources), psychological (e.g., recall of prior situations when one had power), or situational (e.g., seating position or the possession of highly valued alternatives) mechanisms (cf. DeRue et al., 2009; Galinsky, Chou, Halevy, & Van Kleef, 2012), it tends to elicit a uniform set of consequences. These consequences include enhanced optimism, an inward focus, greater sense of control,

dampened reactions to others’ emotions, and a heightened sense of entitlement (Fast, Gruenfeld, Sivanathan, & Galinsky, 2009; Galinsky et al., 2003; Galinsky, Magee, Inesi, & Gruenfeld, 2006; Gruenfeld, Inesi, Magee, & Galinsky, 2008; Magee, Milliken, & Lurie, 2010; Van Kleef, De Dreu, & Manstead, 2004). In the context of negotiation, power is most often represented as the value of a negotiator’s BATNA, an acronym for Best Alternative to a Negotiated Agreement. A BATNA describes what a negotiator can do if an agreement is not reached, and thus defines the point at which a rational negotiator will exit a current negotiation (Fisher, Ury, & Patton, 2011). Past research indicates that negotiators with valuable BATNAs set more ambitious goals (such as higher aspirations and extreme bottom lines), and they make and receive more advantageous first offers, than do their poor BATNA counterparts (Anderson & Galinsky, 2006; Buelens & Van Poucke, 2004; Kagel, Kim, & Moser, 1996; Magee et al., 2007).

Author Note: An earlier version of this work received the 2017 Best Theoretical or Empirical Paper Award from the Conflict Management Division of the Academy of Management. Our ideas were sharpened by presentations made at FACE Conferences in New Orleans and Paris, the IACM Conference in New York City, as well as in presentations made at the University of Nebraska and the University of Delaware. We are grateful to Sarah Mailloux and Amanda Jacobs for their assistance with data collection. Thanks also to Lindy Greer, Shuqi Li, Chenbo Zhong, and the OBHDP reviewers for their comments and suggestions. ⁎ Corresponding author. E-mail addresses: [email protected] (R.L. Pinkley), [email protected] (D.E. Conlon), [email protected] (J.E. Sawyer), [email protected] (D.J. Sleesman), [email protected] (D. Vandewalle), [email protected] (M. Kuenzi). ☆

https://doi.org/10.1016/j.obhdp.2018.12.008 Received 25 January 2017; Received in revised form 26 October 2018; Accepted 19 December 2018 0749-5978/ © 2018 Elsevier Inc. All rights reserved.

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To date, research has operationalized and tested negotiator BATNAs in a very limited, concrete way, in that both the existence and the value of the alternative are known with certainty to individuals at the time of their negotiation (for a rare exception, see Sondak & Bazerman, 1991, who examined the impact of multiple alternatives). Unfortunately, this level of objectivity and simplicity does not always occur in the real world. The attractiveness of a negotiator’s BATNA should be determined by both the value of the resources afforded by the alternative and the likelihood that the alternative will ultimately be available to the negotiator. Although numerous studies consider the impact of existing alternatives of varying value on negotiated agreements, no published work considers alternatives that may be possible, but are unattained at the time of the current negotiation, whether of known or unknown probability. In a recent theoretical discussion of power in negotiation, Conlon, Pinkley, and Sawyer (2014) suggested that potential (as opposed to certain) alternatives are often present in negotiation settings. They cite examples of real estate agents who complain about irrational clients who have turned down incoming offers in the hope that a better offer is forthcoming, when no such offer exists. Recruiters tell similar stories about candidates who have turned down exceptional job offers in the absence of existing alternatives, because they assume that early success in the market predicts greater success and better offers later on. These examples remind us that in many cases, BATNAs may be contingent on possible, rather than certain outcomes, with misconstrued, distorted, or exaggerated BATNAs leading to systematic and predictable, though from an expected utility perspective (Dawes & Corrigan, 1974; Nash, 1950), ultimately irrational behavioral choices. Because possible but unattained BATNAs can lead negotiators to reject offers they should accept, or accept those they should reject, they may have important decision-making and behavioral consequences. Thus, we propose to expand the notion of BATNAs beyond the dimension of value to investigate the role of BATNA likelihood on negotiated outcomes. Initially, we draw from the marketing literature and the work of Pratkanis and Farquhar (1992), who differentiated between alternatives of certain likelihood and those of Phantom likelihood. A Phantom alternative is an option that “looks real but is unavailable at the time a decision is made” (Pratkanis & Farquhar, 1992, p. 105). Drawing from their work, Conlon et al. (2014) introduced the neologism Phantom BATNAs to describe potential negotiation alternatives that are not secured at the time a negotiation takes place. In such cases, negotiators do not know whether Phantom BATNAs will come to exist in the future or disappear altogether. The research reported here seeks to build on this idea to expand our understanding of negotiator BATNAs. First, we propose and test a BATNA framework that varies along a continuum of likelihood or probability (we use these words interchangeably in this paper). Specifically, we examine the potential impact of non-existent alternatives (e.g., 0% probability of occurring), Phantom alternatives (either with a specified probability of occurring—such as 25%, 50%, or 75%—or with an unspecified probability of occurring), and Certain alternatives (e.g., 100% probability of occurring). Second, we examine the role of perceived power as a mediating mechanism that explains how variations in BATNA likelihood affect the performance-related outcomes of BATNA holders. Third, we consider the possibility that negotiators who lack any information about a BATNA may presume or act as if they possess one. We conduct three studies to consider the robustness of our ideas by examining different negotiation contexts (multi-issue negotiations with integrative potential, and single-issue, zero-sum negotiations), and multiple indicators of performance-related outcomes (final settlements and counter-offers).

Bennett, 1994; Lewicki et al., 2015). As examples, Buelens and Van Poucke (2004) found that BATNA value profoundly shapes the initial bid of opponents, and Magee et al. (2007) demonstrated that negotiators are more likely to make the first offer when they possess a high valued BATNA. In addition, negotiators with high valued BATNAs choose higher reservation points and claim larger portions of the resource pie than negotiators with BATNAs of lower value or those told nothing regarding an alternative (typically used as a control group in studies; e.g., Pinkley et al., 1994). Because past research has almost exclusively operationalized negotiator BATNA in terms of value, extant research has not addressed whether likelihood represents a second dimension for informing the perceived quality of a BATNA. Expected utility theory (Dawes & Corrigan, 1974; Nash, 1950), which is widely supported in contexts including public policy decisions (Thaler, 1983), choice-making (White & Sage, 1980), and organizational decision-making (Mintzberg, Raisinghani, & Theoret, 1976), suggests that negotiators weigh potential options, alternatives, and outcomes in terms of the probability that they will occur, as well as their value or utility (Neale & Bazerman, 1991). However, deviations from such logic are common, and whether the theory accurately describes how negotiators behave when they have Phantom BATNAs is an open question. However, we do know from social interaction research that individuals generate probability assessments when comparing events or potential courses of action (Berscheid, 1985; Walster, Walster, Piliavan, & Schmidt, 1973). A Phantom BATNA is contingent in nature because it depends on the outcomes of uncertain future events (that is, whether the potential BATNA will materialize or not). As a result, holders of Phantom alternatives may need to accept or reject the final offer from their opponent in the current negotiation before the result of the alternative is known. Phantom alternatives may therefore affect negotiators and their counterparts differently than alternatives that do or do not exist. Thus, an $80k salary offer should logically be of greater utility and reflect real power to a negotiator for whom it represents a Certain BATNA (100% probability of obtainment), whereas for a negotiator with a Phantom BATNA with less than 100% probability of obtainment, it holds less utility and reflects perceived but not actual power. According to expected utility theory, an alternative worth $80k with a 50% probability of obtainment has an expected utility of $40k. Clearly, a negotiator is not going to set their reservation value at $40k. However, a Phantom BATNA with greater than 0% probability should be of greater utility to a negotiator than having no BATNA (0% probability). Accordingly, expected utility theory would predict that Certain BATNAs should advantage negotiators more than Phantom BATNAs and Phantom BATNAs more than when a BATNA is certain to not be available. Because (1) certainty information can be difficult to analyze (Murphy, 1986), (2) people exhibit self-interested or optimistic perceptions of likelihood (Massey, Simmons, & Armor, 2011), and (3) inadequate specifications influence forecasts and decisions (Hensher & Johnson, 1981), we argue that Phantom BATNAs may not be discounted so readily, nor in the same manner as suggested by rational models of decision-making. Therefore, we develop the following hypotheses to predict the effects of having BATNAs at different likelihoods of obtainment. 3. Hypothesis development Our primary questions concern whether, how, and why variations in the likelihood of a BATNA will affect negotiator perceptions and outcomes. Past research suggests that having a high valued (and certain) BATNA is more advantageous than having a low valued BATNA or no BATNA at all, due to the perceived power that is associated with BATNA values (Pinkley et al., 1994). In contrast, a recent study suggests that having a low valued BATNA may be worse than having no BATNA at all, because low valued alternatives lead negotiators to consider anchors lower than those envisioned by negotiators lacking BATNA information (Schaerer, Swaab, & Galinsky, 2015). Thus, in contrast to

2. Prior research The negotiation literature has consistently established that high valued BATNAs provide advantage to negotiators (Pinkley Neale, & 35

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expecting BATNA likelihood to affect the benefits associated with one’s alternative, this recent work suggests that BATNA value alone will anchor the negotiation and account for BATNA effects. In other words, when the BATNA value is known, BATNA likelihood should not matter, even in the case of having no BATNA (so long as the negotiator without a BATNA knows what the value would be). This is an intriguing notion that begs investigation into how information about the likelihood of an alternative is integrated into one’s assessment of that alternative and its effect on negotiated outcomes, particularly when BATNA value (anchoring information) is held constant. Expected utility theory suggests that BATNA probability will modify the effects of BATNA value, resulting in a linear pattern of benefit for negotiation outcomes such that Phantom BATNAs with high likelihood will provide outcomes to the negotiator closer to that of a certain BATNA, while Phantom BATNAs with low likelihood will provide lesser outcomes to the negotiator. Although we agree that BATNA value is likely to anchor negotiators and play a crucial role concerning the benefits associated with having a high valued BATNA, research suggests that likelihood information informs people’s preferences and actions (Dawes & Corrigan, 1974; Nash, 1950). Whether and how it might do so in the context of negotiation remains untested with regard to negotiator alternatives. BATNA value is crucial, but it may be irrelevant if unavailable to the negotiator. A BATNA of some likelihood may be required before negotiators believe it is personally obtainable, creating more than an anchoring effect as it is beyond pure illusion. If so, how likely does a Phantom BATNA need to be before providing BATNA-related benefits? While expected utility theory would suggest discounting the value of the BATNA vis-à-vis its likelihood, we do not expect that the likelihood-adjusted expected utility of the alternative will be so rational; instead, we suggest that various biases may lead to differential power perceptions based on likelihood of obtaining the alternative. Research concerning self-enhancement biases and positive illusions in negotiation provide insight regarding potential reactions to BATNA likelihood information. We suggest that heuristics pervasive in the context of negotiation will lead negotiators with a BATNA of some likelihood to perceive their position in overly optimistic terms, thereby enhancing power perceptions and the ability to claim value. First, confirmation bias (the tendency to selectively attend to data when testing hypotheses to confirm one’s original notion; Nickerson, 1998) may lead negotiators to focus on the probability of attainment (e.g., 30% likelihood of obtaining the job) instead of the probability of failure (e.g., 70% likelihood of not obtaining the job). A second bias relevant in the context of BATNA likelihood is the illusion of control, which leads individuals to overestimate the degree to which their own ability determines their outcomes instead of acknowledging events beyond one’s control. This bias is particularly evident when people confront matters that involve future events or high degrees of uncertainty (Bazerman & Neale, 1994), both of which are characteristic of potential, as opposed to obtained, alternatives. When paired with the overconfidence bias, which leads people to overestimate their probability of success and underestimate their probability of failure – especially for outcomes perceived to be in one’s control (Moore & Cain, 2007), people may optimistically presume that they will acquire even very unlikely alternatives (cf. Massey et al., 2011). Collectively, these biases may lead to an exaggerated probability belief, leading a Phantom alternative to seem like a certain alternative. Consequently, negotiators with possible BATNAs of low probability may perceive their position more favorably than those with no alternative, potentially leading to better outcomes than rational models would predict. Our study examines power from both situational (the absence, possibility, or presence of a valued alternative) and psychological (perceptions) foundations. In developing our arguments, we focus on negotiators who possess a Phantom BATNA (the “holder”) as opposed to their counterpart in the negotiation (the “opponent”). We further distinguish holders that have no BATNA from those with a Phantom BATNA (an alternative with a probability greater than zero, but less

than certain) and those with a Certain BATNA. Negotiators with no alternative are clearly in an unenviable position with little power in their focal negotiation. In contrast, even a small increase in BATNA likelihood can allow the holder to perceive the situation positively, as they now could secure an alternative. How great must the likelihood be to have such positive effects on negotiator perceptions and behavior? Drawing on the negotiator biases we discussed above, we expect a main effect of BATNA likelihood on perceptions of power and assumed access to the value associated with the BATNA. As the mathematical likelihood of securing an alternative improves, we would expect holders of potential offers to express an increasingly favorable and confident set of responses. In other words, moving from the lowest likelihood position (knowing one has no BATNA) toward having an alternative with certainty should result in a monotonic (if not linear) increase in negotiation responses. Here, we represent this pattern in terms of expected increases in both negotiator power perceptions and performance: Hypothesis 1. (a, b): Greater BATNA likelihood will lead to greater (a) power perceptions and (b) negotiation performance. Although Schaerer et al. (2015) demonstrated the role that BATNAelicited anchors play regarding the benefits associated with BATNAs, they did not determine whether one’s sense of power impacts BATNArelated outcomes when anchors are held constant, nor did their study consider that people may discount their power perceptions based on BATNA likelihoods that are less than 100%. We argue that perceived power is the mediating mechanism driving the effects of BATNA likelihood, but this has not been tested directly. Such a test seems particularly important in light of the Schaerer et al. (2015) argument that BATNA-associated anchors, rather than perceived power, account for the benefits associated with BATNA value. Thus, we test the mediated effect of BATNA likelihood here and argue that the holder’s perception of power will increase concomitant with BATNA likelihood. This mediated relationship is summarized as follows: Hypothesis 2. Power perceptions will mediate the relationship between BATNA likelihood and negotiation performance. Specifically, increases in BATNA likelihood will have a positive indirect effect on performance via power perceptions. Consistent with the biases mentioned above, we argue that having a Phantom alternative should induce negotiators to overestimate the likelihood of BATNA obtainment, leading them to have higher power perceptions and more entitled negotiator behavior relative to when negotiators know they do not have an alternative. Thus, even though Phantom BATNAs of any likelihood could fail to materialize, holders of such alternatives will focus on the likelihood as opposed to the unlikelihood of obtaining the alternative, thereby enhancing their power perceptions and negotiation performance. As such, we expect Phantom BATNA holders to have higher perceptions of power and to outperform those told that a BATNA of equal value (in other words, an equivalent anchor) has no likelihood of occurring (a 0% probability). In fact, a strong assertion would suggest that Phantom BATNA holders will perform as well as those with Certain BATNAs (i.e., real power), should these illusions have the significant impact we expect. Thus, we hypothesize that: Hypothesis 3. (a, b, c, d): Compared to holders with no BATNA, Phantom BATNA holders will have significantly greater (a) power perceptions and (b) negotiator performance, but differences in (c) power perceptions and (d) negotiation performance will disappear in comparison to Certain BATNA holders. 4. Study 1 Our first study uses a classic face-to-face, multi-issue, two-party negotiation exercise with integrative potential and places half the participants in the role of the holder of a Phantom BATNA and the other 36

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half in the role of the opponent.

Recruiters (i.e., opponents) were told that an impasse would lead them to receive an outcome of 3700 points (equal to their lowest possible negotiated settlement with the candidate). Both parties received the BATNA manipulation, meaning that both were told that the candidate had interviewed for the alternative position and the associated probability of receiving the alternative offer. This removed the threat of information asymmetry regarding BATNA value across dyads from affecting the results.

5. Method 5.1. Participants Participants were 510 students formed into 255 dyads. Data were collected over two separate semesters. Thirty-six of the dyads (14.1%) were MBA students and 219 (85.9%) were undergraduates.1 Individuals received course credit in exchange for their participation. In order to motivate participants, they were informed of their eligibility to receive a $20 prize, based on their performance. Subject ages ranged from 18 to 37 (M = 21.21, SD = 3.22) and 55.4% were male. Caucasians (nonHispanic) made up 82.3% of the sample, and 9.1% were Asian, with the remaining participants distributed among other ethnicities. Due to a technical issue, we only have demographic information for a subset of our sample (between 90.4 and 95.9% depending on the particular demographic variable).

5.3.2. Manipulation check To confirm the effectiveness of our BATNA likelihood manipulation, participants were asked the following question prior to negotiation: “How would you describe the candidate’s (Chris’s) chances of getting an alternative offer from the ZuZu Corporation?” Responses were on a 5point scale ranging from “Chris has no chance of getting the alternative offer” to “Chris is definitely going to get the alternative offer.” 5.3.3. Perceived power We assessed BATNA holder and opponent pre-negotiation perceptions of the holder’s power with two questions: “In your opinion, which negotiator has more power in this negotiation?” (question 1) and “In your opinion, which negotiator has the stronger position or case?” (question 2). Reponses were on a five-point scale that ranged from: (1) “Sarabee has much more power (or has a much stronger case)” to (5) “The candidate (Chris) has much more power (or has a much stronger case),” with the midpoint (3) being “Both Sarabee and the candidate (Chris) have equal power (or have an equally strong case).” Internal consistency estimates for these two questions on behalf of holders and opponents were α = 0.47 and α = 0.67, respectively. Given such low reliabilities, we report results separately for each item.2

5.2. Task and procedure Participants negotiated a version of the “new recruit” exercise, a negotiation task commonly used in prior research (Pinkley et al., 1994). This is a dyadic negotiation task where one party (the recruiter) represents a company interested in hiring another party (the candidate). Negotiators were told to obtain the best overall outcome (in terms of points) they could on the eight issues included in the negotiation. Reaching agreement meant that the candidate would join the recruiter’s company, whereas failing to agree on all eight issues would result in an impasse and each party moving on to obtain their respective BATNAs. Participants were randomly assigned to a BATNA likelihood condition (one of five levels, described below) and role in the negotiation (candidate – the holder of the Phantom BATNA, or recruiter – the opponent). Participants received a scripted overview of the study and were given role-specific materials describing the details of the negotiation exercise and the values associated with five potential options for each of the eight issues. The potential value associated with individual outcomes ranged from a low of 3700 points (if they achieved their least favorable position on every issue) to a high of 19,000 points (if they achieved their most favorable position on every issue). All information that was not role-dependent was identical in both sets of the materials. Participants spent approximately 20 min reading the information, after which they completed a manipulation check item, as described below. Participants were then randomly paired in candidate-recruiter dyads and given up to 40 min to complete the negotiation.

5.3.4. Negotiator performance We measured the performance of each side by summing the total number of points they achieved from their negotiated settlement.3 6. Results The descriptive statistics and correlations among study variables are presented in Table 1. Means by experimental condition can be found in Table 2. Responses to the manipulation check (chances of getting an offer from ZuZu) varied as expected by condition (see rows 4 and 8 of Table 2) for participants in the candidate (F[4,250] = 111.93, p < .01) and recruiter (F[4,249] = 106.11, p < .01) roles.4 6.1. Tests of hypotheses As noted earlier, data were collected in two waves. Given that we analyzed the first wave of data prior to adding the final wave, we conducted an adjustment to the alpha error rate to take this into consideration. We followed the recommendations of Lakens (2014) for such sequential analysis, using the GroupSeq function (Pahl, 2018) in the R statistical software (R Core Team, 2018). Because our data collection stages were neither preplanned nor of the same size, we applied

5.3. Manipulation and measures 5.3.1. BATNA likelihood The five levels of BATNA likelihood included conditions whereby the candidate had no likelihood (0% probability or no BATNA), a certain likelihood (100% probability or Certain BATNA), or one of three likelihoods of varying probability (25%, 50%, or 75% probability) of being offered the alternative job offer (from the ZuZu Corporation). Negotiators were also informed of the value of their outcomes should they not reach an agreement in the focal negotiation. Candidates (i.e., holders) in the no BATNA and Phantom BATNA conditions were told that their impasse value was 3700 points and that the alternative job offer (if obtained) was worth 12,500 points. Candidates in the Certain BATNA condition were told that an impasse was worth 12,500 points since it would mean that they would be taking the alternative job offer.

2 We asked participants these same two questions after the negotiation ended (but framed in the past tense). A mean composite of these two post-negotiation items demonstrated good reliability for holders and opponents (α = 0.73 and 0.75, respectively), and the results of our hypotheses tests do not differ when power is operationalized using this alternative measure. 3 We also collected the following measures: target point, resistance point, understanding of impasse values, self-reported points earned, self-reported party who made first offer, assertiveness of first offer, self-efficacy, candidate desirability, subjective value inventory, concern for self and other, perceived cooperation, and conflict perceptions. 4 The degrees of freedom differ between these tests because one participant in the recruiter role did not complete the manipulation check item.

1 Controlling for differences in semester and student level did not significantly affect our results.

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Table 1 Descriptive statistics and correlations among variables (Study 1). Variable

Mean

SD

1

2

3

4

5

6

7

8

1. 2. 3. 4. 5. 6. 7. 8. 9.

3.00 2.72 3.22 13,018.82 2.89 2.80 2.79 12,045.10 2.92

1.42 1.06 1.00 1778.92 1.21 1.22 1.04 1807.58 1.21

– 0.29** 0.18** 0.22** 0.78** 0.54** 0.38** −0.21** 0.77**

– 0.30** 0.17** 0.33** 0.19** 0.20** −0.13* 0.27**

– 0.21** 0.28** 0.14* 0.21** −0.21** 0.16**

– 0.20** 0.17** 0.14* −0.67** 0.13*

– 0.50** 0.36** −0.18** 0.63**

– 0.50** −0.23** 0.52**

– −0.09 0.33**

– −0.14*

BATNA likelihood condition Holder: Power perception (question 1) Holder: Power perception (question 2) Holder: Performance (settlement points) Holder: BATNA likelihood manipulation check Opponent: Power perception of Holder (question 1) Opponent: Power perception of Holder (question 2) Opponent: Performance (settlement points) Opponent: BATNA likelihood manipulation check

Notes. n = 255 dyads; however, n = 254 dyads for all bivariate correlations involving perceived BATNA likelihood of opponents because one participant in that role did not respond to this item. * p < .05. ** p < .01. Table 2 Distribution of outcomes of interest as a function of BATNA likelihood condition (Study 1). BATNA Likelihood Condition Variable

0%

25%

50%

75%

100%

Overall

Holder: Power perception (question 1) Holder: Power perception (question 2) Holder: Performance (settlement pts.) Holder: BATNA likelihood MC Opponent: Power perception of Holder (quest. 1) Opponent: Power perception of Holder (quest. 2) Opponent: Performance (settlement points) Opponent: BATNA likelihood MC Dyad joint value (settlement points) Number of dyads

2.08 (0.84) 2.88 (1.07) 12,448 (1495) 1.27 (0.49) 1.51 (0.58) 1.96 (0.85) 12,762 (1613) 1.35 (0.66) 25,210 (1503) 51

2.63 (1.02) 3.22 (0.94) 12,910 (1818) 2.43 (0.67) 2.63 (1.15) 2.78 (1.03) 12,181 (1772) 2.32 (0.62) 25,091 (1470) 51

2.88 (1.03) 3.22 (0.99) 12,685 (1708) 3.18 (0.48) 2.98 (1.16) 2.92 (1.02) 12,082 (1809) 3.29 (0.61) 24,768 (1549) 51

3.02 (1.05) 3.35 (0.93) 13,558 (1701) 3.55 (0.67) 3.41 (1.00) 3.10 (0.85) 11,384 (1814) 3.61 (0.72) 24,942 (1375) 51

2.98 (1.09) 3.43 (1.01) 13,493 (1934) 4.04 (1.13) 3.47 (1.01) 3.18 (0.97) 11,816 (1803) 4.00 (1.02) 25,309 (1414) 51

2.72 (1.06) 3.22 (1.00) 13,019 (1779) 2.89 (1.21) 2.80 (1.22) 2.79 (1.04) 12,045 (1808) 2.92 (1.21) 25,064 (1465) 255

Notes. Values reported are means with standard deviations in parentheses. “MC” = manipulation check. The 25%, 50%, and 75% BATNA likelihood condition columns represent the Phantom BATNA conditions, the 0% BATNA likelihood column represents the no BATNA condition, and the 100% BATNA likelihood column represents the Certain BATNA condition.

holder’s performance through their own perceived power was significant (question 1: ab = 44.11, SE = 24.55, 95% CI = 3.62, 101.75, 97% CI = 0.01, 108.40; question 2: ab = 38.02, SE = 19.79, 95% CI = 9.19, 89.05, 97% CI = 6.68, 97.23), which is consistent with Hypothesis 2. Our Hypothesis 3(a–d) predicted that the power perceptions and performance of Phantom BATNA holders would be greater than those with no BATNA, but not different from those with Certain BATNAs. Information related to these predictions can be found in Table 2. As can be seen in rows 1 and 2, power perceptions were lowest for those in the no BATNA (0% likelihood) condition (question 1: M = 2.08, question 2: M = 2.88). In support of Hypothesis 3a, power perceptions in our three Phantom BATNA conditions (25%, 50%, and 75%; overall weighted M = 2.84 and weighted SD = 0.1.04 for question 1; overall weighted M = 3.26 and weighted SD = 0.95 for question 2) is significantly greater than in the no BATNA condition, t(250) = 4.68, p < .01 and t (250) = 2.37, p = .02, respectively. In support of Hypothesis 3c, we also note that these means are not significantly different from perceptions of holders with Certain (100%) BATNAs (M = 2.98 for question 1 and M = 3.43 for question 2), t(250) = 0.84, p = .40 and t(250) = 1.06, p = .29, respectively. Turning to holder performance (H3b), as can be seen in row 3 of Table 2, negotiation outcomes were also lowest in the no BATNA condition (M = 12,448). Further, we see that the average negotiation outcomes of holders in our three Phantom BATNA conditions (Overall weighted M for the three Phantom conditions = 13,051, Overall weighted SD = 1,771) is greater than in the no BATNA condition, t (2 5 0) = 2.15, p = .03. As was the case with power perceptions, we also note that the overall mean for holder negotiation performance in the Phantom BATNA conditions is not significantly different from the

the power function as described by Lan and DeMets (1983). Our first sample included 98 dyads and our second sample 157 dyads for a total of 255 dyads. Thus, we distributed the alpha spending function of α = 0.05 across the two samples in proportion to the sample sizes (0.38 and 0.62 respectively), which resulted in a boundary criteria of α = 0.02 for the first look and α = 0.03 for the second look (i.e., our final data analysis). Hypothesis 1(a, b) argued for a positive effect of BATNA likelihood on both perceived power (H1a) and negotiator performance (H1b). First, note that variations in BATNA likelihood were generally associated with differences in holder perceptions of power and performance, as displayed in rows 1–3 of Table 2 (for holder perceptions of power, overall F[4, 250] = 7.56, p < .01 for question 1 and F[4, 250] = 2.30, p = .06 for question 2; for holder performance, overall F [4, 250] = 4.07, p < .01). As a more direct test of our hypothesis, Table 1 reveals that BATNA likelihood was positively correlated with holder perceptions of power (question 1: r = 0.29, p < .01; question 2: r = 0.18, p < .01) and holder negotiation performance (r = 0.22, p < .01). Overall, Hypothesis 1 was supported by these data. Our mediation prediction (Hypothesis 2) focused on the role of the holder’s perception of power in mediating the relationship between BATNA likelihood and negotiator performance (final settlements). For our mediation test, we utilized a bootstrapping approach, recommended over other approaches to mediation analysis because it does not require the assumption that indirect effects are normally distributed (MacKinnon, Fairchild, & Fritz, 2007). Instead, it utilizes bootstrapped samples (we ran 10,000 resamples using Model 4 of the PROCESS software; Hayes, 2013) to estimate bias-corrected confidence intervals (CIs) for the indirect effects. Examining each of the power measures, we found that the indirect effect of BATNA likelihood on the 38

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outcomes of holders in the Certain BATNA (100%) condition (M = 13,493), t(2 5 0) = 1.57, p = .12. This supports Hypothesis 3d.

different from those with Certain BATNAs. Thus, the discounting of value by likelihood that would come from a purely expected utility calculation did not occur since more value was extracted than would be expected given expected utility alone. Accordingly, expected utility does not fully account for our findings, suggesting that people do not rationally integrate probability information in the context of negotiation. While this needs further exploration, it would suggest that negotiators should obtain and share information regarding possible, as well as certain alternatives, whether this be in the form of a potential interview, potential new competing product, or potential supplier. In the context of negotiation, the power of possibility may be as real as the power of reality, at least when it comes to alternatives. While BATNAs provide real power given their impact on the settlement zone and thus the structure of the negotiation, Phantom alternatives shift one’s sense of power despite their inability to shift real power through adjustments to the settlement zone. Although the negotiation used in Study 1 had integrative potential, joint gain did not significantly vary across BATNA conditions (see row 9 of Table 2), overall F[4, 250] = 1.10, p = .36. Thus, although differences in BATNA likelihood influenced the distribution of outcome and individual gain for both holders and opponents, it did not impact dyadic gain or the ability to discover integrative potential, consistent with much of the research associated with negotiator BATNAs (Conlon et al., 2014).

6.2. Additional findings Our study also allows us to examine the power perceptions and negotiation performance of opponents. Generally speaking, we see a pattern complementary to the effects for holders. As seen in Table 1, BATNA likelihood was positively correlated with opponent perceptions of the holder’s power (question 1: r = 0.54, p < .01; question 2: r = 0.38, p < .01) and negatively correlated with opponent negotiation performance (r = -0.21, p < .01). Similarly, rows 5 and 6 of Table 2 show that opponent perceptions of the holder’s power increased as the holder’s likelihood increased from 0% to 100% (question 1: F[4, 250] = 32.43, p < .01; question 2: F[4, 250] = 13.50, p < .01). Consistent with this result, opponent negotiation performance (row 7) generally declined as the holder’s BATNA likelihood increased, F(4, 250) = 4.19, p < .01.5 7. Discussion Study 1 offered a rich negotiation context as it involved face-to-face interaction between no BATNA, Phantom BATNA, and Certain BATNA holders and their opponents with multiple issues and integrative potential. Despite this complexity, we found considerable support for all of our hypotheses. Enhanced power perceptions and outcomes accrued to those with Phantom BATNAs, relative to those with no BATNAs. As the likelihood of the negotiator’s BATNA increased, so did their negotiation performance, whereas their opponent’s performance declined. Study 1 also allowed us to examine the psychological process accounting for the influence of Phantom BATNAs on negotiation performance. Specifically, we found preliminary evidence that perceptions of the holder’s power mediate the effects of BATNA likelihood on negotiator performance. Although preliminary in nature, Study 1 appears to suggest that both Phantom and Certain alternatives are a viable source of power perceptions in negotiation. Negotiators with Phantom alternatives of any likelihood did better than those who lacked an alternative, and holder outcomes generally increased in accordance with BATNA likelihood. Because we provided the same anchor for the no BATNA condition and all other BATNA conditions, this pattern of results challenges the Schaerer et al. (2015) argument that anchors alone explain the benefits associated with negotiator alternatives. Of course, this does not mitigate the relevance of anchors; they play an important role. In our data, the anchor (12,500) established one possible baseline for holders’ outcomes. However, our results show that Phantom alternatives provide a premium that can allow the holder to extract additional value from the negotiation. It appears that having any Phantom BATNA results in a better outcome for the holder than having no BATNA, even when all negotiators are provided with equivalent BATNA value information and thus the same anchors. Overall, our study indicates that alternatives that could materialize but are uncertain at the time of the negotiation are considered by negotiators (on both sides of the table) to warrant a bigger share of the resource pie compared to alternatives that are certain to not materialize. Perhaps even more interesting is the fact that the power perceptions and outcomes for those with Phantom BATNAs were not significantly

8. Study 2 Study 2 was designed to extend our initial study in several important ways. First, it differs contextually from Study 1 in that it represents a single-issue negotiation with no integrative potential (recall that we found no impact on joint gain in our initial study). Second, we investigate specified probabilities of a more extreme level (10% and 90% likelihoods), as well as probabilities that are slightly below and above the 50% midpoint (40% and 60%) in order to better understand a broader range of alternative likelihoods. Third, we extend our understanding of Phantom BATNAs by including a condition whereby a potential alternative has an unknown probability of coming into existence. Although it seems plausible that some negotiators have information that allows them to know the likelihood that an alternative will be available (e.g., “You have a 25% chance of getting the offer”), oftentimes negotiators lack specific probabilistic information (e.g., “You have a chance of getting the offer”). We refer to this possibility as an unspecified Phantom BATNA. Our distinction between specified and unspecified Phantom BATNAs parallels decision-making constructs of uncertainty and ambiguity, whereby uncertainty refers to events with known probabilities, and ambiguity refers to events with an unknown probability (cf. Ellsberg, 1961). Finally, we examine the proclivity of negotiators to reveal information about their BATNA to their counterpart. Recall that in Study 1, both sides knew this information. Past research recommends that holders of BATNAs reveal this information to their counterparts as it facilitates superior outcomes in negotiation (Pinkley, 1995), but whether negotiators do so when they have Certain versus Phantom BATNAs remains untested. Our expectation is that negotiators with an unspecified Phantom BATNA will respond similarly to negotiators with a specified Phantom BATNA (i.e., their power perceptions and negotiation behavior will be similar). Just as a specified probability of receiving a Phantom BATNA can yield confidence in procuring an alternative, we expect that negotiators with an unspecified Phantom BATNA will construe a likelihood of obtaining an alternative (cf. Burgess & Burgess, 1996). In fact, even those told they have no chance of attaining a BATNA may believe that an alternative is possible. Given this expectation, Study 2 will allow us to retest Hypotheses 1–3 with specified and unspecified Phantom BATNAs. Our new hypothesis concerns negotiator decisions to inform their

5 We also simultaneously examined holder and opponent negotiation performance using repeated measures ANOVA. Significant effects were observed for both the repeated variable of dyad role (Wilk’s Lambda = 0.91, F[1, 250] = 23.90, p < .01), and dyad role by BATNA likelihood (Wilk’s Lambda = 0.93, F [1, 250] = 4.78, p < .01). Overall, holders obtained more value than opponents, and there is a positive linear trend for holders, and a negative linear trend for opponents as BATNA likelihood increases.

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just relocated to the area where Conley is located. Of course, before you can pat yourself on the back for a job well-done, you must meet with the Vice President of HR to discuss and potentially negotiate the offer.” Participants were also told: “In preparation for this, review your resume to remind yourself of what you bring to the table. Please take a couple minutes to carefully read your resume (below) in preparation for the upcoming salary negotiation.” Participants then received resume information, including educational background, work history, dates of employment, job titles and descriptions, and major accomplishments for two former positions. On the next screen, participants were told: “In preparation for your meeting and potential negotiation with the Conley Vice President of HR, consider the following information: You know from the interview process that Conley executives considered your performance history, educational background, recommendations from coworkers and previous employers, background checks, and feedback from those who interviewed you when deciding to make you an offer. A friend who works at Conley confidentially told you that based on this information, the executives decided your value to the company justifies a salary of $80,000, which is the salary offer they made to you.” The final information received by all participants related to the alternative offer they might have in addition to the Conley offer. Participants were told: “You also know that only one other company in the area (the Penner Corporation) is looking for a Director of Marketing this year. A reliable source just told you that Penner is offering a salary of $92,000.”

opponent about their lack of, possible, or certain alternative. Negotiators with no BATNA have nothing to mention (unless they are lying or imagining an alternative, which of course they may do), and negotiators with Certain (100%) alternatives should ideally mention this information to their counterpart so as to accrue the associated benefits specified by Pinkley (1995), though whether they do so is yet to be determined. What is especially unknown is whether those in possession of a Phantom BATNA will choose to disclose information about their possible alternative. Given our arguments that Phantom alternatives may be viewed in an optimistic manner, we expect negotiators to reveal BATNA-related information more often in the Phantom conditions than in the no BATNA condition and perhaps as frequently as those in the Certain BATNA condition. In other words, we expect Phantom BATNA holders to act as if they have the alternative offer inhand, much as negotiators in the Certain BATNA condition do. Therefore: Hypothesis 4. (a, b): Negotiators with unspecified or specified Phantom BATNAs will be (a) more likely to mention the alternative offer to their counterpart compared to negotiators with no BATNA, and (b) as likely to mention the alternative offer to their counterpart compared to those with a Certain BATNA. 9. Method 9.1. Participants

9.3. Manipulation and measures

We recruited 365 participants via Amazon Mechanical Turk (MTurk), an online task service found to be a reliable and valid method of data collection for research (Goodman, Cryder, & Cheema, 2013). Individuals received $1.00 (U.S.) in exchange for their participation. To motivate participants to do well, they were told that negotiators with the four highest outcomes would receive an additional $25 bonus – and that if more than four participants had the best results, four recipients would be randomly drawn from the pool of top negotiator. In reality, we chose four participants at random for the bonus. To maintain high quality data, only those participants with a high rate of acceptance (96% or higher) for their previous work in the MTurk system were allowed to participate in the study. We also restricted participation to those within the United States as the task referred to U.S. currency and involved ostensible communication between participants and counterparts; thus, we did not want to introduce cultural or language barriers that may bias our results. In terms of demographic information, 56.4% were female. In addition, 79.7% were White/ Caucasian (non-Hispanic), 7.4% were Black/African-American, and the remaining participants were other ethnicities or multiracial. Participant ages ranged from 21 to 73 (M = 35.16, SD = 10.01). Participants were told they would participate in a job offer simulation and be randomly assigned to the role of a job candidate or recruiter. In reality, everyone received the role of the job candidate; recruiter responses were provided during the ostensible negotiation by the experimenters. Participants were assigned to one of seven conditions: Six of the seven conditions involved specifying candidate probabilities of receiving an alternative offer (described in more detail below). These six specified probability conditions were 0% (no BATNA) condition, 10%, 40%, 60%, and 90% (four specified Phantom BATNA) conditions, 100% (Certain BATNA) condition, and an Unspecified Phantom BATNA (no probability information given) condition.

9.3.1. BATNA condition After reading the above information, information about the possible alternative offer from the Penner Corporation was presented to participants as a function of experimental condition. Those in the no BATNA (0%) condition were told, “Besides your offer from Conley, there is no chance that you’ll obtain an alternative job offer from any other company, including Penner which interviewed you recently and made the offer to someone else. The recruiter at Penner told you that you have a 0% chance of receiving their job offer.” Participants in the four specified Phantom BATNA conditions (10%, 40%, 60%, and 90%) were told: “Besides your offer from Conley, there’s a chance that you’ll obtain an alternative job offer from Penner, which interviewed you recently. The recruiter at Penner told you that you have a 10% (40%, 60% or 90%, depending on condition) chance of receiving their job offer.” Those in the Certain BATNA (100%) condition were told: “Besides your offer from Conley, it is certain that you’ll obtain an alternative job offer from Penner, which interviewed you recently. The recruiter at Penner told you that you have a 100% chance of receiving their job offer.” Finally, those in the Unspecified Phantom BATNA condition were told: “Besides your offer from Conley, there’s a chance that you’ll obtain an alternative job offer from Penner, which interviewed you recently. The recruiter at Penner told you that you have a chance of receiving their job offer.” To reinforce the above manipulations, participants were told, “Thus, if you and the Conley Vice President of HR cannot reach an agreement…” followed by “you have no alternative job offer or salary” (no BATNA condition), “you have a possible, but uncertain alternative job offer, although it is not guaranteed” (Phantom and Unspecified Phantom BATNA conditions), or “you have an alternative job offer that is guaranteed” (Certain BATNA condition). Afterwards, negotiators participated in their negotiation with the Conley Corporation, as described below.

9.2. Task and procedure Participants were presented with a hypothetical situation involving a job negotiation, in which they were told that: “After three rounds of interviews for a Director of Marketing position with the Conley Corporation, you received a phone call letting you know that they are ready to make you an offer. You are delighted to hear this because you

9.3.2. Negotiator counter-offers and communication to opponent (first counter-offer) Before responding to the offer from Conley, participants received a message from their opponent at Conley, which read: “Hello, I look 40

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forward to hearing your response to our recent offer. Thanks!” Participants then provided their response. The value of the counteroffer participants made to the Conley Corporation’s $80,000 proposal served as our initial measure of negotiator performance. Participants were asked: “What is the salary request you will make in response to your offer from the Vice President of HR at Conley?” Responses were indicated on a slider scale ranging from $0 to $150,000. After making their counter-offer, participants were asked: “What message would you like to add to your salary request? That is, what rationale would you like to provide for your counter-offer, if any?” They wrote any comments they pleased in an open-ended text box, and then their offer and message were ostensibly sent to the recruiter.

power perception (r = 0.42, p < .01) and negotiation offers, in terms of both initial (r = 0.27, p < .01) and final counter-offers (r = 0.33, p < .01). More support is found in the data presented in Table 4, where we see in row 1 that as BATNA likelihood increased from 0% to 100%, holder power perception generally increased for the six specified BATNA likelihood conditions (Overall F[5, 306] = 16.25, p < .01), with the lowest and highest power perceptions being in the 0% (M = 1.95) and 100% (M = 3.40) conditions, as expected. A similar pattern exists for offer behavior, with both the first and final counteroffers (rows 2 and 3, respectively) demonstrating a positive trend as BATNA likelihood increased (for the first counter-offer, overall F[5, 306] = 5.69, p < .01; for the final counter-offer, overall F[5, 306] = 8.32, p < .01). These patterns reconfirm Hypothesis 1a and Hypothesis 1b. Hypothesis 2 predicted a mediated relationship whereby increases in BATNA likelihood would have a positive indirect effect on negotiation performance via perceived power. Unlike in Study 1, whereby BATNA likelihood was a continuous variable, the current study includes conditions involving no BATNA (0%), specified Phantom BATNAs (10%, 40%, 60%, and 90%), unspecified Phantom BATNA, and Certain BATNA (100%). Therefore, we treated BATNA likelihood as a multicategorical variable in our mediation analysis, which allows us to make cross-condition comparisons (Hayes & Preacher, 2014). Using the same bootstrapping mediation procedure as in Study 1, we first compared the no BATNA condition (coded as “0”) to the rest of the conditions (coded as “1”). We found evidence of an indirect effect of this contrast via perceived power on both initial (ab = 0.57, SE = 0.29, 95% CI = 0.04, 1.19) and final counter-offers (ab = 1.12, SE = 0.32, 95% CI = 0.56, 1.80). We also tested this hypothesis by comparing the no BATNA condition (“0”) to the group of specified Phantom BATNA conditions (“1”). The analysis revealed that the indirect effect of this contrast via perceived power was non-significant for initial counter-offers (ab = 0.29, SE = 0.25, 95% CI = −0.16, 0.84), but it was significant for final counter-offers (ab = 0.69, SE = 0.28, 95% CI = 0.22, 1.29). Lastly, we compared the no BATNA condition (“0”) to the unspecified Phantom BATNA condition (“1”). In a similar pattern, the indirect effect of this contrast via perceived power was non-significant for initial counter-offers (ab = 0.33, SE = 0.29, 95% CI = −0.17, 0.99), but it was significant for final counter-offers (ab = 0.78, SE = 0.35, 95% CI = 0.21, 1.56). Therefore, using multiple ways of testing our mediation prediction, Hypothesis 2 consistently received support in the realm of final counter-offers (arguably the more important negotiation outcome in this study), although the results were mixed for initial counter-offers. Hypothesis 3(a–d) predicted that the power perception and performance of negotiators in the Phantom BATNA conditions would be significantly greater than that of negotiators in the no BATNA condition, but not different from those in the Certain BATNA condition. As expected, we found that the perceived power and counter-offers of negotiators in the specified Phantom BATNA conditions (the 10%, 40%, 60%, and 90% conditions; overall weighted M = 2.49 and weighted SD = 0.96 for perceived power, overall weighted M = $89,163 and weighted SD = $6,931 for first counter-offer, and overall weighted M = $85,675 and weighted SD = $5,328 for final counter-offer) were greater in comparison to those in the no BATNA condition (M = 1.95, M = $85,196, and M = $82,196, for perceived power, first counteroffer, and final counter-offer, respectively). A planned comparison supported this prediction for both perceived power (t[358] = 3.63, p < .01) and negotiator offers (first counter-offer: t[358] = 3.47, p < .01; final counter-offer: t[358] = 3.34, p < .01). These results are consistent with Hypothesis 3a and Hypothesis 3b. It is also of note that the responses made by those in the unspecified Phantom BATNA condition (the next-to-last column in Table 4) are highly similar to those made in the 40% and 60% likelihood (Phantom) conditions. More pointedly, planned contrasts found that negotiators with unspecified Phantom BATNAs had more favorable perceptions of

9.3.3. Negotiator final offers and communication to opponent (final counter-offer) Shortly after sending their counter-offer and message, participants received a reply from their opponent that stated: “Thanks for your response, but your salary request just won’t work for us. Please provide a final offer and explain where this number came from.” Participants then provided a final counter-offer and message, assessed in the same way as their initial counter-offer and message were indicated. 9.3.4. Other measures Other measures related to the negotiation were collected after the participants had sent their final offers to their counterparts, but before hearing the response to their final offer from the ostensible recruiter. We measured power by calculating mean responses to the two questions derived from Study 1 (α = 0.74): “Who do you think has more power in this job negotiation – Conley or you?” and “Who do you think has the stronger position or case – Conley or you?” Response options ranged from “Definitely Conley” (1) to “Definitely me” (5), with the midpoint (3) represented as “Same.” Participants also completed a measure to verify the effectiveness of our manipulation of BATNA likelihood, as described below. In addition, we measured perceptions of their probability of receiving the alternative offer (also described below). After completing these measures, participants received a final message from the recruiter, which stated: “After much thought and a bit of back and forth consideration, I have decided to accept your offer. I look forward to working with you.” Participants then completed a short set of demographic measures, which completed the study.6 10. Results Table 3 presents the descriptive statistics and correlations among study variables, and Table 4 displays means across the experimental conditions. As in Study 1, we checked our manipulation of BATNA likelihood by asking the following question: “In your opinion, what is the likelihood that you will receive an alternative job offer from a company other than Conley?” Response options ranged from “Very unlikely” (1) to “Very likely” (5), with “Somewhat likely” at the midpoint (3). Consistent with our expectations (see row 5 of Table 4), responses varied according to BATNA likelihood condition, F(6, 358) = 41.56, p < .01. 10.1. Tests of hypotheses Our study design allows us to re-test our first three hypotheses using initial and final counter-offers as proxy indicators of negotiation performance. Recall that Hypothesis 1 predicted that greater BATNA likelihood would lead to greater (H1a) power perceptions and (H1b) negotiation performance. Consistent with these expectations, Table 3 shows that BATNA likelihood was positively correlated with both 6 We also collected the following measures: target point, resistance point, candidate desirability, risk-taking propensity, and trait optimism.

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Table 3 Descriptive statistics and correlations among variables (Study 2). Variable

Mean

SD

1

2

3

4

5

6

1. 2. 3. 4. 5. 6. 7.

4.01 2.55 $89,052.05 $85,821.92 0.25 3.24 55.80%

2.00 1.04 7520.30 6957.77 0.44 1.20 30.97

– 0.42** 0.27** 0.33** 0.21** 0.65** 0.72**

– 0.15** 0.27** 0.13** 0.51** 0.45**

– 0.72** 0.07 0.26** 0.28**

– 0.10* 0.31** 0.29**

– 0.19** 0.19**

– 0.82**

BATNA likelihood condition Power perception First counter-offer Final counter-offer Mention alternative BATNA likelihood MC (1–5) BATNA probability perception (%)

Notes. n = 365 participants; however, n = 312 participants for all bivariate correlations involving BATNA likelihood condition because it excludes participants in the unspecified Phantom condition, as it does not correspond to a specific BATNA likelihood value (such as 0%, 10%, 40%, etc.). “MC” = manipulation check. “Mention alternative” is represented as 1 if a participant mentioned an alternative in communications with their opponent and 0 otherwise. * p < .05. ** p < .01. Table 4 Distribution of outcomes of interest as a function of BATNA likelihood condition (Study 2). BATNA Likelihood Condition Variable

0%

10%

40%

60%

90%

100%

Unspecified

Overall

Power perception First counter-offer Final counter-offer Mention alternative (count & %) BATNA likelihood MC (1–5) BATNA probability perception (%) Number of participants

1.95 (0.77) $85,196 (5185) $82,196 (5586) 1 = 2.0% 1.82 (1.13) 18.31% (23.49) 51

2.11 (0.88) $88,264 (8841) $84,264 (5930) 12 = 22.6% 2.55 (1.07) 29.60% (30.65) 53

2.65 (0.87) $88,692 (4046) $85,981 (4629) 13 = 25.0% 3.17 (0.90) 55.08% (20.32) 52

2.44 (1.05) $89,942 (6867) $85,962 (4173) 22 = 42.3% 3.38 (0.84) 62.29% (17.18) 52

2.74 (0.94) $89,769 (7117) $86,519 (6172) 16 = 30.8% 3.87 (0.86) 76.63% (19.11) 52

3.40 (1.01) $92,192 (8406) $89,808 (9746) 16 = 30.8% 4.35 (0.81) 84.27% (19.46) 52

2.56 (1.07) $89,245 (9167) $85,981 (8561) 13 = 24.5% 3.51 (0.87) 64.06% (19.61) 53

2.55 (1.04) $89,052 (7520) $85,822 (6958) 93 = 25.5% 3.24 (1.20) 55.80% (30.97) 365

Notes. Values reported are means with standard deviations in parentheses, except for “Mention alternative” which is a count and proportion. The 10%, 40%, 60%, and 90% BATNA likelihood condition columns represent the Phantom BATNA conditions, the 0% BATNA likelihood column represents the no BATNA condition, and the 100% BATNA likelihood column represents the Certain BATNA condition. “Unspecified” represents the Unspecified Phantom BATNA condition. “MC” = manipulation check.

power and made higher offers (perceived power: M = 2.56, first counter-offer M = $89,245, and final counter-offer M = $85,981) than negotiators with no BATNA (perceived power: t[358] = 3.26, p < .01; first counter-offer: t[358] = 2.82, p < .01; and final counter-offer: t [358] = 2.89, p < .01). These patterns also support Hypothesis 3a and Hypothesis 3b. Unlike in Study 1, however, power perceptions in the Certain BATNA (100%) condition (M = 3.40) were higher than those in the group of specified Phantom BATNA conditions (t[358] = 6.24, p < .01) and the unspecified Phantom BATNA condition (t [358] = 4.58, p < .01). Therefore, we did not find support for Hypothesis 3c. Similarly, first and final counter-offers for negotiators in the Certain BATNA (100%) condition (M = $92,192 and $89,808, respectively) were higher than first and final counter-offers for those in the group of specified Phantom BATNA conditions (t[358] = 2.67, p < .01 and t[358] = 3.99, p < .01, respectively) and those in the unspecified Phantom BATNA condition (t[358] = 2.06, p = .04 and t [358] = 2.94, p < .01, respectively). Therefore, we did not find support for Hypothesis 3d. Beyond power perception and negotiation outcomes, we were interested in how frequently holders of alternatives (Phantom or otherwise) would reveal BATNA-related information to their counterparts. To assess this, we had two coders, blind to study hypotheses, read the open-ended comments written by our study participants to their counterparts. Each coder indicated if the comment mentioned an alternative job offer. Estimates of intraclass correlation coefficient (ICC) and Cohen’s kappa (k) values indicated a high level of agreement between the coders in terms of comments made at the time of first counter-offers (ICC = 0.82, k = 0.82) and final counter-offers (ICC = 0.82, k = 0.81). Disagreements occurred when comments were ambiguous about an alternative offer (e.g., “This request is far below what other companies are offering for the same position”). Therefore, to

be conservative, we only considered a comment to be indicative of mentioning an alternative offer if both raters agreed. We created a dichotomous “mention alternative” measure across the two communication opportunities (one related to their first counter-offer and one to their final counter-offer): Negotiators received a “1” score if they specifically mentioned an alternative offer in one or both communications, otherwise they received a “0” score (meaning they never mentioned it). The rates by which participants mentioned an alternative are presented in Table 4, row 4 by condition. Those in the no BATNA condition almost never mentioned an alternative (only 1 of 51 negotiators, 2.0%), whereas over forty percent of those in the 60% likely condition mentioned such information (22 of 52 negotiators, 42.3%). Overall, 76 of 262 negotiators (29.0%) who had a Phantom BATNA and 16 of 52 negotiators (30.8%) who had a Certain BATNA mentioned the alternative to their counterpart, confirming that such revelations are common, but underutilized. Our new hypothesis in this study concerned negotiator decisions to reveal to their opponent information about the (potential) existence of their BATNA. As predicted, negotiators with a specified Phantom BATNA (n = 63, Overall M = 30.1%) were more likely to mention an alternative relative to negotiators with no BATNA, χ2(1, n = 260) = 17.55, p < .01. This pattern also held when comparing the unspecified Phantom BATNA (n = 13, M = 24.5%) to the no BATNA condition, χ2(1, n = 104) = 11.36, p < .01. Additionally, there were no significant differences found for BATNA mention rates between our Certain BATNA condition (n = 16, M = 30.8%) and our group of specified Phantom BATNA conditions (χ2[1, n = 261] = 0.01, p = .93) or the unspecified Phantom BATNA condition (χ2[1, n = 105] = 0.51, p = .47). Finally, we note that among all the participants in the Phantom BATNA conditions who mentioned an alternative to their counterpart, only one mentioned the probability associated with the alternative. Overall, these patterns provide support for both Hypothesis 4a and 4b. 42

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10.2. Additional findings

more favorable final counter-offers is intriguing. Prior negotiation research recommends that negotiators do so (Pinkley, 1995), but in Study 2, roughly a third of negotiators with possible or secured alternatives did as recommended. This suggests that most negotiators are missing an opportunity to improve their position and “leaving money on the table” by keeping information regarding potential and real alternatives to themselves. While negotiators may want to avoid sharing BATNA-related information when the alternative is of low value relative to the current negotiation, those with attractive BATNAs and Phantom BATNAs would benefit from such sharing (cf. Schaerer, Schweinsberg, & Swabb, 2018). Finally, our additional findings showed an interesting pattern regarding perceived BATNA probabilities. It appears that negotiators “manage their expectations” depending on whether they had arguably pessimistic or optimistic information about their likelihood of receiving an alternative offer. For example, in the gloomiest conditions, those told they had no chance or only a 10% chance of securing a BATNA still optimistically thought there was roughly an 18–30% chance they would get one (suggesting that Phantom BATNAs are alive and well in the minds of negotiators even when little evidence exits to support them). In the most upbeat of conditions, those told they had a 90% chance or a BATNA in-hand (100% chance) reported being only 77–84% certain that this would occur. This might suggest that negotiators with alternatives of low likelihood (and overconfidence) are more likely to turn down offers they should accept, while negotiators with alternatives of high likelihood (and underconfidence) are more likely to accept offers they should decline.

Two additional patterns are worth discussing. Reporting one’s alternative was common enough for us to examine its association with power perceptions and negotiator behavior. It is interesting to note that overall, those who revealed that they had an alternative had higher power perceptions (M = 2.79, SD = 0.98) than those who did not (M = 2.47, SD = 1.04), F(1, 363) = 6.71, p = .01). Turning to negotiation behavior, although mentioning one’s alternative did not significantly impact first counter-offers (M = $89,989, SD = 4531 for those who reported their alternative and M = $88,732, SD = 8282 for those who did not, F[1, 363] = 1.94, p = .16), it did significantly impact final counter-offers. In particular, mentioning one’s alternative was associated with higher final counter-offers (M = $87,054, SD = 4215) compared to when this information was withheld (M = $85,401, SD = 7635), F(1, 363) = 3.94, p = .048). Lastly, recall that we collected a measure of perceived BATNA probability. Participants were asked: “What is the probability that you will receive an alternative job offer from a company other than Conley?” Answers varied by condition (F[6, 358] = 62.50, p < .01). As can be seen in row 6 of Table 4, those in the no BATNA (0%), 10%, and 40% conditions appeared slightly overconfident as their subjective probability of getting an alternative offer was 18.31%, 29.60%, and 55.08%, respectively. Conversely, the 90% and Certain (100%) BATNA conditions appeared slightly underconfident by reporting likelihoods of 76.63% and 84.27%, respectively. Only those in the 60% condition reported a largely accurate perception (at 62.29%). In addition, the unspecified Phantom BATNA condition reported a probability similar to the 60% condition (64.06%). We also note that the perceived BATNA probability measure was positively correlated with BATNA likelihood condition (r = 0.72, p < .01), power perception (r = 0.45, p < .01), and offer behavior (first counter-offer: r = 0.28, p < .01; final counteroffer: r = 0.29, p < .01).

12. Study 3 One of the key takeaways from Study 2 is the evidence that unspecified Phantom BATNAs provide advantages over not having a BATNA at all, and that they provide similar benefits to those of specified Phantom BATNAs. Study 3 extends our understanding by investigating whether the absence of having any BATNA information may also lead negotiators to act as if they too have an alternative. In past research concerning negotiator alternatives, participants are generally told that an impasse would result in receiving no positive outcomes (zero points or a predetermined, but low number of points in a simulated negotiation task), but the existence or nonexistence of alternatives is rarely mentioned. For instance, Pinkley et al. (1994) found that negotiators in their control condition (which provided negotiators with no information about BATNAs) did as well as those with certain, but low valued BATNAs—a pattern similar to that found by Schaerer et al., 2015). From these results, Pinkley et al. (1994) concluded that BATNA value, rather than likelihood, accounts for the benefits to individual outcomes. The authors reached this conclusion because they assumed that having no information about a BATNA was conceptually identical to having no BATNA (which is why they referred to this condition as the “no BATNA” condition, while we would conceptualize it as a “no BATNA information” condition). Although the Pinkley et al. (1994) interpretation of their data seems plausible, the notion of a Phantom BATNA provides a second, equally plausible explanation. Building on our negotiator bias arguments and previous findings, we posit that some negotiators may presume the possibility of an alternative when information regarding BATNA likelihood is lacking. This idea seems consistent with the findings of Schaerer et al. (2015), in that those given no BATNA information obtained higher outcomes than those explicitly told that they had no BATNA. Although not discussed by these authors, it is conceivable that negotiators who lack BATNA information may reject valuable existing offers with the belief that an alternative may yet materialize. Should we find that negotiators given no BATNA information outperform those told they have no BATNA in this study, we will know that the two are conceptually distinct, supporting an alternative explanation to that reached by Pinkley et al. (1994).

11. Discussion Our inclusion of the unspecified Phantom BATNA condition fills a gap in our understanding regarding when negotiators know they have a chance at procuring an alternative outcome, but lack information regarding likelihood. Our findings suggest that at least in the context of negotiation, those with unspecified Phantom BATNAs behave much like those in the specified Phantom BATNA condition. Thus, it is reassuring to find that unspecified Phantom BATNAs produce effects consistent with specified Phantom BATNAs, as even when likelihood information is missing, these alternatives provide beneficial perceptions and negotiation outcomes. The data also suggest that, on some level, our participants ignored the actual likelihoods that were associated with their Phantom BATNAs. Beginning with our replication hypotheses, we again find support for a relationship between BATNA likelihood and both power perceptions and offer behavior (counter-offers), and for the mediating effect of power perceptions between BATNA likelihood and performance, as measured in terms of final counter-offers, our proxy for negotiation performance in this study (Hypotheses 1a-b and Hypothesis 2, respectively). We again see that Phantom BATNAs enhance power perceptions and negotiator behavior when compared to those with no BATNA (Hypothesis 3a-b). The only results that failed to replicate our findings in Study 1, involved comparisons between the Phantom BATNA conditions and the Certain BATNA condition regarding power perceptions and performance, as measured by counter-offer behavior in this study (Hypotheses 3c and 3d). Study 2 found a significant advantage accrued in having a Certain BATNA. In Study 2, we found that a non-trivial proportion of Phantom BATNA holders revealed information regarding their alternative to opponents, and at a rate similar to those in the Certain BATNA condition (Hypotheses 4a-b). Moreover, the fact that choosing to share one’s BATNA information was associated with higher perceived power and 43

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This would also inform some very recent research by Schaerer et al. (2018) that suggests that negotiators told nothing about BATNAs nevertheless sometimes “mentally simulate” or imagine that they have alternatives. Although such imaginary alternatives are qualitatively different from Phantom alternatives (which do exist, albeit with some level of uncertainty), this suggests that people with no BATNA information may sometimes have illusory BATNAs. If so, they are likely to have more in common with our Phantom BATNA conditions than they do with our no BATNA condition, to the extent that people in this situation imagine that they have BATNAs. To test this idea, our Study 3 participants were placed in the role of a job candidate negotiating a salary offer, and were randomly assigned to one of four conditions: Certain BATNA, unspecified Phantom BATNA, no BATNA, and “no BATNA Information” (a new condition whereby the issue of alternatives is never mentioned). Building on work by Schaerer et al. (2015, 2018), we construe our “no BATNA Information” condition as another example of an unspecified Phantom BATNA condition; while allowing us to continue to test our first three hypotheses.

Table 5 Descriptive statistics and correlations among variables (Study 3). Variable

Mean

SD

1

2

3

1. 2. 3. 4.

2.50 2.95 $89,750.00 58.90%

1.12 1.08 8838.76 31.51

– 0.60** 0.15* 0.69**

– 0.26** 0.65**

– 0.27**

BATNA condition Power perception Counter-offer BATNA probability perception (%)

Notes. n = 280 participants. BATNA condition is coded as 1 for the no BATNA condition, 2 for the no BATNA information condition, 3 for the Phantom BATNA condition, and 4 for the Certain BATNA condition. * p < .05. ** p < .01.

Unspecified Phantom BATNA condition were told: “A reliable source just told you that Penner is offering a salary of $80,000. If you and the Conley Vice President of HR cannot reach an agreement, you may have an alternative job offer.” Finally, participants in the Certain BATNA condition were told: “Penner is offering a salary of $80,000. If you and the Conley Vice President of HR cannot reach an agreement, you have an alternative job offer that is guaranteed.” Next, participants completed a measure of perceived power, indicated their counter-offer (performance), and then reported their perception of BATNA probability (as detailed below).

13. Method 13.1. Participants We recruited 280 participants via MTurk, the online task service described in Study 2. Each participant received $0.50 (US) for participating. As a means of maintaining high quality data, individuals could only participate in the study if they had a high rate of acceptance (at least 96%) for previous work completed in MTurk, and if they were located in the United States because the scenario included references to U.S. currency. As for participant demographics, 51.8% were female, 81.1% were White/Caucasian (non-Hispanic), 7.9% were Black/ African-American, and the rest identified as another ethnicity or multiracial. Lastly, participant ages ranged from 20 to 71 (M = 37.78, SD = 11.73).

13.3.2. Perceived power To assess power perceptions, we calculated mean responses to the same two items used in Study 2 (α = 0.90). This measure was collected before we captured negotiatior counter-offers. 13.3.3. Negotiator counter-offers To measure counter-offers, we relied on participant responses to the Conley Corporation’s offer of $80,000. Specifically, participants were asked: “What salary request will you make when you meet with Conley?” Responses were indicated on a slider scale ranging from $0 to $150,000.

13.2. Task and procedure Participants were presented with the hypothetical situation and materials used in Study 2, with small variations to account for the changes in the current study (noted below). As in Study 2, participants learned that they were getting an offer from the Conley Corporation, and that the company had made a salary offer of $80,000 to them.

13.3.4. Other measures Because we wanted to assess perceived power and offer behavior without priming a BATNA, we waited until after those responses to ask the manipulation check and their perception of BATNA probability. For consistency, this was done across all conditions. After making their counter-offer, we checked our manipulation of BATNA likelihood by asking: “According to the story you read earlier, what exactly were you told?” Response options began as “You previously interviewed with another company (Penner)…” and then resumed with “but they hired someone else,” “and they may make a job offer to you” or “and they already made a job offer to you” to represent the no BATNA, Phantom BATNA, and Certain BATNA conditions, respectively. The final response option was simply: “You were told nothing about any other company,” which represents the no BATNA information condition. We also measured perceived BATNA probability (as in Study 2). Lastly, participants completed a short set of demographic measures.7

13.3. Manipulation and measures 13.3.1. BATNA condition Participants received information that varied according to their randomly assigned BATNA condition. Participants in the no BATNA, unspecified Phantom BATNA, and Certain BATNA conditions were told: “You also know that only one other company in the area (the Penner Corporation) is looking for a Director of Marketing this year.” Those in the no BATNA condition were then told: “Besides your offer from Conley, you have no other job offer from any other company, including Penner, which interviewed you recently and hired someone else.” Participants in the Unspecified Phantom BATNA condition were told: “Besides your offer from Conley, you may have an alternative job offer from Penner, which interviewed you recently.” Finally, those in the Certain BATNA condition were told: “Besides your offer from Conley, you have already obtained an alternative job offer from Penner, which interviewed you recently.” Participants in the no BATNA Information condition did not receive any of this information or a reference to an alternative offer. The participants in the no BATNA condition were also told: “A reliable source just told you that Penner is offering a salary of $80,000. If you and the Conley Vice President of HR cannot reach an agreement, you have no alternative job or salary offer.” Participants in the

14. Results To assess individuals’ understanding of their BATNA condition, we analyzed the manipulation check described above. Overall, responses corresponded to participant condition, χ2 (3, n = 280) = 15.01, p < .01; however, this was not always the case. Although 88.6% of participants in the Certain BATNA condition and 85.7% of those in the 7 We also collected the following measures: Candidate desirability, risk-taking propensity, trait optimism, and rational and intuitive decision styles.

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Table 6 Distribution of outcomes of interest as a function of BATNA condition (Study 3). BATNA Condition Variable

No BATNA

No BATNA Information

Phantom BATNA

Certain BATNA

Overall

Power perception Counter-offer BATNA probability perception (%) Number of participants

2.05 (0.80) $85,943 (7499) 24.30% (23.95) 70

2.73 (0.90) $92,457 (9184) 58.29% (23.32) 70

3.19 (1.02) $89,757 (7890) 66.83% (19.81) 70

3.84 (0.70) $90,843 (9473) 86.20% (21.69) 70

2.95 (1.08) $89,750 (8839) 58.90% (31.51) 280

Notes. Values reported are means with standard deviations in parentheses.

no BATNA Information condition chose the expected response, only 77.1% of those in the Phantom BATNA condition and 64.3% in the no BATNA condition did the same. We found it interesting that a number of individuals in both the Certain BATNA and the no BATNA conditions (8.6% and 12.9%, respectively) incorrectly selected the Phantom BATNA response (“they may make an offer to you”), even though they were explicitly told that they were or were not getting the alternative offer, respectively. Such varied responses are not a surprise, given that a key tenet in our theorizing is that BATNA perceptions are not straightforward, but instead can be distorted through various decision biases, such that perceptions do not align with reality.8

condition are higher (M = 2.73 and M = $92,457, respectively), with planned comparisons contrasting this condition to the no BATNA condition providing complete support for this hypothesis (for power perceptions, t[276] = 4.67, p < .01; for counter-offers, t[276] = 4.51, p < .01). Combining the no BATNA information and Phantom BATNA conditions, and comparing them to the no BATNA condition also results in significant differences for power perceptions and counter-offers (t [276] = 7.20, p < .01, and t[276] = 4.13, p < .01, respectively). Contrary to Hypothesis 3c, power perceptions for participants in the Certain BATNA condition (M = 3.84) were significantly higher than for those in the Phantom BATNA condition (t[276] = 4.47, p < .01) and the no BATNA information condition (t[276] = 7.61, p < .01). Combining the no BATNA information and Phantom BATNA conditions and comparing the set to the Certain BATNA condition did not change this result, t(276) = 6.97, p < .01. However, we do find support for Hypothesis 3d, in that counter-offers for those in the Certain BATNA condition (M = $90,843) were not significantly different compared to those in the Phantom BATNA condition (t[276] = 0.75, p = .45) or the no BATNA information condition (t[276] = 1.12, p = .27). Combining the no BATNA information and Phantom BATNA conditions and comparing the set to the Certain BATNA condition also revealed no significant differences for counteroffers, t(276) = 0.21, p = .83.

14.1. Tests of hypotheses Table 5 presents the correlations among our variables of interest, and Table 6 displays a summary of these variables for comparative purposes across the BATNA conditions. Hypothesis 1 was again supported (see rows 1 and 2 of Table 6), in that power perceptions (F[3, 276] = 53.54, p < .01) and negotiator counter-offers (F[3, 276] = 7.34, p < .01) increased as we move from the no BATNA condition to the two Phantom BATNA conditions (operationalized as the no BATNA Information condition and the unspecified Phantom BATNA condition) and the Certain BATNA condition.9 Specific crosscondition comparisons are reported below. We also re-confirmed that power perceptions mediate the relationship between BATNA likelihood and negotiator performance (Hypothesis 2), represented by the counter-offer proxy variable. To this end, we utilized the same bootstrapping mediation procedure and multicategorical approach that was employed in Study 2. We first compared the no BATNA condition (coded as “0”) to the rest of the conditions (coded as “1”), and the analysis revealed an indirect effect of this contrast on counter-offers via power perceptions (ab = 1.84, SE = 0.74, 95% CI = 0.44, 3.35). We also tested this hypothesis by comparing the no BATNA condition (“0”) to the Phantom BATNA condition (“1”), which demonstrated the same indirect effect for this contrast as well (ab = 0.86, SE = 0.35, 95% CI = 0.21, 1.57). Lastly, we tested our hypothesis by comparing the no BATNA condition (“0”) to the no BATNA information condition (“1), which also revealed a significant indirect effect (ab = 1.50, SE = 0.47, 95% CI = 0.61, 2.47). Once again, Hypothesis 3a-b is confirmed as power perceptions and negotiator counter-offers of Phantom BATNA holders (M = 3.19 and M = $89,757, respectively) were greater in comparison to those in the no BATNA condition (M = 2.05, and M = $85,943, respectively). A planned comparison supported this prediction for both power perceptions (t[276] = 7.81, p < .01) and counter-offers (t[276] = 2.64, p < .01). Also note that responses in the no BATNA information

14.2. Additional findings In terms of perceptions of BATNA probability, row 3 of Table 6 shows that these perceptions varied by condition, F(3, 276) = 94.54, p < .01. Consistent with Study 2, negotiators in the no BATNA condition (despite being told they had no alternative) perceived that they had, on average, a 24.30% chance of getting an alternative job offer, though this was still significantly lower than for those in the no BATNA information (M = 58.29%, t[276] = 9.04, p < .01) and Phantom BATNA conditions (M = 66.83%, t[276] = 11.31, p < .01). Perceived BATNA probability for individuals in these latter conditions was, in turn, significantly lower than for participants in the Certain BATNA condition (M = 86.20%), t[276] = 7.26, p < .01. Note that as in Study 2, the perceived BATNA probability ratings in the Certain BATNA condition are still less than 100% certainty. 15. Discussion A key finding from Study 3 is that we found significant differences between the no BATNA and no BATNA information conditions. Responses in the no BATNA information condition were similar to the unspecified Phantom BATNA condition, whether our focus was on power perceptions or counter-offer values. Our Study 3 results are consistent with the Schaerer et al. (2018) finding that when people have no information about their BATNAs, they sometimes appear to generate imaginary alternatives. In our study, subjects told nothing about the existence or nonexistence of alternatives judged themselves to have as high a probability of obtaining an alternative as those told that they had a possible alternative. This highlights the need to

8

Note that the results of our hypothesis tests do not differ if we only consider participants who correctly responded to the manipulation check (n = 221). 9 Note that counter-offer values are actually highest in the no BATNA Information condition, though this value is not significantly greater than the Certain BATNA or Phantom BATNA conditions. 45

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differentiate these two situations in order to enhance our understanding of negotiator perceptions and potential illusions regarding negotiator BATNAs. As in Study 2, individuals in Study 3 appeared to “hedge their bets” in the no BATNA and Certain BATNA conditions. Those told they had no BATNA seemed to think that one might appear, whereas those with a Certain BATNA thought it could disappear. Perhaps of greatest interest is the finding that many negotiators told nothing about a BATNA seem to presume that options may exist, since their probability judgments were very similar to their Phantom BATNA counterparts.

more to be exact), one would be hesitant to negotiate an offer in their focal negotiation worth much less than this amount. Thus, while Phantom BATNA holders in Study 2 did make assertive proposals (well over the $80k they had been offered, as seen in Table 4), they still did not reach the even higher values proposed by those with Certain BATNAs. We suspect that if the BATNA value in Study 2 was closer to the offers-in-hand (as was the case in both Studies 1 and 3), our results would be consistent across all studies. Future work should examine Phantom BATNA values that are both higher and lower than the values in focal negotiations with an aim toward documenting the limits of Phantom BATNA effectiveness. While Phantom BATNAs (specified or unspecified) routinely improved negotiator positions relative to those with no BATNA, there does seem to be a limit to their value when compared to Certain BATNAs. The perceived BATNA probability patterns found in Studies 2 and 3 also present intriguing opportunities for theoretical investigation. Recall that negotiators told they had no BATNA still estimated their probability of obtaining one at a level far greater than zero (approximately 18% and 24% in Studies 2 and 3, respectively). By contrast, those assured they had a BATNA reported a probability less than certain (roughly 84% and 86% in Studies 2 and 3, respectively). This is inconsistent with the expected utility notion that people are aware of probabilities of outcomes and can make rational decisions utilizing the probability information. Rather than exhibiting consistent optimism or overconfidence, our negotiators seemed to make judgments that “regress to the mean” by being overconfident when likelihoods are low, and underconfident when likelihoods are high. Why does this happen? Work on strategic optimism and strategic pessimism (Krizan & Windschitl, 2007) may provide an explanation. This area of research examines likelihood judgments in the realm of forecasting. As noted by Krizan and Windschitl (2009, p. 229), “forecasts are often subjected to a ‘moment of truth’ when a person learns whether the event being forecasted does or does not occur.” When forecasts concern desirable outcomes (such as obtaining a BATNA) that are objectively not likely to occur, strategic optimism “can confer a strategic benefit to the organism, fostering appropriate action plans, persistence, and resilience in case of negative outcomes” (Krizan & Windschitl, 2007, p. 111). By contrast, when desirable outcomes are likely to occur, strategic pessimism offers protection “from severe disappointment if the outcome fails to materialize” (Krizan & Windschitl, 2007, p. 111). Future work unpacking relationships between BATNA likelihoods and perceptions of over- and under-confidence is another interesting avenue of research pursuit (cf., Sanchez & Dunning, 2018; Tong, Feiler, & Ivantsova, 2017). Our findings have practical as well as theoretical implications. In terms of strategic action, negotiators with high valued Phantom alternatives should inform their opponents about their potential options, although we note from Study 2 that this occurred only for a relatively small proportion of negotiators. Given the importance of power perceptions, additional benefit may be gleaned by exhibiting the characteristics associated with legitimate power (Anderson & Berdahl, 2002). Still, we caution negotiators to candidly convey that their alternatives are possibilities as opposed to realities. Overstating a possible alternative as an available one may represent ethically questionable behavior, and if discovered, can greatly damage one’s reputation. Credibility is an irreplaceable commodity (Anderson & Shirako, 2008), and our results suggest that the power perceptions of Phantom alternatives alleviate the need for fabrication and exaggeration, while maintaining the benefits of applying principled negotiation strategies. In terms of strategic thinking, our studies make salient the importance of recognizing the difference between non-existent, certain, and Phantom alternatives. Negotiators, due to a confirmation bias, illusion of control, and confidence distortions, can easily fall prey to inaccurate forecasts and poor decisions (Hensher & Johnson, 1981; Sivanathan & Galinsky, 2007). For example, power can increase optimism, attention to positive and rewarding information, and risk-seeking

16. General discussion Although a significant body of research has focused on the importance of garnering alternatives in negotiation (e.g., Buelens & Van Poucke, 2004; Magee et al., 2007; Pinkley et al., 1994), it has focused with little exception on the single dimension of the value of one’s BATNA. The results of our studies suggest that a multidimensional approach may be better suited to study this interesting phenomenon, as the likelihood of one’s BATNA also appears to matter. Although traditional theories of decision-making argue that nonexistent alternatives should be perceived as such (Hammond, 1986), our findings suggest otherwise – clarifying the importance of such information and the fact that people appear to not only imagine alternatives that don’t exist, they allow illusion to impact their actions (Farquhar & Pratkanis, 1993). Both Phantom BATNA holders and their opponents appear to integrate this information into their perceptions of power, offer behavior, and negotiated agreements in irrational ways, in that they are inconsistent with the expected utility model. Taken together, our studies suggest that Phantom BATNAs matter in negotiation, despite the fact that they merely represent possible alternatives that may never materialize (and never do, in our studies), suggesting that examining how Phantom BATNAs impact negotiations when they appear or disappear may be an interesting question for future research. Whether the negotiation format was integrative or distributive, face-to-face or virtual, concerned with offer proposals or negotiated settlements, Phantom BATNA holders achieved more value and made more aggressive offers than those who clearly lacked an alternative. Furthermore, perceptions of power mediated the effects of BATNA likelihood on negotiated settlements (Study 1) and counteroffer behavior (Studies 2 and 3). Although our first two hypotheses and Hypothesis 3 comparisons between Phantom and no BATNA conditions receive considerable support across all three studies, our Hypothesis 3 predictions comparing Phantom and Certain BATNA conditions are less consistent. Recall that Hypothesis 3d argued for equivalent negotiator behavior for the Phantom and Certain BATNA conditions. In Study 1 (a face-to-face, multi-issue negotiation with integrative potential), this hypothesis was supported, but in Study 2 (a single-issue negotiation with measures of first and final counter-offers), it was not supported. However, it was again supported in Study 3, using a similar design as in Study 2 (but only procuring one counter-offer). Thus, a reasonable question to ask is why the results for Study 2 differ from those of the other two studies, especially Study 3. We believe these differences can be reconciled and that the answer lies in the different BATNA values presented to negotiators across these studies. Recall that in Study 1, the alternative value for holders of Phantom BATNAs was 12,500 points, a value much closer to the actual values reached in negotiated settlements in all conditions (overall M in Study 1 = 13,019 points). In Study 3, the BATNA value was the same value as the offer the participants received in their focal negotiation (both were $80k). In contrast, Study 2 presented negotiators with BATNA values that were much larger than the $80k offer they were negotiating. The Phantom or Certain alternative in Study 2 was $92k, an amount 15% higher than the offer under negotiation. Focusing on Study 2, it seems logical that if one has a certain alternative worth so much more ($12k 46

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behavior, all of which may account for the tendency to exaggerate the value of Phantom alternatives and the likelihood that negotiators will reject beneficial offers in pursuit of an illusory option (Anderson & Galinsky, 2006). For this reason, Phantom BATNA holders should avoid developing an inaccurate level of confidence, instead focusing with clarity on relevant information about the alternative as well as its inherent risk. Although Phantom alternatives can be used strategically and to inform a target value, one’s bottom line should be grounded in reality and not hopeful illusion. Our Study 1 results suggest that opponents may be just as susceptible to the allure of Phantom BATNAs as their holders, revealing another fruitful area for future research inquiry. Whether the opponents of Phantom holders failed to (a) recognize that the candidate’s alternative was not certain to occur, (b) explain this to the holders, or (c) convince the holders of this fact, is unknown and in need of further study. Opponents would be wise to inquire about the degree of certainty associated with the holder’s alternative. If they identify a Phantom alternative, it may be beneficial to gently remind the holder of the old adage that “a bird in the hand is worth two in the bush” with an emphasis on the risk or uncertainty inherent in the alternative, as opposed to its potential value. Doing so may reduce holder overconfidence and perceived power. Failing that, calling one’s bluff may be required. While difficult and potentially risky, this may be preferable to giving up too much or allowing a holder to walk away in the face of abundant value. Beyond this, Farquhar and Pratkanis (1993) suggest that the timing of inquiry concerning an opponent’s alternatives may be relevant. Inquiring too soon may signal concern about likelihood and exacerbate the cognitive biases associated with power perceptions. However, inquiring too late may entrench the Phantom holder in a solution set due to an entitled belief that both parties recognize the validity of the Phantom alternative. Clearly, strategies for addressing Phantom alternatives will require significant future investigation.

The time horizon of the Phantom BATNA may also be a critical factor and may inform perceptions of both value and likelihood. In the present studies, no mention is made of when the alternative may become available. Even in the Certain BATNA conditions (for Studies 1 and 2), participants were told that they were certain to receive an alternative offer, but not when that offer would literally be in-hand. Perhaps this is why some of them indicated some degree of uncertainty about their BATNA. Similarly, in the Phantom conditions, participants were informed of the probability of receiving an offer, but not when they will learn if they received the alternative offer or not. Over the years, there has been substantial research on temporal effects on judgment and decision-making. Much of the research across multiple disciplines has revolved around some form of time discount utility theory. While this theory remains the dominant perspective on intertemporal choice, a critical analysis of the theory has shown that most of its assumptions have been contradicted by empirical evidence (Frederick, Loewenstein & O’Donoghue, 2002). Clearly, time is an important factor in judgment and decision-making and should be thoughtfully researched as a context for negotiation with Phantom BATNAs. Overall, our work offers insights into the Phantom BATNA phenomenon and ultimately helps us to gain a better understanding of how such alternatives influences negotiation processes and outcomes. References Anderson, C., & Berdahl, J. L. (2002). The experience of power: Examining the effects of power on approach and inhibition tendencies. Journal of Personality and Social Psychology, 83, 1362–1377. https://doi.org/10.1037/0022-3514.83.6.1362. Anderson, C., & Galinsky, A. D. (2006). Power, optimism, and risk-taking. 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16.1. Limitations and future research directions Our investigation, like all studies, has limitations. Our experiments were intended to test varying degrees of BATNA likelihood in terms of both specified and unspecified probabilities. In Study 1, we made the Phantom BATNA transparent to both parties. Thus, we are not able to determine what would happen if only the holder knows about the Phantom (or for that matter, if the opponent finds out and the holder is unaware). A useful follow-up study would be to assess the effect of asymmetry in knowledge about the Phantom BATNA. In addition, within the specified conditions of our studies, the Phantom BATNA holder’s value was held constant while likelihood varied. Future research should examine the simultaneous impact of BATNA value and likelihood to determine how each of these features affect negotiator perceptions, offer behavior, and negotiated outcomes. That is, do negotiators attend more to value information, likelihood information, or something else? Perhaps negotiator attention shifts to whichever informational cue is of greatest benefit. Future research should also examine the effect of Phantom alternatives in other contexts (e.g. with scarce or abundant resources, or with small or large settlement zones) to examine whether context influences attention to reality and one’s willingness to walk away from valuable offers in negotiation. In addition, individual differences such as risk aversion might influence one’s susceptibility to Phantom information and willingness to walk away from offers that exceed the value of one’s Phantom BATNA. This seems particularly likely given that perceptions of BATNA probability were correlated, but not completely consistent, with our BATNA likelihood manipulations. In fact, it would be interesting to determine whether the framing of likelihood (i.e., 50% probability of obtaining the alternative versus 50% probability of not obtaining it) might affect perceptions of certainty and subsequent power perceptions, negotiation strategies, and realized outcomes. 47

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