After the Greek public voted against the proposed EU bailout last weekend, you couldn't be blamed for scratching your head. How could the Greeks, lining up at ATMs like they're going out of style, vote no to a possible solution--even an austere one?
Tim Calkins, clinical professor of marketing at Northwestern University's Kellogg School of Management, has a theory: The Greeks preferred an uncertain outcome (what might happen if they rejected the bailout) to an unattractive one (accepting the bailout's austere terms).
If you've ever struggled to make a hard sell in a negotiation, this probably sounds familiar.
"This is a bit like the game show 'Let's Make a Deal,'" explains Calkins on his blog. "In many cases, the decisions are difficult. Would you like this small box or the large one? How about $1,000 or the large box? The Greeks didn't have a tough choice. They were picking between a pile of dead worms and a box. Which would you choose?"
The Greeks chose the box. In an interview with Inc., Calkins explained that in negotiations an option is seldom attractive--even for those in desperation--unless the positives of that option are spelled out.
"There wasn't a compelling reason to vote for the austerity program," he adds. "If there was a mistake made, it was that the people arguing for the deal didn't communicate why it was good offer. And even now I think what [German Chancellor Angela] Merkel and [French President François] Hollande and other leaders in the EU haven't really done is painted a picture for the Greeks that is positive and upbeat."
The Walkaway Point
If you're a business leader, the lesson here is an oft-neglected piece of Negotiations 101 advice: Frame the choices as wins and give people a reason to pick them.
For example, in her memoir, "Hard Choices," Hillary Clinton recounts the State Department's tense negotiations with China on behalf of dissident Chen Guangcheng. One of the keys to her team's success in freeing Guangcheng was its recognition that it needed to spare the other party--China, in this case--from a public defeat.
In Calkins' view, the EU failed to frame a Greek acceptance of the bailout as a public win for Greece.
You could look at it another way, too: The Greeks didn't feel sincerely wanted by the EU. "No question, the Greek people feel beat up on and treated unfairly. And with all of that, there's not a lot of good will. Greece has been identified as such a problem child for a long time," he says.
In negotiations-speak, one term for a breaking point--when one party must withdraw from talks--is the "reservation price." The reservation price is the answer to the question: What is the worst deal you could possibly accept?
For obvious reasons, one of the hardest things to do in a negotiation is to believably convey your reservation price. Any statement you make about it is bound to be met with skepticism, because you have a strong incentive to misrepresent it. If it's $100, you have every reason to say it's $120. Your counterpart has no ability to verify it. The only verification is if you actually do walk away from the table.
You can often assume in negotiations that both sides are fibbing about their reservation prices. But the risk is that "every once in a while you run up against a truth teller," says Stanford GSB professor Margaret Neale, co-author with Kellogg professor Thomas Lys of the soon-to-be-released negotiations book, "Getting (More of) What You Want."
From this angle, too, Greece's decision to reject the bailout is potentially a good strategy. It would be a risk if, indeed, the EU was acting like a truth teller--and had just given Greece its ultimate offer. But the chances of that are unlikely, according to Wharton management professor Mauro Guillen. "Most likely, they will find a compromise solution... and kick the can down the road to buy some time in hopes that the political situation in Greece might change," he notes in a recent podcast.
Guillen says both sides simply have too much to lose for either to have reached its reservation point. For the Greeks, the risk is simply going under. For the EU, the risk is the long-term credibility of the EU itself. "If any country leaves, a monetary union is no longer a monetary union--it's a temporary scheme that could be abandoned at any time," he says.
"In German, the word 'debt' is the same as the word for guilt: schuld," notes Guillen. From his perspective, this linguistic fact accurately reflects the German psyche about debt: They feel terrible about it, it's like being guilty of something. Whereas "in Southern Europe, if you owe money, that's just part of life. You'll return it, it's okay," he says.
This cultural difference about debt is another explanation for the negotiations impasse. "The more south you go in Europe, the more people tend to embellish," explains Kellogg's Lys, with the obvious caveat that he's generalizing. "Greeks embellish a lot. They may not be realizing that the Northern Europeans are not embellishing," he says.
In other words: Though Guillen's explanation that neither side will walk away makes sense, there remains the possibility that the EU may indeed have been telling the truth about its reservation price.
In which case, Greece's decision to say no--to pick the box instead of the pile of dead worms--will have backfired.
"We'll find out very soon," says Lys. "But if it works, it's brilliant. And they'll get a better deal."