The Three Commandments of Negotiation that Game Theory Teaches Us.
An introduction to preparing for strategic negotiations.
To most people negotiation is an art more than science; A smooth dance rather than a rigorous process; If negotiation is a game, it would be more similar to a game of Poker than Chess. To a seasoned negotiator, it is all that and more!
As a dear reader of my blog, you probably know all this already - after all this is Games & Negotiations! I have been writing during the past year about real-life events where I see game theory and negotiations intersect, today I want to write about something a bit more abstract; the basics if you like.
Having been a negotiator for almost a decade, I consider negotiation as a well-choreographed dance with competitive as well as cooperative aspects - To succeed in it, you need to be prepared, but also be lucky and have an open mind that you might get more than what you started with or nothing at all.
A lot of people have been writing about the artistic aspect of negotiation: how to talk, how to convince, what to say and even how to move your hands. In this article and generally in this blog, I am focusing less on the artistic, and more on the essence of the negotiation game. In the following, I try to summarize this in three key aspects.
The first commandment: (Real) Commitment
If you want to take away one thing from this article, let it be this: commitment is your secret weapon in negotiations. Game Theory tells us that by making a true commitment, you can completely change the game in your favor. And what makes a commitment truly powerful? It needs to be linked to real incentives and consequences. Simply saying you'll do something doesn't cut it. In Game Theory speak, we call that cheap talk. You need to show the other party that there's skin in the game.
For example, let's say you're negotiating with a vendor for better prices. You could simply ask for a discount, but that might not be enough. Instead, you could commit to placing a larger order if the vendor agrees to lower prices. By doing this, you're showing the vendor that you're serious about the negotiation and that there are real benefits for them if they agree to your terms.
Another example could be in a job negotiation. If you're asking for a raise, you could simply state your case and hope for the best. But if you want to seal the deal, you could show your commitment by offering to take on additional responsibilities or work longer hours. This demonstrates to your employer that you're not just asking for more money, but that you're also willing to put in the effort to earn it.
As Nassim Taleb puts it in his famous Incerto Series:
“Never trust someone who doesn't have skin in the game”
The second commandment: Incentive Design
Incentives can make or break a negotiation. By sweetening the deal, you show the other party that you're willing to go the extra mile to make the agreement work. And that's what it's all about, right? Finding common ground and making a deal that works for everyone.
Take a sales negotiation, for example. If the buyer is hesitant, you could offer a discount or a longer warranty to close the deal. But why stop there? You could also offer free shipping, a bonus item, or even a trial period. The key is to find what motivates the other side and use that to your advantage.
It's not just about discounts and bonuses, though. You can also get creative with the terms of the agreement. For example, if you're negotiating with a vendor for better prices, you could agree to pay upfront in exchange for a lower price. This shows the vendor that you're committed to the deal and that you're willing to make an investment to make it work.
In a job negotiation, you could offer to take on additional responsibilities or work longer hours in exchange for a raise. This demonstrates to your employer that you're not just asking for more money, but that you're also willing to put in the effort to earn it.
When both parties feel like they're getting a good deal, the negotiation becomes much smoother and more productive. Don't be afraid to get creative with incentives. A little extra effort can go a long way in sealing the deal. So, next time you find yourself in a negotiation, don't be afraid to think outside the box and come up with some creative incentives to sweeten the deal.
The third commandment: Strategic Thinking
Strategic thinking is a must-have skill for any high-impact negotiation. It requires a deep understanding of the other party's objectives, motivations, and constraints. This allows you to craft a negotiation strategy that meets both your needs and theirs.
One example of this is the use of the "BATNA" (Best Alternative To a Negotiated Agreement) concept, which helps you understand the lowest acceptable outcome for you and the other party. Having a solid BATNA gives you more bargaining power, as it sets a clear limit to the negotiation.
Another important concept from strategic thinking is the idea of risk and reward. In any negotiation, it's crucial to weigh the potential risks and rewards of each decision you make. This means considering both short-term and long-term consequences, and being aware of what you're willing to compromise on. For example, in a salary negotiation, you may need to consider the immediate financial benefit versus the long-term job satisfaction and growth opportunities. By being mindful of the risk and reward balance, you can make more calculated and strategic decisions in your negotiations. In a negotiation with suppliers, you should consider potential non-commercial risks and rewards the various suppliers present to you as part of their offering and business case. Most of the time - your options are not between buying and not-buying, but rather buying from supplier A or from supplier B.
So, when it comes down to it, strategic thinking is an important tool in your negotiation toolkit. Understanding your opponent's needs and motivations, having a clear strategy in mind, and being open to creative solutions are all key components of a winning negotiation. And remember, negotiations aren't just about getting what you want, they're about finding a solution that works for everyone.
Très bon article a lire absolument
Amazing tips! Can you please expound more upon these and other "tactics" in future posts?