Indications for biased valuations and mental accounting in multi-issue representative negotiations

Keywords: Representative negotiation; subjective value

Abstract: Constituents ratify agreements based on their subjective valuations. In two studies we show constituents’ biased valuations of negotiated agreements with multiple issues. First, we find that achievements on less important issues cannot compensate for a loss on important issues, despite equivalent objective value. This is replicated in a second study, where we furthermore show that individuals classify issues based on importance, creating separate mental accounts for important and less important issues. Trades within the same account (concessions on important issues and compensation on other important issues or concessions on less important issues and compensation on less important issues) are valued more favorably than trades across accounts (conceding on an important issue for several less important ones of equal value or vice versa). Thus, mental accounting can explain the reluctance to accept compensations for a loss on an important issue, and re-categorizing mental accounts can potentially reduce this valuation bias.