A small alcoholic drink could benefit business negotiations, study finds

It is a tradition in many cultures, especially in East Asia, for business negotiations to be accompanied by drinking alcohol. Motivated in part to wonder why this might be, Pak Hung Au and Jipeng Zhang, at Nanyang Technological University in Singapore and Southwestern University of Finance and Economics in China, have tested the effects of a small cup of beer (350ml) on participants' bargaining behaviour.

The study in the Journal of Economic Behavior & Organisation involved 114 people playing a bargaining game in pairs, some of them after a cup of beer, others after non-alcoholic beer (a test of a placebo effect) and some after juice. Each round, each player was allocated a sum of money between $1 to $10 known only to them. Each round they and their partner then had to decide whether to participate with each other or not. If both parties agreed to join together then their initial endowments for that round would be summed and multiplied by 1.2 before being shared equally.

As a pair, these rules meant the participants gained more money the more that they collaborated. However, collaboration was not financially beneficial to individual participants on those rounds in which they had a large initial endowment but their collaborating partner had only a small endowment. Generally what happened is that players opted to collaborate on rounds in which they started out with a small endowment, but chose not to when they had a larger amount. Part of the game involved deducing from any collaboration payouts and other clues how conservatively and individualistically their partner was playing, and responding as they felt appropriate.

In short, the researchers found that more collaboration occurred when both participants in a pair had had a drink of beer compared with juice (those who drank beer had an average blood alcohol concentration level of 0.0406; for reference, outside of Scotland, the UK drink drive limit is 0.08 or 80 milligrams of alcohol per 100 millilitres of blood). There was little evidence of a placebo effect, and other financial games and measures used in the study suggested the effects on collaboration were not due to any changes in risk aversion, mood or altruism. Instead, the researchers' analysis suggested that alcohol affected the way that players made inferences about their partner's negotiating stance based on their collaboration decisions and other clues. "In settings in which skepticism can lead to a breakdown in negotiation, alcohol consumption can make people drop their guard for each others' actions, thus facilitating reaching an agreement," they explained.

The researchers warned that of course excessive alcohol consumption is associated with many health risks, and that the consumption of larger amounts of alcohol would inevitable harm business negotiations through its affects on mental performance and aggression. But they said their results do suggest that "consuming a mild to moderate amount of alcoholic drink in business meetings can potentially help smooth the negotiation process".

Further reading

— Deal or no deal? The effect of alcohol drinking on bargaining