Susan Hutton

What is Reactive Devaluation won second prize in a 1999-2000 competition.

What is reactive devaluation? Reactive devaluation happens every day. It is a reason why treaties aren't signed, houses aren't sold and Pokemon cards aren't traded. The best way to describe reactive devaluation is by example. Here is an example of how two neighbors were not able to reach a deal because of reactive devaluation.

Joe and Steve are neighbors and have been friends for years. One day Steve hears that Joe is buying a new car. Steve always admired Joe's old car and wonders if Joe would sell it. Steve says to Joe, "What do you think you'll get for the car, $10,000?" Joe responds, "That sounds about right." Steve then says, "Gee, I'd be interested in buying the car." Joe says, "Sure, let's talk about it next weekend when my new car is delivered."

The next weekend, Joe tells Steve, "My new car is here, let's talk about a price for my old car." Steve says, "I thought we agreed that $10,000 was what I would pay. It's a fair price." Joe says, "I never agreed to that. I think the car is worth more."

The two neighbors break off the negotiation. Here is what they were thinking. Steve originally thought $10,000 was a fair price for the car. He made the offer up front as a goodwill gesture. He did not want to haggle with his friend Joe. Now that the two are actually negotiating, Steve starts to feel like Joe might try to take advantage of him and his offer. Steve also thinks maybe he was too hasty and should have offered less money. Joe, on the other hand, thinks now that Steve's offer is in front of him he should ask for more. If Steve was willing to pay $10,000 at the start, he will probably pay more.

This discussion between Joe and Steve shows how reactive devaluation occurs. Reactive devaluation happens when people try to create a mutually beneficial deal but find reasons to devalue the other party's offer once the negotiation begins. The devaluation of seemingly reasonable offers creates a barrier to further negotiation and settlement.

Reactive devaluation theory helps explain why once parties are in a negotiation or conflict offers are devalued. Research shows that offers from the opposing party are perceived differently because the offer is made in a negotiation rather than a neutral setting. In a negotiation, parties become suspicious - they look for the "catch," assuming the offer does not match the value of the concession sought. Parties see each other as adversaries. They imagine that the other person is trying to "get something from me" or that there must be "something wrong" with the offer if the other party is willing to make it. Offers from the opposing party are often valued less than the same offer made by a neutral third party . Finally, as an offer moves from the hypothetical "would you accept" to the proposal "I'm offering" stage, the value of the offer decreases. People tend to place less value on what seems to be easy to obtain and more value on what they do not have or cannot get.

In the case of our two neighbors, Joe and Steve seemed initially to be close to agreement, but once the negotiation began they found fault with the offers and devalued each other's offer. Now both Joe and Steve see accepting the same deal for $10,000 as "backing down" and letting the other person "get one over" on him or "losing" the negotiation. In fact, they are close to getting a deal they originally wanted.

Conflict resolution expert Lee Ross has studied reactive devaluation extensively. In his article, "Reactive Devaluation and Negotiation in Conflict Resolution," Ross discusses this barrier to negotiation. Ross argues that in theory , negotiating parties should make a series of offers and concessions to better their position and continue to negotiate until they stand to gain nothing more. However, this theory rarely is borne out in practice. Artificial barriers like reactive devaluation prevent parties from reaching a settlement where all potential gains are realized.

Ross' article discusses several social science experiments that demonstrate reactive devaluation theory . One study looked at an arms negotiation between the United States and Russia. That study showed that the attractiveness or value of a proposal changed depending on who made the proposal -- one of the negotiating countries or a neutral party. The second study looked at student reactions to university proposals. This study showed that the proposal's perceived value dropped when it was freely offered to the students and rose when the students learned it was not available. A final study compared student views of a proposal before it became part of the negotiation with student views after the proposal was introduced into the negotiation. The students saw the proposal as having less value once it became a part of the negotiation. In Steve and Joe's case, reactive devaluation occurred in several ways. Steve at first was willing to pay $10,000 for the car. Joe became suspicious and devalued Steve's offer. He thought Steve must know the car is worth more because he was so willing to pay $10,000 right away. Steve began to think his $10,000 concession didn't match the value of the car. When the conversation moved from a hypothetical situation to an actual negotiation, both parties found fault with the offers. Both Joe and Steve also viewed the offers with greater suspicion.

Ross' article offers some suggestions about how people like Steve and Joe can overcome reactive devaluation and make a deal. One suggestion is that negotiating parties change how they make their offers. For example, the parties could place values on hypothetical offers and concessions before the negotiation starts. Once the negotiations begin, the parties avoid reactive devaluation by referring back to the initial values. Ross points out that this process is only likely to succeed where the parties are trusting and willing to make sincere pre- negotiation disclosures. Another way to change the process is for one party to present a number of offers and allow the other party to pick which item they would see as "worthy" of making concessions for. Ross calls this "giving them what they ask for." This method builds on the idea that people are usually more pleased with the choice they make than one forced on them.

Yet another suggestion is for the parties to help defuse reactive devaluation by giving more details and background about the offer. In our example, Steve might say, "I've looked at the paper and there is another car for sale for $9,500. It is the same make and year as yours but it doesn't have air- conditioning so I'm offering a little more for your car."

Finally, Ross suggests that a third party can help. Offers made through a mediator are more likely to be seen as neutral. Parties using a mediator are less likely to attribute offers to their adversary and thus put a higher value on the offer . The mediator can also explain why an offer is a good one and describe how the party came to make the offer. The mediator can try to increase trust, offer rationales for the offer and in general try to avoid reactive devaluation by putting the offer in a positive light. Thus by countering reactive devaluation, mediators or third parties can move the negotiation towards settlement. Ross says that it is hard for mediators to counter reactive devaluation but it can be done. He suggests that mediators who play more of a problem-solving role, putting offers into the context of a mutually agreeable goal, are the most successful at offsetting reactive devaluation.

In the case of Joe and Steve, another neighbor who acts as a mediator might be able to help them reach agreement. The neighbor could try to restore value to Steve's initial offer by explaining to Joe that Steve was trying to be a friend and offer his top price up front. At the same time, he could remind Steve of how long Steve has admired the car and if he had to pay a little more for the car it would be better than losing the car altogether. The neighbor could tell Joe. that an offer on the table is better than no offer at all. Spending time and money to find a buyer for the car might leave him worse off than if he took Steve's offer of $10,000. By changing the way Steve and Joe view the negotiation and each other, the neighbor may be able to restore the offers to their original value and finalize the deal.