Harvard Business Review on Winning Negotiations

Deals Without Delusions

by Dan Lovallo, Patrick Viguerie, Robert Uhlaner, and John Horn

IF YOUR FIRM IS LOOKING to acquire, how can you tell whether a given deal is advantageous? Unfortunately, you can never be sure that any large organic or acquisition investment will pay off, which may explain why many firms shy away from purchases that might otherwise afford them important growth opportunities. The good news is that you can stack the odds in your favor by examining a psychological phenomenon that most executives never consider when making deals—the degree to which their own biases influence decisions.

Before we disentangle the biases, let’s consider some facts about M&A nowadays. A typical large corporation derives 30% of its revenue growth ...