Applying Behavioral Economics to Clinical Trial Negotiations
While the structure of clinical studies follows logic and reason, the business of clinical trials may not be as rational. Traditional economic thought assumes humans to be rational, self-serving decision-makers; however, the growing field of behavioral economics shows us that rationality might not be our forte. In this article, we will use a framework of behavioral economics to explore how our cognitive biases and subjective experiences impact our decisions, and how becoming aware of these influences can improve our clinical trial negotiations.
What is Behavioral Economics?
We have evolved and adapted mental shortcuts—called cognitive biases—to save time and energy in our decision-making processes. While they can help us easily sort through our best options, any cognitive bias leaves us open to error and can serve as a blind spot in our decision-making process if we lack awareness.
It is important to understand that everyone is influenced by cognitive biases from time to time. Rather than assuming we are all capable of making completely rational decisions, behavioral economics—a field that merges psychology and economics—differs from traditional thought in that it acknowledges humans as thinking, feeling beings with experiences and beliefs that influence our decisions.
The Ultimatum Game
In what has become a classic experiment in behavioral economics, the Ultimatum Game highlights the many subjective underpinnings of human decision-making. The experiment consists of two players: Player One is given a lump sum of money and is told to divide it with Player Two. Player Two has the option to accept or reject the offer. If the offer is rejected, neither Player One nor Player Two receives any of the money. Both players are aware of the rules and the total amount of money. If both players acted to maximize the highest gain for themselves, Player One would always offer Player Two the lowest amount of money, and Player Two would always accept any offer.
Consider how your budget negotiations normally play out—is this what happens? The answer is likely “no.” Although these behaviors would result in the highest gain for each player given the scenario, overall results of the Ultimatum Game show that Player One tends to offer Player Two approximately half the total sum, and Player Two rejects amounts perceived to be unfair. This probably sounds more like the negotiations you’re used to, and these behaviors show that we are making decisions based on more than just numbers.
More Than Numbers: Common Factors that Affect Decision-Making Behaviors
What are some of these subjective factors that affect our ability to make completely rational decisions? We’ll highlight a few below:
Reciprocity commonly occurs during the back and forth of negotiations: a low offer is followed by a high offer, followed again by a low offer and so on. In this cycle, the response is equivalent to the action. The high-to-low, back-and-forth often leads to an increase in start-up time—but keep in mind that reciprocity can also result in positive outcomes. Well-justified, thoughtful proposals tend to be met with thoughtful responses.
Time (temporal) discounting
Time is valuable—especially in a competitive enrollment study. Delays in start-up can also mean delays in the time it takes for the investigational product to go to market. The hidden cost of time is often experienced in clinical trials, and leads to variation of value attributed to the same items at different points in time. Money is treated differently depending on the time in which it is acquired or used, normally with a bias toward the present tense.
Mental accounting— the human tendency to subjectively categorize and predict various financial outcomes—is common in clinical trial budget discussions. Instead of focusing on the study budget as a whole, we might focus on each item separately and attribute value to it based on miscellaneous criteria, such as the source of the money and its intended use. When working under the cognitive bias of mental accounting, we may think we’re only focused on the numbers and be unaware of the value judgements impacting our decision-making. This can lead to the bottom line being overlooked.
How Do Negotiation Styles Affect the Way We Make Decisions?
Perhaps unsurprisingly, our overall negotiation “style” impacts the other party’s response as well as the outcome of the negotiation. Next, we’ll highlight the differences between adversarial and collaborative styles of negotiation:
Adversarial Negotiation Style
Traditional thought behind humans as purely rational decision-makers privileges an adversarial negotiation style. Descriptors like “tough,” “hard,” or “doesn’t take no for an answer” tend to be associated with good negotiation skills; however, the adversarial style sets up the outcome to be a win-loss, which can also be perceived as loss-loss.
The adversarial style often includes “anchoring,” which uses a “door in the face” technique to create an extreme anchor point from which the other side must negotiate. The establishment of the anchor is then followed up by a lower request to give the appearance of concession. An example of anchoring in clinical trials can be seen in the initial offer and the initial counter-offer, setting high and low starting points for both sides.
This technique has mixed outcomes given the relational context of the negotiation as it can be read as an insult to the other party. For example, if a sponsor proposes a low budget, the site may feel undervalued and is more likely to respond in an adversarial way by similarly anchoring themselves (an example of reciprocity). This method of negotiating is one cause of extended study start-up times.
Collaborative Negotiation Styles
While the adversarial style tends to focus on each negotiation in a vacuum, a collaborative negotiation style acknowledges the relational context of negotiations and promotes outcomes in which both parties can come out ahead. In individualistic cultures, this can be viewed less favorably by those outside of the negotiation, but a collaborative style is more likely to generate positive outcomes for the negotiators. This approach allows both parties to become aware of the influence of subjective values, and fosters feelings of fairness.
By using behavioral economics to explore how our cognitive biases and subjective experiences impact our decisions, we can begin to negotiate in ways that can create positive change in the business of clinical research. Instead of making demands, approaching negotiations with a collaborative style increases the likelihood that involved parties will work together in the future and might have an easier time accepting each other’s “must-haves.”
1. Samson, A. (Ed.) (2018). The Behavioral Economics Guide 2018 (with an Introduction by Robert Cialdini). Retrieved from http://www.behavioraleconomics.com.
2. Samson, A. (Ed.) (2017). The Behavioral Economics Guide 2017 (with an introduction by Cass Sunstein). Retrieved from http://www.behavioraleconomics.com.