December 13, 2005
Fairest Negotiations Are Face to Face, Says Kachelmeier
By Asher Garonzik

What value do board games such as Monopoly and Acquire have for researchers examining the nuances of financial interplay in the real business world? According to Steve Kachelmeier, the Charles T. Zlatkovich Centennial Professor in Accounting at the McCombs School of Business, “One can learn a lot from observing how people play games.”

In his talk for the Faculty Research Presentation Speaker Series Nov. 29, Kachelmeier presented his research on how people negotiate when real decisions and real money are at stake.

To conduct his research, Kachelmeier asks students to play strategic games he and his associates designed. Participants cannot lose real money—they can only profit—and each person must also have an equal chance of winning.

Kachelmeier believes there are two significant advantages to studying accounting in the experimental laboratory. First, researchers may isolate singular variables and study their effects under the academic microscope—an otherwise impossible prospect. Second, this type of testing allows researchers to look into the possible scenarios which don’t yet exist in real business.

One of his past experiments, for example, dealt with the issue of fairness in transfer pricing (buying and selling between the divisions of a multi-faceted company). Kachelmeier described that while most participants indicated they would treat buyers fairly before starting one of the strategic games, most subjects acted as sellers did and failed to follow through with that claim when they conducted business over a computer network. In this case, profit-maximizing behavior quickly supplanted fairness.

However, when the trading occurred face-to-face, sellers made substantially more concessions and showed more fairness in negotiations.

“One lesson from this research is that technology can influence behavior, as anyone who has experienced an ‘e-mail war’ can attest,” Kachelmeier said. “How you negotiate is just as important as what you negotiate.” 

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