![]() First, there’s a ton of cash in the system that needs to find a home. Last year was a record-setting year for deals. While the first quarter of 2022 lagged, volume was still historically high compared to all the years before 2021, and there’s good reason to believe that the deals market can stay hot.Īs we shared with attendees at the Exchange, discussions with our clients reveal that they remain optimistic despite inflation and rising interest rates. And those three overlooked elements of value creation we mentioned above… those led to a robust discussion of how deals can be a key element of driving transformation. The Exchange was a good time for dealmakers to consider those psychological drivers because they’re likely to be busy in 2022. Speakers at the Exchange discussed a range of factors, including noise, influence, perception and dealmaker personas. Of course, biases aren’t the only nonfinancial factors that can impact dealmaking. Architectural nudges, or designing systems that help encourage certain behaviors such as shifting post-deal actions from an opt-in to an opt-out model.Educational nudges, real-time reminders about the consequences of certain actions (a retail example: a sign reminding customers that if they buy two tacos they’ll get a third taco free).A/B testing, such as testing two different positions with a small group before positioning on a deal.How do you navigate your own biases? Cass Sunstein, an acclaimed author and expert in behavioral economics who spoke at the Exchange, recommends the use of several safeguards to help you make better decisions. Have you considered how your biases play into your deals? Our dealmaking identity quiz is another simple tool to open your awareness, of both yourself and others. The more you’re aware of your own biases, the more intentionally you can drive decisions. Understanding them can give you a roadmap through complex negotiations, making it important to watch for information that gives you a sense of what biases, and preferences, influence your counterparty. The important point is that biases play a key role in motivating behavior. Everyone has biases, and they aren’t inherently good or bad. These heuristics allow us to survive, and they can govern the vast majority of our daily (unconscious) decisions. The word bias has a negative connotation that can conjure up feelings of moral failure. Status quo bias might suppress the importance of digital transformation, causing the negotiators to often miss the modernization steps needed to position the company for a value-creating merger. Self-serving bias might lead to actions that are counter to one company’s sense of purpose, leading to the loss of key talent. Unrealistic optimism bias can often oversimplify the effort to integrate a new acquisition, even though the two company cultures can be at odds with each other. PwC research identified three overlooked elements of value creation: culture, purpose and digital acumen. It’s not hard to see how biases (based on assumptions, which in turn are based on perceptions) influence deal negotiations, a point Lotto made in his presentation. ![]() Lotto used several audio and visual examples to show attendees how their perceptions could be altered by context, causing them to see the same color differently or to believe they heard messages that weren’t actually present in an audio recording. It’s also about how you perceive and process that information. But another Exchange speaker, neuroscientist and author Beau Lotto, explained that understanding isn’t just predicated on gathering more information. Understanding the meaning behind what a counterparty wants - instead of just making assumptions - is crucial to striking win-win deals that help create value. But the point was clear: discovering what the counterparty values, and being intentional as to where you see value, can help overcome shortcuts that our biases present - and reveal hidden value that can cost you nothing but generate better returns. It worked, and Chance turned over the $100. One attendee made a plea built on assumptions as to what Chance would value. Behavior economics researcher and author Zoe Chance held up a $100 bill and threw out a tantalizing challenge to the room full of dealmakers: Convince me to give it to you. ![]()
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