| When people talk about conflicts of interest, they | | | | be in no rush to sell, yet her agent devotes |
| usually assume that professionals consciously consider | | | | considerable energy to persuading her that it is best |
| these opposing forces (what's good for them versus | | | | to make a sale before the market cools down. What |
| their professional obligations). Take, for example, the | | | | can be done about this problem? |
| old lawyer joke, "It's not whether you win or lose, it's | | | | Due to the failure of agents to act professionally in |
| how long you play the game," which implies that | | | | many domains, including auditing, investment banking, |
| attorneys are primarily motivated to maximize their | | | | and real estate, both federal and state governments |
| billable hours. However, when lawyers are paid by the | | | | have stepped in to remedy the situation. The most |
| hour, they may truly come to believe that their | | | | popular solution has been to implement rules |
| clients are best served by a thorough, time-intensive | | | | mandating disclosure. The reasoning is that, if |
| process, whereas lawyers whose clients pay them a | | | | consumers understand that their advisers and agents |
| percentage of a settlement may be more likely to | | | | have a conflict of interest, they can take the steps |
| believe that their clients are best served by a quick | | | | necessary to protect themselves. Are such remedies |
| agreement. These beliefs are not conscious or | | | | effective? Perhaps not. Consider that, in most states, |
| deliberately unethical, but they are biased by | | | | real-estate agents for buyers and sellers are required |
| circumstance. Or as Upton Sinclair once stated, "It is | | | | to have their customers sign a disclosure statement |
| difficult to get a man to understand something when | | | | clarifying that the agent will earn a percentage of any |
| his salary depends upon his not understanding it." | | | | sales transaction. Most people sign the disclosure |
| In buyer-seller negotiations, it is common for the | | | | form and never again consider the actual conflict of |
| seller to believe that she is selling a higher-quality | | | | interest between buyer and agent. Instead, they |
| product than the buyer thinks he is buying. In fact, | | | | truly believe that their agent is providing objective |
| buyers often believe that the goods offered by | | | | advice. |
| different sellers are indistinguishable from each other, | | | | Furthermore, research suggests that disclosure could |
| while the sellers view their own products as | | | | actually increase the problems that result from |
| significantly better than those of other providers. | | | | conflicts of interest. A study conducted by decision |
| Thus, when a salesperson says, "Sure, I will benefit if | | | | researchers Daylian Cain, Don Moore, and George |
| you buy our product, but I wouldn't try to sell it to | | | | Loewenstein, participants playing the role of "adviser" |
| you if I didn't believe it was the best product for you | | | | were (in some cases) required to tell a participant |
| and your company," she may well believe this | | | | playing the role of "client" that he had a vested stake |
| statement. Yet substantial research tells us that the | | | | in having the client believe that a commodity had a |
| seller's conflict of interest (being honest vs. making | | | | high value. As it turns out, this disclosure led |
| the sale) can lead her to unconsciously view the | | | | "advisers" to feel more comfortable exaggerating |
| world through a biased lens and to believe that her | | | | their estimates; after all, "I already told them I was |
| product is the very best option for you -- even | | | | biased."At the same time, the "clients" often believed |
| when that is not the case. When a seller claims that | | | | that their advisers were more trustworthy if they |
| his products are the best on the market, and a | | | | had disclosed their conflict of interest. In other |
| prospective buyer believes that the products are | | | | words, advisers would have been more honest, and |
| indistinguishable from those of the competition, the | | | | clients would have been more cautious, if there had |
| buyer is likely to make sinister attributions about the | | | | been no disclosure! |
| seller's ethics. When the discussion is over, the buyer | | | | If disclosure will not help resolve this ethical dilemma, |
| assumes that the seller's statements were indicative | | | | what are we to do? First, to the extent possible, try |
| of unethical behavior when, in fact, the seller was | | | | to solicit advice and expertise from people who do |
| falling prey to the psychological trap that Sinclair | | | | not have a stake in the outcome and who do not |
| predicted. | | | | profit from manipulating your behavior or decisions. |
| The Problem of Agents | | | | When this is not possible, try to collect additional |
| Conflicts of interest often become most problematic | | | | information from outside sources that can serve as a |
| when agents are involved -- whether the agents are | | | | reality check on the advice you have been given. For |
| investment bankers, lawyers, literary agents, | | | | example, if the real-estate agent tells you that a |
| real-estate agents, or some other type of third party | | | | particular property or region is worth investing in, |
| with a stake in the negotiation's outcome. Consider | | | | solicit an outsider's opinion by asking a different |
| what happens when a real-estate agent advises you, | | | | real-estate agent (a friend, an acquaintance, or a |
| the buyer, to raise your bid on a house even though | | | | stranger whom you have not hired) whether this |
| your current bid is consistent with a rational | | | | advice seems sound. Finally, be willing to ask your |
| assessment of the property's value. Is the agent | | | | agent to justify her analysis. Instead of taking her |
| thinking only of her own commission? We would | | | | "expert opinion" at face value, try to discover what |
| argue that she is probably not intentionally corrupt, | | | | objective criteria or procedure she employed before |
| but simply human, and therefore implicitly motivated | | | | making her claims. She may trust her "intuition," but |
| to see the world in a way that maximizes her own | | | | there is no reason that you should. |
| returns from the deal. The agent can quickly think of | | | | A final note: most of us view conflicts of interest as |
| past situations in which a buyer preferred to overpay | | | | a genuine societal problem that must be remedied. |
| rather than risk losing a house, or bitterly regretted | | | | We understand that conflicts of interest can contort |
| not heeding the agent's advice to overpay. On the | | | | people's judgments. Yet we have trouble believing |
| other hand, it will be much harder for her to recall | | | | that they affect our own judgments. The truth is |
| times when this was the wrong advice, even though | | | | that none of us is immune. There is no good reason |
| this happened more frequently. | | | | to believe that you will behave any differently from |
| When you are planning to buy or sell a house, your | | | | the agent, the auditor, the buyer, or the seller when |
| agent will undoubtedly tell you that she is working in | | | | you have conflicting motivations and interests. To |
| your best interest. But when we look at the situation | | | | avoid such unintended unethical behaviors, the first |
| objectively, it becomes clear that the agent is a third | | | | step is to recognize your own fallibility. |
| party in the transaction, one whose interests do not | | | | Copyright © 2007 Deepak Malhorta and Max H. |
| perfectly match those of her principal (the buyer or | | | | Bazerman |
| seller). The buyer who wishes to pay as little as | | | | The above is an excerpt from the book Negotiation |
| possible and who is in no hurry to buy may have to | | | | Genius by Deepak Malhorta and Max H. Bazerman |
| deal with a well-intentioned agent who is paid more | | | | Published by Bantam Dell; September 2007;$26.00US |
| when the selling price is high and who would love to | | | | $34.00CAN; 978-0-553-80488-1 Copyright © |
| close the deal as soon possible. Similarly, a seller may | | | | 2007 Deepak Malhorta and Max H. |