In Negotiations We Incorrectly Make Assumptions

During negotiations often we assume the other party has the same or similar interests, intentions and desires that we do.   We make assumptions about the priorities of importance of issues that can have a significant impact on negotiating tradeoffs to reach a negotiated settlement.  Using stereotypes we prejudice outcomes and reduce the probabilities unnecessarily.  Those that view negotiations more broadly achieve better results.

In an article entitled Mind-reading in strategic interaction: The impact of perceived similarity on projection and stereotyping written by Daniel R. Ames and Elke U. Weber of Columbia University and Xi Zou of the London Business School the authors provide research to elaborate on these ideas.   This article was picked up and summarized by the Harvard Law School Program on Negotiation.

Recently I was a key speaker at a conference with 200 very high wealth individuals.   It turns out a few of them had some issues with the IRS and spoke to me personally after my presentation as one of the key speakers on the first full day of the conference.  Normally, given my background and history of having worked at the IRS for 28 years, I am asked questions regarding an existing audit, an unagreed case at Appeals, or someone may share a previous interaction with the IRS.   There were some conversations like this with my staying at the conference for an additional day.  However, I was struck by several that had cases currently docketed in U.S. Tax Court.   These are normally relatively speaking rarer instances, but in this instance I spoke with several individuals that currently had cases docketed in U.S. Tax Court. 

In order to make it to U.S. Tax Court I want to share some approximate statistics for consideration.

In 2015 approximately 192 million returns were filed.

Of these about 0.7% or 1.4 million were audited.

As a result of audits about 165,000 are in the Appeals Division of the IRS.

Approximately 38,000 are docketed for court.

It is true that those with higher incomes have a greater probability of being audited.   

·         Income over $1 M had a 9.6% chance of an audit.

·         Income between $200,000 and $1 M had a 1.8% chance of an audit for nonbusiness returns.

·         Income under $200,000 had a 0.4% chance of an audit.

With the high wealth individuals at the conference they were clearly in the income over the $1 M category, which means they had a greater probability of being audited and potentially working their way through the system. 

Whereas I am oriented to focus on listening, justifying choices, and working with the parties to resolve the issue, what I found in several instances was the act of being involved with the “game” with the IRS was part of their incentive.  Their perspective on money and the process is more oriented towards playing the game then the actual outcome.  This article from Entrepreneur offers some insights on this behavior and thinking. There were clearly preconceived assumptions and stereotypes regarding the IRS along the way and top paid advisors had reinforced these stereotypes presenting the IRS in a negative light in several instances.  This led to further confrontation and at times heated discussions which further entrenched the parties according some of these individuals that spoke to me.  

In negotiations with conflicted parties the parties often demonize the other party and view the world as right and wrong.  The other party is often viewed as being totally wrong.  Self-preservation may allow the first party to perceive their perspective as being totally in the right.  In these instances it is very important to help the parties de-escalate first.  After de-escalation it is important to focus on helping each party see that the other party may have a point.  

As a mediator and negotiator, I believe that from the very beginning of the examination process if the parties had truly listened to each other and approached one another without preconceived negative notions, that the parties may have been better equipped to understand the other side’s perspective and potentially found a way to effectively deal with the situation and to have made a deal at an earlier stage.  This would have potentially saved considerable time, energy, money and effort. 

For those that prefer to “play the game”, have the resources to “play the game” and prefer to take on the additional risk this is a personal choice.  We can all learn from both perspectives.   Perhaps time, money and other resources may have been saved with an approach more conducive to conflict resolution rather than antagonism and litigation.  It can be a personal choice.  Beware of the assumptions and stereotypes that you may make in a negotiation.   Stay focused on the problem or concern.   Keep a broader perspective to enhance the potential for resolution.

Michael Gregory, ASA, CVA, MBA is an expert in conflict resolution dedicated to making thought-leading entrepreneurs and executives more successful. Michael’s booksThe Servant Manager: 203 tips from the best places to work in America and his NEW BOOK Peaceful Resolutions: A 60-step illustrated guide to conflict resolution are available at http://mikegreg.com/books.   Free resources are available online at www.mikegreg.com. Check out the blog.  Contact Mike directly at mg@mikegreg.com or call (651) 633-5311. 

About the author

Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at mg@mikegreg.com and at (651) 633-5311. Mike has written 12 books (and co-authored two others) including his latest book, The Collaboration Effect: Overcoming Your Conflicts, and The Servant Manager, Business Valuations and the IRS, and Peaceful Resolutions that you may find helpful. [Michael Gregory, ASA, CVA, NSA, MBA, Qualified Mediator with the Minnesota Supreme Court]