There have been various studies on the impact of ‘framing’ on negotiators. To present in a schematic manner, the “prospect theory” of Kahneman and Tversky will be discussed first, followed by an observation of Bazerman et al.’s framing study that describes the reason behind more transactions by positively framed negotiators. To start with, the basic concept of prospect theory is that people’s evaluations of a given prospect are largely due to certain reference points that define gain and loss than to the expected utility of the gamble.” The following example illustrates the possibility of risk aversion and risk-seeking by the positive and negative framing of a similar scenario.
It is to evaluate people’s responses to framing by assuming that the US has released two schemas for the control of an unusual Asian disease that is expected to kill around 600 people. As per program A, 200 people will be saved, while program B will have a one-third probability of saving lives and a two-thirds probability of killing all the people. To these options, 76 percent of respondents have chosen program A than program B that has a risky outlook of equally expected value. It shows that most people are unwilling to take risks in preference to a safe alternative. In another scheme, program A will result in 400 deaths, whereas program B has a one-third probability of saving lives over the two-thirds probability of killing 600 people. Interestingly, nearly 87 percent of respondents have opted for program B, accepting risk, then program A that has absolutely no chance of saving lives. It shows that framing has a great influence on people’s perspectives and, in turn, decisions.
The above example depicts the concept of the prospect theory that people prefer risk-averse and risk-seeking behaviors when evaluating gains and losses, respectively. This understanding is useful to evaluate the behaviors by which positively framed negotiators perform more transactions in Bazerman et al.’s study on the ‘framing effect’.
Now, it will be more apt to discuss an example that exemplifies both Kahneman and Tversky’s, and Neale and Bazerman’s postulations. In an imaginary labor-management conflict, the union demands a pay rise to $12/hr and sees anything less than that will be a loss. On the other hand, the management maintains that it is not ready to pay more than $10/hr, as above that will be regarded as a loss from the management side. Both the parties are not ready to settle the issue. As per the former’s concept, both perceive the conflict in terms of losses, so they are adopting risk-seeking attitudes than going for a settlement. However, if the perception of both sides is changed towards the evaluation of gains, a settlement may be possible. To be precise, if the union sees a raise to $11/hr as a dollar gain (related to $10/hr) and the management also perceives the same (with respect to the initial $12/hr), a mutually negotiated agreement will be possible by risk aversion. This possibility is in line with the conclusions of the former concept and also the later concept that will be evaluated further.
This risk aversion attitude is predicted to increase the number of transactions by positively framed negotiators than negatively framed (risk-seeking) negotiators. To be precise, negotiations in an open-market simulation are performed in view of net profits, and expenses from the gross profits. The one who is positively framed (evaluates gains with respect to net profits) is supposed to averse risk of turning down a deal and do more transactions, whereas the one who views the negotiation with respect to losses does not want to settle the deal easily, thereby apparently doing fewer transactions.
Bazerman et al. experimentally described the above situation in their actual study. They divided the negotiators into two groups and gave positively framed payoff (showing profits) to one group and negatively framed payoff (depicting losses) to the other group for similar kinds of negotiations with equal expected values. In spite of objective similarity, the varied framing of payoffs influenced the groups differently. Positively framed negotiators more readily opted for a settlement than negatively framed negotiators. Moreover, the former negotiators viewed the results of those dealings as more reasonable than their counterparts. This led to rapid and more transactions by former kind of negotiators than the latter, resulting in high total profitability for the former and high average profit for the latter. It indicates that a positive frame results in more successful transactions than a negative frame.
However, two consequences may result in problems/apparent losses for positively framed individuals when the other party is not similarly framed. Firstly, positive framing persuades a negotiator to avoid risk and satisfy less profitable conditions. Secondly, negatively framed individuals, owing to their risk-seeking attitude, may achieve a high percentage of potential surplus than their positively framed counterparts. This was further explained by Bottom and Studt, who said that negative framing helped in achieving remarkably better profits than positive framing in both distributive as well as integrative negotiations. Hence, positively framing can be beneficial only when it is shared by all involved negotiating parties.