Negotiation
Negotiation is all about splitting the pie equally.
Barry Nalebuff is an Economist at Yale, and the co-founder of the billion-dollar company HonestTea. In his book 'Split the Pie: A Radical New Way to Negotiate', he gives great insights on how to use basic economics principles to run successful negotiations. Here are some tips from his appearance on Steve Levitt podcast's 'People I Mostly Admire'.
What is negotiation really about ?
Traditionally, negotiation is seen has a dialogue between one or more parties to reach a desired outcome in a conflict. In this setting, one 'stronger' party is often seen as having more power than another and hence able to dictate its conditions to a 'weaker' party.
But Nalebuff argues negotiation is all about the surplus that can be reached if the two parties come to agreement.
In this paradigm, the two parties have equal power. Because if they don't come to an agreement, no deal is made. That's a framework for negotiation built around basic economic principles.
A short guide to optimal negotiation
So, according to Nalebuff, optimal negotiation should be done as follows:
- Agree on the size of the pie
'Can we agree that the pie surplus is X USD ?' - Agree that the two parties are equally essential
'Can we agree that we two are equally essential to make the deal?' - Split the pie equally and shake hands!
In short, identify the pie and split it equally. Because remember, failing to reach a deal is a zero-sum solution.
Source: Levitt, S. (Host). (2022-06-17). Get Your Share of the Pie (No. 80) [Audio podcast episode]. In 'People I Mostly Admire'. Produced by Morgan Levey. URL: https://freakonomics.com/podcast/get-your-share-of-the-pie/.
References:
- Nalebuff, Barry.(2022). Split the Pie: A Radical New Way to Negotiate. Harper Business.
- Negotiation. (2023). In Wikipedia. https://en.wikipedia.org/w/index.php?title=Negotiation&oldid=1142476527