The Effect of Feedback on Process and Outcome of Loan Negotiations: Consequences on Risk Aversion and the Willingness to Compromise

Abstract

We examined the influence of feedback regarding alternatives on risk aversion and willingness to compromise in student loan negotiations. In a simulated negotiation, participants in the roles of bank advisors and clients received feedback about alternative offers either only after an impasse of the negotiation, or regardless of outcome. When receiving feedback only after an impasse, participants tried to avoid the regret-eliciting feedback and therefore set less ambitious goals and showed higher willingness to compromise. In particular, they set a less ambitious reservation price and estimated a less beneficial ‘best alternative to negotiated agreement’. When analyzing the process of the negotiation, we found that they made less favorable offers more quickly and arrived at less favorable final offers. They sacrificed their previously set goals by violating their reservation prices and underbidding their estimated ‘best alternative to negotiated agreement’ more often. Therefore, they showed a higher potential for agreement with the other party, but at the cost of less favorable outcomes. Results indicate that anticipated regret could contribute to suboptimal negotiation outcomes in the context of student loans, which might lead to long term dissatisfaction.