When we should care more about relationships than favorable deal terms in negotiation: The economic relevance of relational outcomes (ERRO)

Abstract

When should negotiators care relatively more about their relationships with their counterparts than about the deal terms? We introduce a new dimension to characterize negotiation contexts to answer this question: the Economic Relevance of Relational Outcomes (ERRO). ERRO reflects the extent to which the total economic value of a negotiation hinges on the strength of a negotiator’s post-negotiation relationship with their counterpart. For example, in hiring a tutor, a student may derive economic value from both the wage and the quality of the tutor’s post-agreement service; if the student’s post-negotiation relationship with the tutor influences the quality of the service, this negotiation context is high ERRO. Importantly, although ERRO is an objective feature of the negotiation context for each negotiator, individuals may perceive their negotiation context to have higher or lower ERRO than it actually does. Across four experiments (N = 1601), we identify ERRO as a fundamental dimension of negotiation contexts. We find that in high ERRO contexts (e.g., many services, such as hiring a tutor) compared to low ERRO contexts (e.g., buying a couch), individuals negotiate more collaboratively, are more likely to privilege relational concerns over favorable deal terms, or may even forgo negotiating altogether. Compared to negotiators who build poor relationships, negotiators who build positive relationships with their counterparts attain better economic outcomes in high ERRO contexts because their counterparts invest greater effort following the negotiation. By introducing ERRO, our work underscores the importance of post-negotiation behavior and identifies when, how, and why relational outcomes influence economic outcomes.