Negotiation is central to business - but how to do it is where parties disagree.

Psychologists suggest that a good way to start is to first seek out areas where you agree, and to acknowledge these communal values and/or interests; then to address the minor disagreements; before attempting to deal with any more major disagreements.

This allows time for some rapport and trust to be built up and means major disagreements are more likely to be dealt with in a more rational and adult manner than would otherwise be the case. Faced with an extremely recalcitrant opposite number across the table, instinct may be to trade verbal insults, but this risks developing into a vicious and escalating cycle - better to hold fire, take the high road and disarm the other party by giving them something they want.

hold fire, take the high road and disarm the other party

Generous opening gestures can break a deadlock. The story goes that in the very difficult Israeli-Egyptian peace talks between Begin and Sadat in the late 1970s little progress had been made. With 13 days of the two-week process gone, Carter presented autographed photos to Begin, personally addressed to each of Begin’s grandchildren.

Here, as elsewhere, the intrusion of interpersonal concerns into the political area reputedly changed the mood and opened the way to move forward and reach agreement. Negotiations reportedly moved on in earnest only after this personal touch.

Presently, a number of companies are faced with the unpleasant task of balancing books in a time of falling orders. Since staff costs are often a major component of total costs, changes to staffing levels often ensue.

Some companies tell staff they are going to be made redundant at the last minute, perhaps partly in an attempt to minimise any unpleasantness between staff and management, or to prevent staff taking company data with them.

Companies with a more self-organising ethos sometimes present the bottom-line figures to workers and ask them what they wish the company to do to balance the books.

Different divisions may take different paths: some cut hours, others lay-off staff early on with a view to avoiding prolonging the pain, others give staff an extended holiday. At Semco, staff have been allowed to use company premises to get other work.

Whatever the outcome, most staff prefer to be consulted and feel better and more respected if they have been included in the negotiation process.

The more Machiavellian amongst us can try using non-verbal communication to assess the progress of negotiations.

When someone feels attracted to us, or agrees with, and is engaged with, what we are saying, they are more likely to mirror our postures and gestures. For example, they might lean in at a very similar angle and cross arms when we do.

Likewise where they disagree, it is common for people to move away slightly at the time the statement is made.

To assess if another party is feeling sympathetic to your line uncross your legs or straighten your glasses and see if the other person moves something themselves immediately after. If they do popular wisdom has it they are either attracted to you or fairly persuaded by your arguments, that or they have an itch. Or that they have studied non-verbal sales 101 too!

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About the author

Jane Henry is an applied psychologist. She chairs the Open University Business School Creativity, Innovation and Change programme.

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Stressed man on the phone.

Two similar significant events that occurred four years apart in my professional life elicited very different emotional reactions. The first event produced a highly stressful experience that made me question my confidence and ability and even whether I should change career. The second, four years later and almost identical in nature resulted in a very different response, and I experienced a massive reduction in the feelings of anxiety and stress, and consequently disruption to my confidence and output. These two almost identical occurrences and my completely different responses to these events calls into question what had changed in the interim period? On reflection I wondered about the reason behind the change. What had I done or been exposed to in the prevailing four years that had caused the reduction in the stress reaction?

I have spent 20 years trading financial markets, in London, Dubai and Tokyo on behalf of international banks and more recently for my own company utilising personal capital. This has given me a detailed insight to the nature of this environment and the stresses and strains individuals can suffer, including me. Trading requires a high level of decision making and the results can be virtually instant, a matter of seconds. This contributes, along with the pressure of having to be able to react and make decisions in a very short period of time repeatedly can cause high levels of stress that can result in negative effects on confidence and performance. My own experiences of this environment support this notion and I was subject to ups and downs in my own wellbeing as I felt the force of poor runs in revenue making, and these could result in prolonged periods of anxiety.

In 2004 I started my own trading company managing my own capital, something I had long harboured a desire to do, to test myself further professionally. After an initially successful 6 months I experienced a large and unexpected loss. This had a very negative effect on my confidence, the experience followed along similar lines to previous episodes, in that I felt stress, self doubt and anxiety but this time much worse. The loss added to the change in circumstances working for myself had resulted in such as; working alone, no regular salary, different systems etc exasperated the feelings of stress and anxiety and as a result it took a lot longer to return to profitability and regain confidence.

In the past I had been interested in books and articles on mainstream behavioural finance and had used the theories and concepts to develop my own trading strategies and understand those of the people I managed. However, these did not give me the solutions I needed to rebuild my confidence I lost after the first event and the downturn was significant enough to trigger me into sourcing a new solution. I began to research into academic psychology and decision making through the Open University library with whom I had been studying. This had almost instant results and I began to identify biases and influences that had been affecting my trading for many years, I quickly began to make fundamental changes to my approach. The result was a quick return of performance with enhanced consistency and ultimately strengthening of confidence. This positive event led me to continue to study this area and make the use of psychology and decision making an integral part of my overall strategy.

This leads me to my comparison point and how I came to realise that a by-product of my studies in psychology with the Open University has been a reduction in stress. Again I experienced a large unexpected loss when market conditions altered drastically in a short period of time. The lead up to the loss was similar to the previous experience in that I had made good profits, the loss was not larger than my risk management parameters nor did it exceed previous profits. What was different was my reaction, I didn’t really notice it at the time, and it was not until further reflection that I realised there had been a fundamental change. At the time some of the same thoughts entered my mind, such as questioning my ability, confidence issues etc but they did not elicit the same emotional response. They did not develop into anything more than a speed bump. I was able to get back on a profitable track much more quickly than the previous experience.

I think there is sufficient evidence to conclude that gaining an understanding of how decisions are influenced by hard wired heuristics, how these can affect the efficiency of decision making in my professional arena, financial markets, has resulted in a reduction in stress levels. It challenges the belief that exists in many high reward industries involving risk taking that this has to be accompanied by stress to merit a high salary. Significantly, being able to see the affects of decisions in an abstract form has allowed some detachment from the emotional influences experienced in the past. This could have equally interesting implications for industries where high levels of decision making is required and results are judged over short periods of time such as sport and medical diagnosis and treatment. However, in a general business environment the outcome of decisions may take longer to be valued and judged. It is more common for results to be produced quarterly or annually, meaning a much longer period of time will have passed between decisions and outcome. In this scenario accurate data from keeping a business journal would be essential to ensure accurate recall of the environment and conditions decisions were made in.

In January 2008, the press were full of reports of the impact of Jérôme Kerviel’s impact on world stock markets. This trader cost Société Générale €4.9 billion by hiding trading positions he should never have taken. The impact of these trades being unwound is widely believed to have been a significant factor in the decline of market values around the world. Press reports at the time such as this one in the Times were full of phrases like global crisis, panic, nervous traders fears’. This story unfolded as it was becoming clear that the impact of the overinvestment in poor quality ‘sub-prime’ housing loans in the USA was tuning into a major threat to economic stability around the world. The effect has been that institutions, which were once blithely lending money to all and sundry almost regardless of ability to repay, have become fearful of lending even to each other. As this story has unfolded there has, again, been an important subtext of emotion in markets (for example Buy Panic: Gene Marcial on How Market Meltdowns Can Be Your Ally).

New York Stock Exchange.
[Photo: Helico used under a creative commons licence]

Emotion in financial markets is not all about fear and panic. We know for example that, on average, prices on the New York Stock Exchange are higher on sunny days than on cloudy days. Sunny weather tends to make us feel more optimistic and it turns out that professional traders are no exception.

Meanwhile recent work by Cambridge University neurologists John Coates and Joe Herbert has shown a significant link between traders behaviour and the levels of hormones, such as testosterone, which have important links to emotion.

This is all in complete contrast to financial economists accounts of market behaviour which see investor decisions as driven by rational analysis, and prices as perfectly reflecting rational analysis of all available information.

So should we simply conclude that traders need to get a better grip on their emotions, calm down and start making rational decisions on the basis of considered analysis? Certainly my own research (with colleagues Nigel Nicholson, Emma Soane and Paul Willman) shows that learning to regulate their emotions is an important part of traders learning as they gain experience. As one trader told us:-

“I would cite myself as a great example of someone who started trading when I was 18 and got terribly emotional about everything, every loss; and I’d lie awake at night and think everything through and try and replay the tape - I wish it happened a different way … Over time you realize that nothing matters and you not only realize that nothing matters in here, it doesn’t matter outside here either. It took me a long time to get that.” 

However our research, which involved detailed interviews with 118 traders and their managers, also seemed to suggest that learning effective emotion regulation is not simply learning to set feelings aside. In the fast paced world of trading, rapid decision-making is at a premium; and the emotional cues and hunches that come from long experience can be an important aid. Rather than emotionless machines, high performing traders were often aware of their emotions. They used them as important sources of information; but were not at their mercy. Our findings are supported by a recent study by Myeong Seo and Lisa Barrett (220K PDF) who found that stock investors who were better able to identify and distinguish among their current feelings outperformed other investors.

As we learn more about the ways in which human cognition and emotion are inseparably entangled it is becoming clear that emotional competence is not just important to our relationships, it is a vital element of success in the world of high finance.

If you are interested in learning more about decision-making, you can find a free course designed by this author on Openlearn: Making decisions. You can also find a free course which gives a financial economics perspective on markets: The financial markets context.

About the author

Mark Fenton-O'Creevy is Professor of Organisational Behaviour at the OU Business School. His research includes investigations into the performance of traders in financial markets, and the problems that occur when management practices are transferred from one country to another.

He is also a National Teaching Fellow, and Principal of the Centre for Practice-Based Professional Learning.

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