Judgment accuracy and the asymmetric cost of errors in distributive bargaining

Bargainers must generally attempt to judge their counterparts' preferences, beliefs, and alternatives to settlement. Both descriptive and prescriptive theorists have assumed that an accurate perception of the other bargainer' s reservation price (r.p.) is advantageous. Yet, unbiased judgments are opt imal only when the costs of underestimation and overestimation are symmetri c. Optimistic bias has been found to have adaptive value in judgments relat ed to other types of tasks. In two studies we examined the relationship bet ween perceptions of the bargaining zone and settlements in essentially dist ributive bargaining games. In the largely exploratory study one, bargainers were generally optimistically biased (i.e., they thought their counterpart could concede more than s/he really could) and optimism was positively cor related with profitability. In study 2 we manipulated information to induce accurate or biased perceptions. Optimistically biased negotiators again re ached more profitable settlements than accurate or pessimistically biased n egotiators. Optimism did not increase the likelihood of impasse in either s tudy. Nor did it damage the relationship between the parties. Initial optim ism appears to play an adaptive role in bargaining.