According to new research from the University of Maryland’s Robert H. Smith School of Business, financially vulnerable individuals – those without a savings safety net who are more susceptible to the financial shock of unexpected expenses – stifle their own economic advancement because they negotiate worse than others. The way they view negotiations as a zero-sum game rather than a situation where everyone can win is a psychological barrier inherent in financial vulnerability itself, finds the research.
“In negotiations, we want people to enlarge the pie and create more value,” says Maryland Smith management professor Rellie Derfler-Rozin, co-author of the research. “We want people who need more money to negotiate like that because it could create long-term benefits for them.”
Derfler-Rozin worked with Tianyu He from INSEAD Singapore and Marko Pitesa of Singapore Management University. The researchers looked at a large dataset measuring societal values collected over 25 years across many countries. They also used Smith’s Behavioral Lab to study how participants negotiated with each other in groupings based on socioeconomic status in one experiment and just when primed to think like a financial vulnerable individual in another. The researchers found a strong correlation between financial vulnerability and the belief that people can only be successful at the expense of others, which is the zero-sum mindset.
Usually there are multiple issues on the table in any negotiation, says Derfler-Rozin. Most often, the parties involved don’t care about the same things to the same extent. There are things that each party prioritizes, and with a successful give-and-take based on those priorities, both sides can gain in a negotiation.
With a zero-sum mindset, a person might try to negotiate for a higher salary, simply asking an employer to pay him more. But there could be other issues that are important, like telecommuting or taking on extra work, that could be part of an integrative, or win-win, negotiation, says Derfler-Rozin. “The way you negotiate can signal a lot about the value you can bring to an organization,” she says. “You want to finish a negotiation in a situation where the other party thinks about you even more highly, as someone who is competent, a problem-solver, trying to create value for both sides, who shows commitment to the organization through this negotiation.”
Derfler-Rozin and her co-authors predicted that financially vulnerable individuals would be more likely to have a zero-sum mindset because of their circumstances.
“If you grew up in a lower socioeconomic neighborhood, there is less opportunity to see how you generate wealth,” she says. “Or if you’re in a lower-level position in the workplace, say production line work, you are less likely to be exposed to innovation and other ways to create value. Your whole world is around that.”
That makes it a hard mindset to change, says Derfler-Rozin. But not impossible. She says firms should have proactive interventions to change employee thinking because they have a lot to gain.
“If you become better at integrative negotiations you can apply it for the benefit of the organization,” she says. “Those employees can create more value for the firm. Sometimes those employees could be the ones who also negotiate with outside suppliers, for example. They could create better deals for the companies. You would want people to be like that. Of course they would also be happier so they will stay for longer. There are a lot of benefits.”
Derfler-Rozin says firms could create workplace interventions that are geared toward getting employees out of the zero-sum mindset with more integration among teams in the workplace. She suggested organizing events or focus groups that mix different units within an organization so lower-level employees can interact with more senior employees who earn higher salaries. Organizations could also teach lower-level employees about the zero-sum mindset and run negation simulations to try and change their thinking.
“We want to allow them to see and sample from other experiences that we can actually generate wealth and value together,” she says. “We want them to talk about generating something from nothing with trade-offs that benefit all parties.”
“Financial Vulnerability and the Reproduction of Disadvantage in Economic Exchanges” is featured in the Journal of Applied Psychology.
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