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The following is an excerpt from the book Negotiation Genius by Deepak Malhorta and Max H. Bazerman

Conflicts of Interest
When people talk about conflicts of interest, they usually assume that professionals consciously consider these opposing forces (what’s good for them versus their professional obligations). Take, for example, the old lawyer joke, “It’s not whether you win or lose, it’s how long you play the game,” which implies that attorneys are primarily motivated to maximize their billable hours. However, when lawyers are paid by the hour, they may truly come to believe that their clients are best served by a thorough, time-intensive process, whereas lawyers whose clients pay them a percentage of a settlement may be more likely to believe that their clients are best served by a quick agreement. These beliefs are not conscious or deliberately unethical, but they are biased by circumstance. Or as Upton Sinclair once stated, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

In buyer-seller negotiations, it is common for the seller to believe that she is selling a higher-quality product than the buyer thinks he is buying. In fact, buyers often believe that the goods offered by different sellers are indistinguishable from each other, while the sellers view their own products as significantly better than those of other providers. Thus, when a salesperson says, “Sure, I will benefit if you buy our product, but I wouldn’t try to sell it to you if I didn’t believe it was the best product for you and your company,” she may well believe this statement. Yet substantial research tells us that the seller’s conflict of interest (being honest vs. making the sale) can lead her to unconsciously view the world through a biased lens and to believe that her product is the very best option for you — even when that is not the case. When a seller claims that his products are the best on the market, and a prospective buyer believes that the products are indistinguishable from those of the competition, the buyer is likely to make sinister attributions about the seller’s ethics. When the discussion is over, the buyer assumes that the seller’s statements were indicative of unethical behavior when, in fact, the seller was falling prey to the psychological trap that Sinclair predicted.

The Problem of Agents

Conflicts of interest often become most problematic when agents are involved — whether the agents are investment bankers, lawyers, literary agents, real-estate agents, or some other type of third party with a stake in the negotiation’s outcome. Consider what happens when a real-estate agent advises you, the buyer, to raise your bid on a house even though your current bid is consistent with a rational assessment of the property’s value. Is the agent thinking only of her own commission? We would argue that she is probably not intentionally corrupt, but simply human, and therefore implicitly motivated to see the world in a way that maximizes her own returns from the deal. The agent can quickly think of past situations in which a buyer preferred to overpay rather than risk losing a house, or bitterly regretted not heeding the agent’s advice to overpay. On the other hand, it will be much harder for her to recall times when this was the wrong advice, even though this happened more frequently.

When you are planning to buy or sell a house, your agent will undoubtedly tell you that she is working in your best interest. But when we look at the situation objectively, it becomes clear that the agent is a third party in the transaction, one whose interests do not perfectly match those of her principal (the buyer or seller). The buyer who wishes to pay as little as possible and who is in no hurry to buy may have to deal with a well-intentioned agent who is paid more when the selling price is high and who would love to close the deal as soon possible. Similarly, a seller may be in no rush to sell, yet her agent devotes considerable energy to persuading her that it is best to make a sale before the market cools down. What can be done about this problem?

Due to the failure of agents to act professionally in many domains, including auditing, investment banking, and real estate, both federal and state governments have stepped in to remedy the situation. The most popular solution has been to implement rules mandating disclosure. The reasoning is that, if consumers understand that their advisers and agents have a conflict of interest, they can take the steps necessary to protect themselves. Are such remedies effective? Perhaps not. Consider that, in most states, real-estate agents for buyers and sellers are required to have their customers sign a disclosure statement clarifying that the agent will earn a percentage of any sales transaction. Most people sign the disclosure form and never again consider the actual conflict of interest between buyer and agent. Instead, they truly believe that their agent is providing objective advice.

Furthermore, research suggests that disclosure could actually increase the problems that result from conflicts of interest. A study conducted by decision researchers Daylian Cain, Don Moore, and George Loewenstein, participants playing the role of “adviser” were (in some cases) required to tell a participant playing the role of “client” that he had a vested stake in having the client believe that a commodity had a high value. As it turns out, this disclosure led “advisers” to feel more comfortable exaggerating their estimates; after all, “I already told them I was biased.” At the same time, the “clients” often believed that their advisers were more trustworthy if they had disclosed their conflict of interest. In other words, advisers would have been more honest, and clients would have been more cautious, if there had been no disclosure!

If disclosure will not help resolve this ethical dilemma, what are we to do? First, to the extent possible, try to solicit advice and expertise from people who do not have a stake in the outcome and who do not profit from manipulating your behavior or decisions. When this is not possible, try to collect additional information from outside sources that can serve as a reality check on the advice you have been given. For example, if the real-estate agent tells you that a particular property or region is worth investing in, solicit an outsider’s opinion by asking a different real-estate agent (a friend, an acquaintance, or a stranger whom you have not hired) whether this advice seems sound. Finally, be willing to ask your agent to justify her analysis. Instead of taking her “expert opinion” at face value, try to discover what objective criteria or procedure she employed before making her claims. She may trust her “intuition,” but there is no reason that you should.

A final note: most of us view conflicts of interest as a genuine societal problem that must be remedied. We understand that conflicts of interest can contort people’s judgments. Yet we have trouble believing that they affect our own judgments. The truth is that none of us is immune. There is no good reason to believe that you will behave any differently from the agent, the auditor, the buyer, or the seller when you have conflicting motivations and interests. To avoid such unintended unethical behaviors, the first step is to recognize your own fallibility.