Bluffing and Deception in Negotiations

Deception can be defined as intentionally causing someone to have false beliefs. Bluffing in negotiations involves attempting to deceive others about one's intentions or negotiating position. In the United States, it is common, often a matter of course, for people to misstate their intentions during business negotiations. For example, suppose that Bob is selling a house and tells a prospective buyer that $350,000 is absolutely the lowest price that he will accept, when he knows that he would be willing to accept as little as $320,000 for the house (in this case, $320,000 is his “reservation price”). Such statements are lies according to standard dictionary definitions of lying—they are intentional false statements intended to deceive others. (See Carson, 1993, for an alternative definition of lying, according to which it is not so clear that such statements are lies.)

In a business negotiation, there is typically a range of possible agreements, any one of which each party would be willing to accept rather than reach no agreement at all. For instance, Bob might be willing to sell his house for as little as $320,000. His range of acceptable agreements extends upward without limit—he would be willing to accept any price at or above $320,000 rather than fail to make the sale. Suppose that a prospective buyer is willing to spend as much as $335,000 for the house. (He or she prefers to buy the house for $335,000 rather than not buy it at all.) The buyer's range of acceptable agreements extends downward without limit—he or she would be willing to purchase the house for any price at or below $335,000. In this case, the two reservation prices overlap, and an agreement is possible. No agreement is possible in a negotiation unless there exists a “bargaining range”—that is, unless the buyer's reservation price is greater than or equal to the seller's reservation price.

If there exists a bargaining range between the positions of negotiators, then the actual outcome depends on the negotiations. Consider again our example of the negotiation over the sale of the house. Whether the house sells for $320,000, $335,000, or somewhere between $320,000 and $335,000, or whether it sells at all will be determined by the negotiations. In this case, it would be very advantageous for either party to know the other person's reservation price and disadvantageous for either party to reveal his or her reservation price to the other. It can sometimes be to one's advantage to mislead others about one's own reservation price. In the present case, it would be to the seller's advantage to cause the buyer to believe that $335,000 is the lowest price that the seller will accept.

Attempting to mislead the other person about one's reservation price can backfire and prevent a negotiation from reaching an agreement that both parties would have preferred to no agreement at all. For example, suppose that the seller tells the buyer that he or she won't accept anything less than $375,000 for the house. If the buyer believes the seller (or believes that the seller's statement is close to the truth), the buyer will break off the negotiations, since, by hypothesis, the buyer is not willing to pay more than $335,000 for the house. Since negotiators typically don't know the other party's reservation price, it is risky for them to engage in such deception.

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