Negotiation Genius

Negotiation Genius

Author – Deepak Malhotra and Max Bazerman

Moneyball → MLB manager autobiography
Robert Cialdini → social psychologist pioneer
Negotiating rationally → Bazerman, Neale
Getting to yes: negotiating agreement without giving in

Claiming Value in Negotiation

→ How do I get the best possible deal for my side?
→ Negotiation preparation, common negotiator mistakes, whether to make the first offer, responding to offers from the other party, structuring your initial offer, finding out how far you can push the other party, strategies for haggling effectively, and how to maximize not only your outcome but also the satisfaction of both parties.

💡 Value is whatever people find useful or desirable. You may measure value in dollars, utility, happiness, or a variety of other metrics.

BATNA(Best Alternative To a Negotiated Agreement)

five-step pre-negotiation framework

Step 1: Assess your BATNA

‘What will you do if the current negotiation ends in a no-deal?’

  1. Identify all of the plausible alternative options you might pursue if you are unable to reach an agreement with the other party.
  2. Estimate the value associated with each alternative.
  3. Select the best alternative; this is your BATNA.

Step 2: Calculate your reservation value

  • Reservation value(RV); walk-away point in the current negotiation; lowest offer willing to accept; indifference point
  • Keep in mind that your BATNA is not what you think is fair, what you originally paid for the item you are selling or the price that you hope to achieve.
  • Your BATNA is the reality you will face if you reach no deal in the current negotiation.

Step 3: Assess the other party’s BATNA

  • ‘What will the counterpart do if the current negotiation ends in a no-deal?’
  • This critical step can make the difference between getting a good deal and getting a great deal.
  • Sometimes it even marks the difference between phenomenal success and utter failure.

Step 4: Calculate the other party’s reservation value

  • Client’s highest willingness to pay
  • What is the price for purchasing this item on the current market?
  • What will the value(price) of the item be after the completion of the build?
  • What is the yearly revenue of the item after completion?
  • What will the price of the item be if sold after completion?

Step 5: Evaluate the ZOPA

  • ZOPA; the zone of a possible agreement; the space between the seller’s RV and the buyer’s RV
  • You will want to make a deal at a high price that is as close to the counterpart’s reservation value as possible, while the counterpart will want the price as low as possible.
  • After the negotiation evaluate your performance by reviewing things such as ‘Have you surpassed your RV?’ or ‘Compare the results by considering the entire ZOPA.’

Common Negotiator Mistakes

  • Do not make a strong offer if you are not in a strong position.
  • Do not make a strong offer that is not sufficiently aggressive.
  • Less talking more listening.
  • Learn from the counterpart.
  • Challenge your assumptions.
  • Reevaluate your ZOPA during the negotiation.
  • Make fewer concessions than the counterpart.

💡 Should you make the first offer?
→ When made prematurely, a first offer can be extremely costly.
→ Whether you should make the first offer or not depends upon how much information you have.

How should you respond to their initial offer?

→ protect yourself from being overly influenced by the other side’s anchor.

  1. Ignore the anchor.
    “Judging by your offer, I think we might be looking at this deal in very different ways. Let’s try to bridge that gap by discussing…”

Shift the conversation to an entirely different topic that allows you to reassert control of the discussion.

  1. Separate information from influence.
    information and influence: we have received a better offer from company x. As a result, we think your initial offer is low. We should like you to increase it to y amount.

influence only: as you know, there are other companies with whom we do business. We have spoken with them. As a result, we think your initial offer is low. We would like you to increase it to y amount.

Understand the difference between substantive information and reiterations of what you already know; phraseology.

  1. Avoid dwelling on their anchor.
    if you are surprised by their offer, probe a little to find out if there is in fact any substantive new information that you can obtain.
  2. Make an anchored counteroffer, then propose moderation.
    Offset their anchor with an aggressive counteroffer, and then suggest that you need to work together to bridge the gap.

“Well, based on your offer, which was unexpected, it looks like we have a lot of work ahead of us. From our perspective, a fair price would be closer to X. I will explain to you how we are valuing this deal, but it appears to me that if we are to reach any agreement, we will both have to work together to make it happen.”

  1. Give them time to moderate their offer without losing face.
    If the other party’s initial offer is very extreme, far outside the ZOPA, you may need to inform them that their offer is not even a basis for starting the discussion.

When reacting to very extreme offers, your foremost goal should be to re-anchor successfully, not to convey your outrage. And re-anchoring successfully often means helping the other side find a way to retract earlier demands and arguments.

Four factors to consider when anchoring:

  1. Keep the entire ZOPA in play.

Make an offer that falls outside the ZOPA; one that you know the other side will not accept.

The idea is to force the other party to negotiate their way into the ZOPA.

  1. Provide a justification for your offer.
    In other situations(business disputes involving a mediator, contentious labor-management negotiations, haggling with a street vendor, etc) it is normal and expected for both parties to open with extreme demands. It would be unwise in these cases to moderate your demands too much because the other side is still likely to anchor aggressively.

‘What is the most aggressive offer that I can justify?’

  • the average price on the market
  • what will it be worth
  • what is it worth as much as
  • what is it at least worth
  • what might it be worth
  1. Set high, but realistic aspirations.
    The targeted price and final negotiated price correlate highly.

High aspirations serve as self-fulfilling prophecies; they motivate the kinds of behaviors that help us achieve aggressive targets.

  1. Consider the context and the relationship
    Your goal should be to get the best deal while strengthening the relationship and your reputation. You may have to forgo some short-term gains to meet this goal, but this sacrifice will almost always be worth the price.

How far can I push them?

How can you obtain information that will help you estimate their RV with greater accuracy?

Step 1: Exhaust all pre-negotiation sources of information.
In any negotiation, once you know what you do not know, it is important to seek out all potential sources of information.

Information also helps you to avoid being manipulated or lied to during the negotiation. If the other party perceives that you have done your homework, their willingness to deceive you decreases.

Step 2: Identify your assumptions prior to the negotiation.
Wise negotiators create a comprehensive list of what they are assuming and what they do not know prior to negotiation.

You need to identify and be aware of all of the assumptions that underlie your planned course of action.

Step 3: Ask questions that challenge your assumption.
The wrong way to approach a negotiation is to start bargaining as if your assumptions are correct.

‘If the land is used for commercial development, that will make it quite valuable. With that in mind, let’s discuss some specifics. What are your plans for this excellent piece of real estate?’

This approach of anchoring, interrogating, and sounding sufficiently informed encapsulates all the characteristics of an effective approach in the face of uncertainty.

Step 4: Ask indirect questions.
What challenges does the client face?

What challenges does the company face?

What do they hope to accomplish in the next ten years?

What kinds of projects you might be able to help them with in the future?

How does this project fit with the client/company?

Step 5: Protect yourself from lies and uncertainty with contingency contracts.
Contingency contract: agreements that leave certain elements of the deal unresolved until the uncertainty is resolved in the future.

Effective haggling strategies

Strategy 1: Focus on the other party’s BATNA and reservation value
Those who focus on the other party’s BATNA(’What will they do without me?’) are paying attention to the amount of value they bring to the other party. These folks tend to set higher aspirations and capture more value in the deals they negotiate.

Strategy 2: Avoid making unilateral concessions
Negotiation geniuses are willing to make concessions, but they also demand reciprocity.

Luckily, a norm of reciprocity pervades most negotiation contexts: parties widely expect and understand that they will take turns making concessions.

If the other party violates this norm, you should rectify this problem immediately.

Strategy 3: Be comfortable with silence
The party that has made the offer will begin to qualify it, moderate it, or simply signal a greater willingness to concede.

Effective negotiators understand not only the power of silence but also the need to be comfortable with it.

Remind yourself that if you speak when it is their turn, you will be paying by the word.

Strategy 4: Label your concessions
Labeled concessions are hard to ignore, so it becomes difficult for recipients to justify nonreciprocity.

People are hardwired to feel obligated when someone has provided them with something of value, this norm of reciprocity is a powerful motivator of behavior.

Strategy 5: Define what it means to reciprocate
Reciprocity is even more likely if you specify what you expect in return.

‘I understand that we are still thousands of dollars apart. I am willing to moderate my demands, though this will be very costly to me. I am making a concession with the understanding that you will reciprocate with concessions of a similar magnitude. This is the only way we will be able to reach an agreement we both can accept.’

Strategy 6: Make contingent concessions
You can phrase your concessions in a quid-pro-quo manner to clarify that you will only make them if the other party does their part.

‘I can pay a higher price if you can promise me early delivery.’

Contingent concessions should be used as needed, but not overused.

The more conditions you place on your concessions and your willingness to cooperate, the more difficult it may be to build trust and strengthen the relationship.

Strategy 7: Be aware of the effects of diminishing rates of concessions
Early concessions are larger in size than later concessions.

As a negotiator gets closer to his reservation value, there is less room for large concessions.

Negotiating the relationship

Satisfaction has less to do with how well someone actually negotiated and much more to do with how well they think they negotiated.

💡 Satisfaction has everything to do with how well you think you did, and often little to nothing to do with how well you actually did.

The people with whom you negotiate will be satisfied to the degree that they believe they got a good deal, the degree to which they felt respected, and the degree to which they felt the outcome was equitable.

If you really want the other side to feel satisfied with the negotiation, take more of their money!

Make a counteroffer and ask for additional concessions.

💡 You are negotiating not just the deal, but also the relationship.

If you have been given an opportunity to strengthen the relationship or enhance your reputation, and all you need to do is reciprocate in kind to a generous opening offer, it may be foolish to do otherwise.

If you are surprised by an offer, don’t celebrate, think!

It is critical to stop and ask yourself: “What do they know that I don’t?”

Managing your own satisfaction

Those who set aggressive targets tend to capture more value.

Focus on your target during the negotiation; when it is over, shift your focus to your reservation value.

By doing so, you will negotiate effectively(thanks to your high aspirations) and still be satisfied with your outcome afterward(because now you are comparing it with your RV)

Creating Value in Negotiation

Strategies for value creation, a framework for negotiating efficient agreements, preparing for and executing complex negotiations, how and when to make concessions, how to learn about the other side’s real interests, and what to do after the deal is signed.

Look for opportunities to create value by making trades across multiple issues.

Logrolling → the act of trading across issues.

It requires knowing your own priorities AND the clients.

💡 If the client values something more than you do, you should give it to them in exchange for reciprocity on issues that are a higher priority for you.

Negotiators should seize every opportunity to create value.

If you create value, you have the opportunity to capture a portion of this created value for yourself.

If the other party values something more than you, let them have it; but don’t give it away, sell it.

A good negotiator plays the game well; a negotiation genius changes the nature of the game itself.

Identify and pursue opportunities for value creation that are not obvious.

The more issues you have to play with, the easier it will be to find opportunities for log rolling.

→ more issues = more currency

💡 The goal of negotiation is not to get the best possible outcome on any one issue, but to negotiate the best possible package deal based on a consideration of all of the issues.

Adding issues to the negotiation may be most critical when the deal is centered on one divisive issue and no one is willing to compromise.

In business negotiations, price is often a divisive issue.

Other negotiable issues:

  • delivery date
  • financing
  • quality
  • contract length
  • last-look provisions
  • arbitration clauses
  • exclusivity clauses
  • level of service support
  • warranties
  • future business
    → The more issues there are available to play with, the more likely it is that each party will obtain what it values most and become willing to compromise on issues relatively less important.

Your goal should be to maximize value.

Pareto improvement – changes to a deal that make one person better off without making anyone worse off.

Always look for Pareto improvements until you reach Pareto efficiency.

Pareto efficient – until there is no way to make one party better off without hurting the other.

How well do you understand the concerns of the other side?

💡 Contingency contracts alert you to possible deception if there is an unwillingness to “put his money where his mouth is”.
→ It can create value by allowing negotiators to stop arguing about their different beliefs and instead leverage their differences through bets that both sides expect to win.

caveats to keep in mind:

  • dangerous if the other party is more knowledgeable than you.
  • useful only if uncertainty will be resolved in ways that can be measured objectively.
  • make sure your contingency contracts are incentive compatible.

Preparation strategies for value creation

Strategy 1: Identify your multiple interests
→ The goal is not to overwhelm the other party with demands but to give them a lot of different ways to compensate you and make you happy.

Strategy 2: Create a scoring system

→ Think about your relative priorities over the many issues.

List each issue and weigh it according to its importance.

Have a common metric for evaluating each issue.

Strategy 3: Identify the other party’s multiple interests
→ You will be in a position to give the client something that they value and get something of value in return.

Execution strategies for value creation

Strategy 1: Negotiate multiple issues simultaneously
→ to create a non-zero-sum negotiation that allows for value creation.

The relative importance of each issue to each party only becomes apparent when the issues are discussed simultaneously.

Strategy 2: Make package offers
→ avoid reaching a final agreement on any one issue until you had the opportunity to discuss every issue.

Begin with a discussion of each side’s perspective and preferred outcome on each issue.

Compare relative preferences across issues.

Exchange offers.

Strategy 3: Leverage Differences of all types to create value
→ differences in risk preferences | time preferences

When negotiating, rather than trying to ignore, reconcile, or overcome your differences with the other party, you should try to seek out differences, and then find ways to leverage them to create value.

Try to discover how much the other side values getting their way on this aspect of the deal.

→ If they value it sufficiently, they may be in a position to make the deal even sweeter for you by making other concessions in return for your flexibility.

Post-Settlement Settlement(PSS) → The recently signed agreement becomes the new BATNA for both parties.

This is a crucial point: you don’t want the other side to perceive the PSS as your attempt to renege or squeeze last-minute concessions out of them. On the contrary, you should present the idea of a PSS as an opportunity for both parties to benefit.

How to propose a PSS:

Step 1: Start by acknowledging the progress that was already made in reaching the initial agreement.

Step 2: Suggest that there are aspects of the deal that you wish could be improved; acknowledge that they probably feel similarly.

Step 3: Suggest that you may have already conceded everything that you can afford, but that you are willing to try to think “outside the box” if that will help the other party.

Step 4: State that it is important for both of you to realize that you are not looking for a new agreement, but for an improved agreement that both parties prefer to the current agreement.

💡 The task is to create value and increase the size of the pie.

Investigative Negotiation

Discover and leverage the interest, priorities, needs, and constraints of the other party—even when that party is reluctant or unwilling to share this information.

Investigative negotiation is both a mindset and a methodology. Investigative negotiators approach a crime scene: the goal is to learn as much as possible about the situation and the people involved.

Principle 1: Don’t ask what, ask why
→ too much focus on what people want distracts your attention from discovering why they want it.

Principle 2: Seek to reconcile interests, not demands
→ negotiation geniuses are not discouraged when the demands of each party seem incompatible. Instead, they probe deeper to find out each side’s real underlying interests. This strategy allows them to think more broadly and creatively about agreements that might satisfy the interests of both sides.

Principle 3: Create common ground with uncommon allies
Co-opetition → the mixed motives we often do(and should) have when engaging with those whom we view as our competitors. According to the principle of co-opetition, it is possible to simultaneously cooperate and compete with others.

Those who view their relationship with another side as one-dimensional(”He is my enemy”) forgo opportunities for value creation, whereas those who appreciate complex relationships and explore mutual interests are able to create common ground.

ex: he would pay even higher penalties than the buyer had demanded if the project was delayed, but the buyer would give the construction company a bonus if the project was completed earlier than scheduled.

Investigative negotiators confront demands the same way they confront any other statement from the other party: “What can I learn from this demand? What does it tell me about the other party’s needs and interests? How can I use this information to create and capture value?

Principle 4: Don’t dismiss anything as “their problem”
When the other party’s constraint destroys value, it is naïve to view these constraints as “their problem”

Principle 5: Don’t let negotiations end with a rejection of your offer

If you lose the deal, make one last call to the client.

Ask whether they would be willing to tell her why your offer had not been sufficient to win the deal. “This information could help me improve my product and service offerings in the future.”

Negotiations should never end with a “no”. Instead, they should either end with a “yes” or with an explanation as to “why not”.

“why not” is often as important a question as “why”.

💡 Never stop learning; not even when the deal is lost and they have been asked to leave the room.

Principle 6: Understand the difference between “selling” and “negotiating”
Effective negotiating requires active selling, but it also entails focusing on the other side’s interests, needs, priorities, constraints, and perspective.

They also understand that their ability to structure a deal that maximizes value often hinges not on their ability to persuade, but on their ability to listen.

Five strategies for eliciting information from reticent negotiators

  1. Build trust and share information → Understand & speak their language | Increase the ties that bind. | Build trust when you’re not negotiating.
  2. Ask questions; especially if you are surprised or skeptical
  • “What do you plan to do with the products you’re purchasing from us?”
  • “Tell me about your customers.”
  • “What do you plan to do if we can’t provide you with the services you need?”
  • “How does this deal fit into your overall business strategy?”
  • “Tell me more about your organization.”
  1. Give away some information → “I know we have a lot to talk about. If you like, I can start by discussing some of the issues that are most important to me. Then you can do the same.” | Humans tend to reciprocate behavior. When you lie to people, they often lie in return. When you apologize, they often express contrition or regret as well. And when you give them useful and credible information, they often respond by sharing information with you.
  2. Negotiate multiple issues simultaneously
  • “Which issue does he want to return to constantly?”
  • “Which issues make him the most emotional or tense?”
  • “While discussing which issues are the most likely to talk rather than to listen?”
  • “Which issues is she most obstinate about when you ask for a compromise?”
  1. Make multiple offers simultaneously
  • Why does the agent value additional time so much?
  • Is she very busy these days?
  • Is she not a good salesperson?

This information may have been hard to obtain without the use of multiple simultaneous offers.

  • “Which off is closer to something you could accept?”
  • “Which one is completely off the mark?”
  • “If I were to consider making some changes, which offer should I start working on?”

When Rationality Fails: Biases of the Mind

→ Cognitive biases

Even the brightest of executives fall victim to four critical, systematic errors on a regular basis: the fixed-pie bias, the vividness bias, the non-rational escalation of commitment, and the susceptibility to framing.

The Fixed-Pie Bias

Most negotiations involve more than one issue, including delivery, service, financing, bonuses, timing, and relationships.

The fixed-pie bias not only makes value creation difficult, but it can also lead to reactive devaluation.

💡 When approaching any important negotiation, enter the process with the goal of looking for areas in which you can create value. It is better to assume that you can enlarge the pie and later find out that you were wrong than to assume the pie is fixed and never find out you were wrong.

Vividness bias: paying too much attention to vivid features of the offers and overlooking others that could have a greater impact on their satisfaction.

Create a scoring system.

Separate information from influence.

  • Is this information valuable?
  • Have I learned something new?
  • Am I just being influenced to act in a certain way because of how this information was presented?

Understanding the effects of framing and reference points.

  1. Consider the various reference points that you could be used to evaluate the situation; including the status quo, your aspirations, your expectations, your feared outcome, and so on; and then pick the one that seems most appropriate.
  2. Evaluate whether your strategy would still make sense if you were to use a different reference point.
  3. Anytime you are considering the use of a risky strategy(such as making an ultimatum or pursuing litigation), think about whether this strategy still makes sense if you change the frame.

When Rationality Fails: Biases of the Heart

Identify and avoid potential motivational biases, and see the world through a more objective and realistic lens.

Critical for negotiators to anticipate and resolve the conflict between what they want to do versus what they think they should do in advance of an actual negotiation.

💡 External attributions for failure inhibit learning from experience.

Negotiating Rationally in an Irrational World

Overcoming your own biases and leveraging the biases of others.

Identify when it is in your best interest to help the other side be less biased.

3 powerful strategies to confront and manage your own biases:

  1. Use “System 2” thinking → System 1, which corresponds to intuition, is typically fast, automatic, effortless, implicit, and emotional; we make most decisions in life using System 1 thinking.
  • System 2 corresponds to reasoned thought and is slower, conscious, effortful, explicit, and logical. When we are facing time pressures, we are more likely to use System 1.
  • Make a system 2 list. At the beginning of each month or year, make a list of all of the upcoming negotiations that you think should be subject to System 2 thinking.
  • Avoid negotiating under time pressure.
  • Unless the other party has given your specific, credible information that time truly is of the essence, you should avoid giving in to their pressure tactics.
  • Partition of the negotiation across multiple sessions.
  1. Learn through the use of analogies → analogical reasoning: the conscious comparison of different situations on dimensions that are similar.
  • Debrief multiple negotiations simultaneously.
  • Review multiple negotiations at the same time. As you are doing this, ask yourself how the negotiations were similar and how they were different.
  • Focus on the principles, not particulars.
  • Try to understand the structural and conceptual aspects of what occurred. Rather than focusing on the uniqueness of the specific negotiation, dissect your recent experience into elements that map onto the negotiation concepts described in this book. While all negotiations are unique, they all have BATNAs, and reservation values. ZOPAs, underlying interests, information exchange, and so on.
  1. Adopt the outsider lens → Bring in an outsider.
  • Others will see factors that you have ignored, weigh negative information more appropriately than you do, and preserve an objective view of the situation in ways that are difficult for you to do.
  • Take the outsider’s perspective.
  • Ask yourself how you would assess a situation if you were not immersed in it.
  • If someone I cared about asked me for advice in a negotiation such as this, what advice would I give?

Confronting the biases of others:

  1. Incorporate the consequences of their biases in your strategy → Use your System 2 thinking, but be ready to adapt to the other side’s System 1 mistake.
  • If someone is obsessed with selling his company at a certain price; rather than fight it, see if you can creatively meet this vivid need. How? Offer the desired number in exchange for concessions on other issues that you value highly.
  • When you start thinking about the decision biases of others, you can custom-design negotiation strategies that adapt to their errors.
  1. Help others be less biased → When you have provided the other side with an offer that you believe to be better than your competitor’s proposal, give him time to think it through rather than pushing for an immediate answer.
  • If you are confident that you are offering more than he can get elsewhere, you’d be wise to encourage him to explore alternatives and get back to you after comparing your offer with others.
  • When dealing with an ill-prepared negotiator, encourage her to think through the relative importance of each issue to her. In addition, take the lead in negotiating multiple issues simultaneously and in making package offers, and encourage her to do the same. It is also important that you clarify for her that you value some issues more than others and that you are happy to jointly explore mutually beneficial trade-offs.
  • Encourage her to be more prepared.
  • Suggest that both parties would benefit from thinking more about the issues that have surfaced during the recent discussion. You might then create a timeline with the other party including milestones that encourage preparation and the sharing of information. For example, after one week, each of you will send an e-mail that lists your top priorities and concerns; after three more days, one of you will be responsible for making an initial package proposal; then, after the other party has a few days to consider this proposal, both parties will meet for further substantive discussions.
  1. Calibrate information provided by others → Thinking about the decision biases of others allows you to calibrate, quantitatively and qualitatively, the information, data, and arguments that you hear from them.
  2. Use contingency contracts to resolve conflicts stemming from bias → It sometimes pays to leverage the other side’s biased expectations.
  • When you know that the other side is biased, you can draft a contract that allows him to bet on the information that you believe to be inaccurate. In doing so, you make a bet that you expect to be favorable to you and costly to your counterpart.

Strategies of Influence

Strategies of influence that will increase the likelihood that others will accept your requests, demands, offers, and proposals.

Defense strategies that will defuse their attempts to manipulate your preferences and interests.

Negotiation success is typically more a function of how well we listen than how well we talk.

Defense strategies:

  1. Highlight their potential losses rather than their potential gains.
    → People are more motivated to avoid losses than they are to accrue gains, consistent with the principle of loss aversion.

When you frame the exact same set of information as a loss, it will be more influential in negotiation than when you frame it as a gain.

Ways to leverage the power of loss aversion in negotiation:

  • State your proposal in terms of what potential gains the other side stands to forgo if your idea or proposal is rejected, rather than on what he stands to gain by accepting.
  • When holding an auction, tell bidders ‘you will miss out on the opportunity to have XYZ if you do not increase your bid’ rather than ‘you will have the opportunity to get XYZ if you increase your bid.’
  • Point out that ‘the offer from our competitor does not give you xyz’, instead of pointing out that ‘our offer gives you XYZ.

The use of loss frames should be strategic and targeted, not pervasive. It may be best to reserve the use of loss frames for summarizing your argument or making your ‘final pitch’ statement.

  1. Disaggregate their gains and aggregate their losses
    Disaggregate their gains
  • If you have the ability to make concessions, do not make them all at once. For example, if you can increase your offer by 100,𝑏𝑟𝑒𝑎𝑘𝑢𝑝𝑡ℎ𝑖𝑠𝑐𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑖𝑛𝑡𝑜𝑠𝑚𝑎𝑙𝑙𝑒𝑟𝑐𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝑡ℎ𝑎𝑡𝑎𝑑𝑑𝑢𝑝𝑡𝑜100, and distribute the smaller concessions individually. Your counterpart will evaluate this string of concessions more positively than one lump-sum concession.
  • If you have good news to share, try to parcel the information into smaller “gems” that will give the other party more occasions to smile. For example, if you have completed a project under budget and also earlier than scheduled, do not share all of this good news with your client all at once. You will make your client happier if, one day, you tell her you have completed the project early, and on another day, you tell her you were also under budget.
  • If you have benefits or rewards to offer, separate them into installments that you can make over time. For example, if you have been authorized to give an unsuspecting employee both a raise and a promotion, you will make the employee happier if you tell them about the raise today and about the promotion tomorrow.

Aggregate their losses

  • If you are requesting or demanding that the other side make concessions, make one comprehensive demand rather than several partial demands.
  • If you have bad news to share, share it all at once.
  • If you have costs and burdens to impose, combine them into one.
  1. Employ the “door in the face” technique
    → The more extreme request is made initially.

→ Aim for rejection, then moderate your demand is appropriate when your goal is to make your key demand reasonable.

→ When the exact same proposal was preceded by an extreme demand that was sure to be rejected, three times as many people said yes.

💡 When the person making the request moderates his demands(and asks for something less extreme), the other side views this as a concession that must be reciprocated.

Contrast effect → our tendency to judge the size of something based on the context in which it is situated.

If you want something, ask for more than you want(or expect), and be prepared to make concessions.

Rejection is not necessarily a bad thing.

  1. Employing the “foot in the door” technique
    → is appropriate when you are in need of building commitment toward your key demand.

💡 Once someone has agreed to an initial request, they are more psychologically committed to seeing the process through to its end.
→ Thus, willingness to agree with one request leads to an increased commitment to agree with additional requests that naturally follow from the initial request.
→ People have to justify past decisions and preserve consistency between their statements and actions.

  1. Leverage the power of justification
    → adding a justification can strengthen your case

Don’t let your offer “speak for itself” provide a justification for your demand and then tell a story that legitimizes your justification.

  1. Leverage the power of social proof
    Case study:
  • The seller of a house limits the open-house viewing of the property to only one hour so that all potential buyers will be present at the same time.
  • When a potential client asks her to provide a list of dates on which to schedule an initial meeting, the consultant(who is secretly desperate for work) provides very few available dates in the following week.
  • A sales representative begins his pitch by listing his firm’s many other clients. (Or a business school fills its brochure with the names and photographs of famous alumni.)
  • Bars and nightclubs maintain long lines outside the entrance.
  • Television sitcoms use “laugh tracks”.
  1. Make token unilateral concessions
    → A unilateral concession, or gift, that the recipients felt obliged to reciprocate.
Even a low-cost concession(a token) may be sufficient to induce reciprocity, compliance, or agreement.

Examples of token concessions:

  • You agree to meet at a time, or location that is more convenient for the other side than it is for you.
  • On the way to the negotiation, you purchase doughnuts and coffee to share with your negotiation counterpart.
  • You begin substantive discussions by agreeing to one of the smaller requests that the other side had made.
  1. Use reference points to make your offers and demand seem reasonable
    → Even when the value of the deal is identical, negotiators are likely to find it more or less attractive depending on how it is presented, what it is compared with, and how much of a “steal” it represents.

Defending yourself against strategies of influence:

  1. Prepare systematically
    Rigorous BATNA analysis, careful evaluation of the ZOPA, and a thorough investigation of all issues.

Carefully evaluate interests and priorities prior to entering talks.

  1. Create a scoring system
    allows you to objectively evaluate the total value of a stated offer by comparing it with the total value of alternative offers, to the value of your BATNA, and to the degree of your aspirations.
  2. Explicitly separate information from the influence

Everything that the other side says is part information and part influence.

  1. Rephrase their offer in other terms
    The key is to identify whether your reaction to their proposal stems from its merits or from their presentation.
  2. Appoint a devil’s advocate
    This person’s role is to question your beliefs regarding everything that is relevant to the negotiation.
  3. If possible, do not negotiate under time pressure

Blind Spots in Negotiation

→ Specific advice on how to broaden your focus to ensure that you consider all of the elements that might come into play as you negotiate.

Negotiators often overlook:

  • the role of parties that are not at the bargaining table
  • the ways in which other parties are likely to make decisions
  • the role of information asymmetries
  • the strength of competitors
  • information that is not immediately relevant but will be critical in the future

Winner’s curse → situations in which a bidder gets a prize, but only by paying more than the item is worth, due to his failure to consider the information advantage of the other party.

How to avoid the winner’s curse:

  1. Imagine how you will feel if your offer is immediately accepted.
  2. Seek out objective, expert advice.
  3. Make an offer on a contingency basis.

Effective negotiators must begin to think more broadly about what it means to collect “relevant” information.

  • How will changing policies affect the wisdom of this transaction?
  • What precedent are you creating for future deals?
  • How can you gain information about the key personnel of an organization with which you plan to pursue a joint venture?
  • How will the partner firm’s competitors react to the joint venture?
  • How much power do these competitors have? What is the source of their power?
  • What assumptions are you making when you estimate how long-term success of this strategy?

Confronting lies and deception

→ What might motivate someone to lie in a negotiation?
→ What are some of the strategic costs of lying?
→ How can you tell if someone is lying?
→ How can you deter people from lying to you?
→ What should you do if you catch someone in a lie?
→ If you are interested in telling the truth but don’t want to lose your shirt at the bargaining table, what are some smart alternatives to lying?

Pre-empting lies and deception

  1. Look prepared
  • Arrive on time for all meetings and negotiations.
  • Be well prepared to discuss details regarding the myriad of issues involved.
  • Be well organized and efficient.
  • Speak intelligently on issues related to their business and the industry.
  • Remember the finer details of prior discussions and explicitly refer to notes you made earlier.
  • Respond expeditiously to requests for information or to the other side’s offers.
  1. Signal your ability to obtain information
  2. Ask less threatening, indirect questions
  • Can you please give me some information regarding your production process?
  • Can you explain to me how your supply chain operates?
  • Do you purchase your materials domestically?
  • Who are your primary suppliers?
  • What are the characteristics of your typical buyer?
  • Can you provide me with a list of some of your other customers?
  • How much would I need to increase the size of my order to quality for a price concession?
  1. Don’t lie
    We can make it easier for others to be truthful if we make it a point not to lie.

Reveal information that makes you somewhat vulnerable.

In other words, reveal something that the other side recognizes is somewhat costly to you.

“I know that there is a lot at stake in this relationship and that this is likely to make everyone more guarded and skeptical. But I also know that the more open and honest we are with each other from the start, the easier it will be for us to develop a mutually rewarding long-term relationship. With that in mind, I would like to share with you some information related to our cost structure.”

Lie detection tactics:

  1. Gather information from multiple sources.
  2. Set a trap.
    → ask a question to which you already know the answer to the question must concern an issue about which the other side has the incentive to lie.
  3. Triangulate on the truth.
  • When did you receive this offer?
  • What exactly did my competitor offer?
  • Did he provide you with specific product information?
  • What was that information?
  • Did my competitor give this offer to you in writing?
  • If not, why do you think that is? Did you ask for it in writing?
  • If you did get it in writing, may I see it?
  1. Look out for responses that do not answer the question you asked.
    → Ask clear, focused questions that make it incumbent upon the other party to respond transparently.
  2. Use contingency contracts
    When the other side makes a dubious claim regarding some future prospect, you do not have to take their word for it, nor do you have to argue about who is right. Instead, ask them to “put their money where their mouth is” by proposing a contingency contract.

After catching a lie:

  1. Was it really a lie?
  2. Do I want to continue with this negotiation?
  3. Do I need to warn them or confront them?

Warn script: “You mentioned that the cost of these materials is 1.05𝑝𝑒𝑟𝑢𝑛𝑖𝑡.𝐼𝑡ℎ𝑖𝑛𝑘𝑡ℎ𝑎𝑡𝑦𝑜𝑢𝑚𝑎𝑦𝑛𝑒𝑒𝑑𝑡𝑜𝑐ℎ𝑒𝑐𝑘𝑦𝑜𝑢𝑟𝑑𝑎𝑡𝑎.𝑊𝑒ℎ𝑎𝑣𝑒𝑠𝑡𝑟𝑜𝑛𝑔𝑡𝑖𝑒𝑠𝑤𝑖𝑡ℎ𝑎𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟𝑠𝑎𝑛𝑑𝑎𝑟𝑒𝑐𝑒𝑟𝑡𝑎𝑖𝑛𝑡ℎ𝑎𝑡𝑡ℎ𝑒𝑐𝑜𝑠𝑡𝑖𝑠0.90. Perhaps you are working with old data or were misinformed along the way. In any case, let’s try to be more careful about facts and figures as we go forward with this deal.” Confront script: “You mentioned that the cost of these materials is 1.05𝑝𝑒𝑟𝑢𝑛𝑖𝑡.𝐼𝑓𝑒𝑒𝑙𝑡ℎ𝑒𝑛𝑒𝑒𝑑𝑡𝑜𝑝𝑜𝑖𝑛𝑡𝑜𝑢𝑡𝑡𝑜𝑦𝑜𝑢𝑡ℎ𝑎𝑡,𝑢𝑛𝑙𝑖𝑘𝑒𝑠𝑜𝑚𝑒𝑜𝑓𝑦𝑜𝑢𝑟𝑜𝑡ℎ𝑒𝑟𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠,𝑤𝑒ℎ𝑎𝑣𝑒𝑠𝑡𝑟𝑜𝑛𝑔𝑡𝑖𝑒𝑠𝑤𝑖𝑡ℎ𝑎𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟𝑠.𝐵𝑒𝑐𝑎𝑢𝑠𝑒𝑜𝑓𝑡ℎ𝑖𝑠,𝑤𝑒𝑘𝑛𝑜𝑤𝑤ℎ𝑒𝑛𝑠𝑜𝑚𝑒𝑜𝑛𝑒𝑖𝑠𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑛𝑔𝑐𝑜𝑠𝑡𝑠.𝐹𝑜𝑟𝑒𝑥𝑎𝑚𝑝𝑙𝑒,𝑡ℎ𝑒𝑐𝑜𝑠𝑡𝑜𝑓𝑡ℎ𝑒𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠𝑖𝑛𝑞𝑢𝑒𝑠𝑡𝑖𝑜𝑛𝑖𝑠𝑎𝑐𝑡𝑢𝑎𝑙𝑙𝑦0.90. We have been negotiating in good faith with you and are taking part in this negotiation to create value for both sides. But we are now a little uneasy about the way in which you have negotiated with us. Perhaps there is a simple explanation for the discrepancy in our numbers; perhaps you were misinformed. But I would just like to make you aware that we are disappointed with this exchange. Can you help us understand your perspective and suggest some way for us to overcome the anxiety we are now feeling?”
→ Provide an opportunity for the other side to save face. This is critical if you have already decided that you wish to continue the negotiation/relationship.

💡 Lies are not only potentially unethical; they are also very often poor strategies.

Negotiate honestly without disadvantage:

  1. Incorporate reputation and relationship costs in your calculus
  2. Prepare to answer difficult questions
  3. Try not to negotiate or respond to questions while under time pressure
  4. Refuse to answer certain questions
  5. Offer to answer a different question → by providing information that the other side values, and which does not put you at a disadvantage, you serve multiple purposes simultaneously: you avoid lying, you give them information that is of value to them, you appear reasonable and forth-coming, and you make it more likely that a deal will be consummated.
  6. Change reality to make the truth more bearable
  7. Eliminate constraints that tempt you to lie

Recognizing and resolving ethical dilemmas

→ Thinking more carefully and comprehensively about maintaining integrity.

Bounded ethicality → the systematic and predictable psychological processes that lead people to engage in ethically questionable behaviors that are inconsistent with even their own preferred ethics.

Discard the assumption that the seemingly unethical behavior you observe suggests that the other party lacks your high ethical standards, or that they have consciously chosen self-rewarding behavior over what they believe to be right.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” – Upton Sinclair

💡 Confront your intentional biases, but also seek to understand your implicit preferences.

Parasitic value creation → what occurs when negotiators create value by taking value away from parties who are not at the bargaining table.

Prisoners’ dilemma → players are individually better off playing a noncooperative strategy, but collectively better off playing a cooperative strategy.

In order to avoid parasitic value creation:

  • Who are all of the parties affected by this agreement?
  • How is each party affected?
  • Should I be concerned about any of these parties?
  • How do the effects of the agreement on parties not at the table compare with the effects on the parties involved in the agreement?
If you want to diminish the tendency of your group or team members to overclaim credit or contribution, one way to do so is to get them to focus not only on what they have done but on what each individual, considered one at a time, has done as well.

Practicing ethicality:

  1. If you are in a situation where you have a conflict of interest, become extra vigilant. To the extent possible, try to eliminate the source of the conflict (e.g., by recusing yourself from decisions in which you have a conflict of interest).
  2. Be aware of the possibility that you may be discriminating against others unconsciously. Taking the IAT tests (mentioned earlier) may help you appreciate this natural tendency. Then, be proactive and take steps to offset your proclivity for selectively rewarding those whom you implicitly favor.
  3. Whenever you feel that you have created value, try to analyze where exactly that value is coming from. Is anyone being made worse off? Is this trade-off acceptable to you?
  4. When allocating credit, be careful not to give yourself too much credit—or to give too much credit to those whom you like. Specifically, be wary of the tendency to overweight those factors and inputs on which you perform strongly and that make you look good.

3 guidelines for leveraging your knowledge:

  1. Audit the claims of your counterparts and look for unintentional biases.
  2. Accept the fact that they may be unaware of their bounded ethicality. They may not notice that they are biased or that they are being parasitic in their efforts to create value. Avoid sinister attributions. When someone makes a statement that you do not believe, or “creates” value at the expense of others, avoid labeling him a liar or a thief. Instead, help him see the causes and consequences of his judgments and behaviors.
  3. If you are unable to help your counterpart revise his biased perspective, craft a response that takes his misperceptions into account. For example, when you believe a salesperson is overstating the quality of his product, rather than withdrawing from the discussion or accusing him of exaggeration, deal with this ordinary unethical behavior through the use of a contingency contract. Ask how the superior quality of his product can be measured, and attach payment to performance. If the salesperson was being intentionally deceptive, he will back off the claim. But if he is engaging in ordinary unethical behavior—and believes his exaggerated claim—he will accept the contingency clause (to your benefit).

Negotiating from a Position of Weakness

→ How to effectively negotiate when you lack power, and how you might be able to upset the balance of power so that you move from a position of weakness to a position of strength.

  1. Don’t reveal that you are weak → If you have a weak BATNA, don’t advertise it.
  2. Overcome your weakness by leveraging their weakness
  3. Identify and leverage distinct value proposition(DVP) → you may have a better product, higher-quality service, a good reputation, a strong brand, etc. | Submit multiple proposals. Lower your bid just enough to get into the second round. |

Take the agent out of the game.

  • Send a copy of your proposals to the customer.
  • Negotiate a post-settlement settlement with the customer.

Educate your customers between deals.

  • If your position is very weak, consider relinquishing what little power you do have
    if you can’t outmuscle the other side in a negotiation, you may want to stop flexing your muscles and, instead, simply ask them to help you.

when you make it clear that you have no intention of fighting or negotiating aggressively, others may also soften their stance.

  • Strategize on the basis of your entire negotiation portfolio
    How to shift the balance of power in your favor:
  1. Increase your strength by building coalitions with other weak parties
  2. Leverage the power of your extreme weakness; they may need you to survive → strength is not simply measured by “what you can force others to do” rather, it may be better measured by “what value you can create for others.”
  3. Understand and attack the source of their power

When Negotiations get Ugly

→ Dealing with Irrationality, Distrust, Anger, Threats, and Ego
→ How do you negotiate when the other side appears to be entirely irrational?
→ How do you negotiate when trust has been lost and another party is unwilling to come to the table?
→ How can you defuse hardball tactics such as ultimatums and threats?
→ How should you deal with a party that is angry or one that is too proud to admit that its strategy was flawed?

Dealing with irrationality: be very careful before labeling someone “irrational”. Almost always this is not the case.

  1. They are uninformed → do not assume she is irrational. Instead, work to ensure that she understands why the offer is in her best interest. She may simply have misunderstood or ignored a crucial piece of information.
  2. They have hidden constraints
  3. They have hidden interests

Dealing with anger

  1. Seek to understand why they are angry
  2. Give voice to their anger → give legitimacy to the other person’s feelings.
  3. Sidestep the emotion → “The best block is don’t be there.” | When the other side is angry, do not allow yourself to be the target by taking it personally.

To aid in sidestepping the emotion:

  • If I were in his position, would I be acting the same way?
  • Is this genuine emotion, or is it a tactic aimed at intimidating me?
  • Is this how she behaves with everybody?

Help them focus on their true underlying interests → Help shift attention away.

  • What would you like to see happen now?
  • What would you rather be doing?
  • What would help us put this behind us?
  • Is there anything else you would like to discuss or clarify before we return to the substantive issues you highlighted earlier?

Dealing with threats & ultimatums:
Ignore the threat
Consider the following ultimatum: “This is our final offer: take it or leave it.” Response:

  • “It seems pretty clear that you find it difficult to make further concessions on the issues we’ve been discussing. I suggest we focus on other aspects of the deal and come back to this point once all other elements are on the table.”
  • “I can see that you fully believe that you have already conceded as much as should be necessary to close the deal. As it turns out, we feel the exact same way regarding our concessions. Hopefully, this means that we are close to reaching an agreement. So let’s keep working.”
  • “I can understand your frustration. We both know there is a deal to be made, and yet we can’t seem to find it. Can you help me better understand your perspective? Why do you think we’re not there yet?”

Neutralize any additional threats they might be tempted to make

  • When you are the first to voice their concerns, you lessen the degree of antagonism with which they can argue against you.
  • They may still fight back, but they will be in no position to suggest that you are concerned only about yourself.

If you don’t find the threat to be credible, let them know
Some ways to help this counterpart save face: • “I’m glad I was able to find ways to compensate you for a lower price because I know you could not have lowered it otherwise.” • “I realize that you are doing me a favor by reducing the price beyond what is normally possible, and I greatly appreciate it.” • “We’re fortunate that we were able to get past the discussion of price, in which you had already conceded all you could. Instead, we were able to focus on creating a package deal that pleased us both.”

When Not to Negotiate

→ Distinguish between the times when you should be playing the negotiation game and the times when you should be changing the game.

Slow down.

→ Recognize that the “softer” aspects of what you have learned (listening, understanding, empathizing, and so on) are some of the most widely applicable tools you can leverage, especially in sensitive situations where adrenaline-driven tactics might only make matters worse.

Negotiation may not be the best option when:

  • The costs of negotiation exceed the amount you stand to gain when your BATNA stinks (and everyone knows it)
  • Negotiation would send the wrong signal to the other party
  • The potential harm to the relationship exceeds the expected value from the negotiation when negotiating is culturally inappropriate
  • Your BATNA beats the other side’s best possible offer.

💡 We are often tempted to underestimate the value of our time because we are misapplying seemingly reasonable advice.

💡 It is often possible to make rational decisions and at the same time avoid unpleasant trade-offs if one has prepared effectively in advance.

When your BATNA stinks, their BATNA is fine, and all of this information is common knowledge, you may want to simply say yes in the negotiation and then change the game.

“I fully trust you to help make my transition into this new role both successful and mutually rewarding.”

💡 You will generally benefit by taking a long-term perspective that entails building a reputation for fairness and for contributing to the well-being of your negotiation counterparts.

When you don’t know something, try to learn it.

When “no deal” is the best outcome:

  • You have told them about your other offers, and they are unable to match or beat the value that these alternatives offer to you.
  • Instead of trying to meet your needs, they are trying hard to convince you that your interests are not what you think they are.
  • They seem more interested in stretching out the negotiation than in exchanging information, building a relationship, or structuring an agreement.
  • Despite your best efforts, they will not answer any of your questions; nor will they ask about your needs or interests.

The Path to Genius

→ Which mindset will maximize your ability to put your learning into practice?
→ What habits will you want to cultivate in the weeks and months ahead?
→ What expectations should you have of yourself and others?
→ How might you help others in your organization negotiate more effectively?

From reading to actually negotiating:

  1. Review the book (or any notes you may have taken as you read) and make a list of all of the strategies and tactics that you would like to try in your own negotiations. Once you have done this, identify which items on the list require further contemplation and which ones you can use immediately.
  2. Among those ideas that you wish to contemplate further, identify one key concept that you will spend time working on in the week ahead. Set aside some time in your schedule to think more deeply about this idea. How might you apply it to your negotiations? What are its strengths? What are its weaknesses? How might you integrate the principle into your way of thinking? Do the same for all of the other ideas you would like to contemplate further: tackle one idea each week. If you have the time to explore more ideas in a particular week, add items to your weekly list.
  3. Identify other people, such as friends and colleagues, with whom you would like to discuss particular negotiation strategies. Ask them to play devil’s advocate to your proposed use of a strategy and to critique your game plan. Trying out new negotiation strategies with supportive friends or colleagues will not only give you the confidence to transfer your new skills to important negotiations but will also help you identify mistakes you may have overlooked.
  4. For those strategies that you are ready to implement immediately, think about your current (or upcoming) negotiations. Write down which specific strategies and tactics you would like to employ in each negotiation. To avoid “shooting from the hip” when you get to the bargaining table, you should also plan how exactly you will implement these strategies.
  5. After your negotiations, think about other strategies that you could have applied but did not. Think about how you might do so in the future.
  6. Every so often, revisit the book to see if there are other ideas, strategies, or tactics that seem relevant to your current or upcoming negotiations.