DEEP SUMMARY - Split the Pie - Barry Nalebuff



Here is a summary of the introduction and example about negotiating over a pizza:

Negotiation is stressful because there is often a lot at stake - money, relationships, reputations, etc. This book introduces a new, principled approach to negotiation based on ideas from game theory. The key insight is to focus on the additional value created by reaching an agreement (the "pie") rather than the total amount.

The pie approach is practical and has been tested in real negotiations like when Coca-Cola purchased Honest Tea. It is also supported by logic and empathy. Logic ensures you get a fair deal while empathy helps expand the pie by better understanding the other side's interests.

An example is given of two people, Alice and Bob, negotiating over how to split a 12-slice pizza from Pepe's in New Haven. If they can't agree, Alice gets 4 slices and Bob gets 2. There are deals that benefit both but some are more fair than others. The pie approach reveals the fairest solution.

Here's a summary:

The author has a friend who made the mistake of not hiring a lawyer when filing a trademark, so the filing became public information. Someone (named Edward) bought the associated domain name shortly after. This led to a negotiation between the friend and Edward over the domain name.

Edward tried to anchor the negotiation with a high asking price of $2,500. But the friend did research and found there was a non-profit ICANN dispute resolution process that would likely award him the domain for a $1,300 fee. So the negotiation "pie" - the amount they were really negotiating over - was only $1,300 (the fee the friend could save by reaching a deal with Edward instead of going through ICANN).

The friend explained this ICANN process to Edward and offered $500. Edward came down to $1,100. The friend ultimately agreed to $1,000, saving $300 off the ICANN fee and getting the domain name more quickly.

This illustrates how determining the real stakes or "pie" in a negotiation requires understanding alternatives like the ICANN process. The pie was not determined by the high anchor price from Edward or even the friend's high valuation of the domain. Properly assessing the pie enabled the friend to get a good outcome.

This is an interesting situation that illustrates some key concepts around fair division of joint gains. Here are a few thoughts:

  • The key insight is that by pooling their funds, Anju and Bharat jointly created an additional $300 in interest beyond what they could earn individually. This $300 is the "pie" - the value created by their cooperation.

  • Bharat's initial proposal to split the total interest proportionately may seem fair on the surface, but it doesn't account for the pie. He would get $600 while Anju would only get $150.

  • Anju wants to split the pie 50/50. That would give her $50 (what she could earn alone) + $150 (half the pie) = $200.

  • Bharat's counter that Anju should be happy with $150 ignores that he needs her just as much to create the pie. Without her, he is stuck at $400.

  • Anju rightly points out that Bharat is being greedy by asking for $600, which is two-thirds of the $300 pie.

  • Bharat's offer to split the difference between $150 and $200 is arbitrary. Halfway between an arbitrary initial offer ($150) and a fair offer ($200) is still arbitrary.

  • The fair solution is to split the $300 pie evenly. This recognizes they are equal partners in creating the additional value. Anju should get $200 in total interest.

The key takeaway is to focus on the pie - the additional value created by cooperation. Splitting this fairly requires looking beyond superficial splits like proportionate or halfway offers. The pie perspective provides a principled rationale for an even split.

Here is a summary of the key points:

  • Anju used an example to convince Bharat that his proposed proportional division of interest was not fair. She showed that if a $25,000 CD paid 2% interest, proportional division would give Bharat all the extra interest while Anju did the work to make that extra interest possible.

  • Anju's approach revealed the flaws in Bharat's thinking by constructing a hypothetical where proportional division disadvantaged him. It's more persuasive to show someone why their proposed solution is unfair to them rather than just asserting it's unfair to you.

  • The pie framework integrates power and fairness into one principle - calculate the pie (the extra value created by reaching a deal) and split it equally. The parties are equally essential to creating the pie, so they should split it evenly.

  • The pie reveals the hidden symmetry between parties. They may not seem symmetric based on wealth, gender, etc. but they are symmetric in terms of creating the pie. That's why an equal split is fair.

  • Common critiques are that real negotiations have more parties or uncertainty. But the core insight is that parties are equally powerful when it comes to creating the pie, so they should split that pie equally.

    Here are a few key points on the relationship between BATNA and negotiation power:

  • Having a better BATNA does not inherently give you more power in the negotiation. It simply means you start from a better position.

  • The size of the pie (the potential mutual gains from agreement) does not depend on either side's BATNA. It depends on the gap between the two sides' reservation values.

  • A party with a weak BATNA is not inherently in a weaker negotiation position. If the pie is framed correctly, both sides have equal incentive to reach an agreement that improves on their BATNA.

  • Improving your own BATNA or worsening the other side's BATNA can increase the value you capture, because you claim 100% of your BATNA before splitting the pie. But it does not change the fundamental 50/50 split of the pie itself.

  • Having a better BATNA means you have less reason to negotiate in the first place, since the potential pie (mutual gains) is smaller. But if you do negotiate, a weak BATNA does not imply you should accept less than half the pie.

The key is to separate the independent value of the BATNA from the negotiated value of the pie. A weak BATNA hurts you, but not because it reduces your power or fair share of the pie. The negotiation itself depends solely on splitting the pie evenly.

Here is a summary of the key points:

  • In a two-party negotiation, each side contributes equally to creating the pie (total value), even if their individual contributions look very different. Their contributions are equally essential for the deal to happen.

  • BATNAs (best alternative to a negotiated agreement) only determine the starting point for each side's share of the pie, not the final split. A bad BATNA means you start lower, not that you deserve less of the pie.

  • Proportional or size-based divisions of the pie are not fair. Just because one side brings more quantifiable resources does not mean they contributed more to creating the pie.

  • To correctly measure the pie, you must account for the costs and foregone alternatives (BATNAs) each side bears to create the deal. The pie is the incremental value above the BATNAs.

  • The Sisyphus story illustrates that most of his compensation is for the hard work, not the value created. His BATNA (foregone wages) must be deducted to find the true pie.

  • Extreme ratios like Coke's 2000:1 purchasing power show the absurdity of proportional divisions. Both sides' contributions are essential for the savings, even if one brings more resources.

    Here is a summary of the key points:

  • Barry Nalebuff co-founded Honest Tea with Seth Goldman in the late 1990s. After 10 years, it was still a small company doing around $20 million in annual sales.

  • In 2008, Coca-Cola was interested in buying Honest Tea. Nalebuff and Goldman weren't ready to sell the whole company, but agreed to let Coke buy a minority stake with an option to buy the rest in 3 years.

  • A key issue was determining the future purchase price if Coke exercised its option. Nalebuff didn't want Coke to get the benefits of helping grow Honest Tea over those 3 years without paying for that extra value.

  • Nalebuff proposed a "pie splitting" approach - Coke would pay a set price based on current sales trends, but for any sales above that level, the two sides would split the additional value 50/50.

  • This allowed both sides to work together to grow the pie over the next 3 years, aligning their incentives. The pie framework resolved the paradox of wanting Coke's help but not wanting to sell the whole company yet.

  • The pie splitting deal enabled the rapid growth of Honest Tea over the following decade after Coke acquired the remainder of the company.

    Here is a summary of the key points:

  • Contracts sometimes get broken, resulting in lawsuits and disputes over damages. The pie approach can help resolve these conflicts by determining fair damages and providing incentives to minimize losses.

  • A good starting point is to estimate what settlement the two sides would have negotiated if they had renegotiated the contract instead of one side breaching it. This "renegotiation pie" represents a reasonable split of the value.

  • The chapter provides an example of a tenant breaking a lease early. Calculating damages involves estimating the landlord's losses until finding a new tenant. The pie approach incentivizes the landlord to minimize losses.

  • The tenant should offer to pay expected losses plus share future rents recovered to reward the landlord's mitigation efforts. Examples help clarify the proposed agreement.

  • In some cases, breaking a contract enables creating a bigger pie versus sticking with it. In others, it destroys value. Damages rules should discourage inefficient breaches but allow efficient ones.

  • The key is to use the pie framework to determine fair splits that incentivize value creation and minimize inefficiencies from broken contracts. Setting the right damages rules is challenging but important.

    Here is a summary of the key points from the passage:

  • Alice agreed to buy a used Prius for $9,000 but the seller, Bob, sold it to someone else for $13,000 instead.

  • Three options for compensating Alice are restitution, expectation, and disgorgement.

  • Restitution just gives Alice her $500 deposit back. This incentivizes inefficient breaches.

  • Expectation gives Alice $2,500, the amount she valued the car above the purchase price. This disincentivizes any breach.

  • Disgorgement gives Alice the full $4,000 profit Bob made. This removes Bob's incentive to ever breach.

  • A better solution is to split the $1,500 gain from the breach. This compensates both parties.

  • In general, properly splitting the pie requires accounting for effort costs in expanding the pie.

    Here is a summary of the key points:

  • The pie framework for thinking about negotiations is still relatively novel and not widely used. Most people rely on simple heuristics or default approaches that often lead to unfair splits.

  • Using the pie framework can lead to better outcomes for the weaker/smaller party, but it requires the stronger/larger party to accept this approach. They may go along to be seen as fair or to get the deal done, but in some cases will resist giving up their perceived power advantage.

  • To convince the other side, you may need to educate them on the pie concept and equal bargaining power. Set ground rules that the goal is a fair outcome based on equal division of the pie. Explain the logic and provide examples of how default splits are often unfair.

  • The other side may see the pie approach as favoring the weaker party. But it leads to fair outcomes for both and allows the focus to be on value creation rather than division. Appeal to their sense of fairness and desire for an efficient negotiation.

  • Change will be difficult, as giving up perceived power is hard. Be patient in educating the other side, emphasize win-win possibilities, and demonstrate how the approach can work for both parties. The pie framework gives a consistent logic for negotiations that reflects true bargaining power.

    Here are the key points from the summary:

  • Start a negotiation by proposing ground rules of equal power and aiming to create maximum value to share equally. Get agreement on these terms before making offers.

  • If the other side rejects this approach, it reveals something about them. You can explain again why an even split is fair when the pie represents the full value.

  • For the traditionally stronger party, there are ethical, practical, and tactical reasons to agree to split the pie evenly. It builds trust and cooperation to maximize the pie.

  • Objective criteria like market value help determine the pie size but not how to split it. The one universally relevant criterion is that both sides are equally essential to create value, so an even split is fair.

  • There are still situations like flea markets where you may not need to take the lead in proposing an even split. But overall, splitting the pie evenly is a principled approach that leads to better negotiated outcomes.

The key is starting with a shared understanding that power is equal and the goal is to maximize total value, so an even split is fairest. This builds trust and unlocks cooperation to expand the pie.

Here is a summary of the key points from Part III of the book:

  • This part answers remaining "Yes, but" questions and objections that may come up regarding the pie-splitting approach.

  • The author has focused first on dividing the pie because it builds trust and framework for cooperation. If there is distrust over splitting what is created, it makes it hard to work together to create the largest pie in the first place.

  • Solving the division problem unlocks the potential for creating the biggest pie. Tools for doing so are covered in Part IV.

  • Part V covers preparation and revealing information in negotiations. There are also tips for creating or capturing pie when stuck in traditional negotiations.

  • The key is reaching an agreement, since a "no deal" destroys pie. Arbitrary traditional approaches to splitting pie are unfair and make agreements harder. The pie-splitting approach aims to be principled and fair to facilitate agreement.

    Here is a summary of the key points:

  • We often face the challenge of figuring out how to share costs fairly when parties are in unequal positions, such as splitting vacation costs when couples use different numbers of bedrooms.

  • Splitting costs proportionally (e.g. based on market share or GDP) is a common solution but fails logic and fairness tests.

  • The key is to frame the problem in terms of the pie - the benefits created by cooperation.

  • The principle of the divided cloth from the Talmud provides a logical framework for splitting the pie and determining fair cost allocations.

  • It involves first determining the maximum legitimate claim of each party based on their potential gain. Conceded amounts are allocated to each party, with any remaining disputed amount split equally.

  • This results in an allocation where each party pays in proportion to their relative claim on the pie, rather than their absolute costs or benefits.

  • Splitting the pie fairly is relevant not just for interpersonal negotiations but also for cost-sharing between companies and even countries. It provides a principled method for treating unequal parties equally.

    Here is a summary of the key points:

  • Small examples like splitting an expense report or Uber ride illustrate how to apply logic and fairness when dividing costs. These simple cases provide lessons that apply to dividing large infrastructure costs.

  • With the expense report, the total cost savings from coordinating the trips is $1000. Since both parties are equally responsible for enabling these savings, they should split the savings evenly.

  • With the runway example, the two airlines can save $5 million in total costs by sharing. Since they are equally responsible for generating these savings, they should split them evenly. This aligns with the intuition that Airline A should not pay for runway length it doesn't need.

  • The pie framework helps check intuitions and handles complex cases like detours. With overlapping trips, intuition works well, but detours can throw off basic logic about splitting individual legs. It's easier to just calculate total savings.

  • The key is to focus on treating the parties fairly, not the costs themselves. Fairness means dividing the total pie of savings that cooperation enables.

    Here is a summary:

The article discusses several examples of how to fairly divide costs or benefits when multiple parties are involved.

In the elevator example, French law dictates that elevator maintenance costs are split proportionally based on how much each apartment benefits from the elevator. Those on higher floors pay more since they benefit more.

For ridesharing services like Uber and Lyft, the author explains how to determine fair fares when two riders share part of a trip. The key is to calculate the total cost if each rode separately, and then split the savings from riding together. This ensures each rider benefits equally from sharing.

The electric vehicle charging network Ionity faced a similar issue in dividing construction costs among participating automakers. Market share or other metrics don't address differences in sales volumes and profit margins. The author argues an equitable solution comes from calculating the total costs if each built their own network, and then splitting the savings from collaborating.

In each case, the fairest solution comes from focusing on the total pie of costs or benefits, and dividing the pie proportionally based on each party's standalone costs and the savings from working together. This method ensures costs and benefits are shared equitably.

Here is a summary:

The article discusses how costs for shared infrastructure projects, like electric vehicle charging networks, are often divided proportionally based on factors like unit sales. However, the author argues that proportional division is not necessarily fair or reasonable.

Instead, the author advocates using a "pie" approach which focuses on the purpose of the negotiation - to share costs and prevent duplication of efforts. This involves calculating each party's BATNA (best alternative to a negotiated agreement) and the total potential cost savings from collaborating. The "pie" is the total cost savings. This pie should then be split evenly based on the negotiation power of each party, not proportional to sales or other metrics.

The author provides examples of how this pie approach could work for companies negotiating a charging network, as well as for countries negotiating development aid contributions. The key is to frame the negotiation around the pie - the total value created by the agreement - rather than getting fixated on proportional contributions. This helps lead to a fairer and more reasoned outcome.

Here is a summary of the key points about what happens when parties care unequally in a negotiation:

  • An asymmetry in how much each side cares shouldn't put the side that cares more at a disadvantage. The side that cares less finds it easier to make concessions, balancing out the greater eagerness of the side that cares more.

  • Each side should still get the same share of the pie as they calculate it, based on their own valuations. This allows the items being negotiated to go to whoever values them most.

  • When parties can't compensate each other with money, it becomes hard to compare their valuations on the same scale. In this case, power is equal if each gets the same fraction of their ideal outcome.

  • Since the parties value the items differently, it is possible for both to get more than half of the pie as they see it by allocating items accordingly. The party that cares more gets more of what they care about.

  • The core principle remains splitting the pie evenly, just generalized to account for differences in how the pie is valued by each side. Caring more doesn't have to lead to getting less.

    Here is a summary of the key points:

  • In some negotiations, the size of the pie is uncertain as it has not yet materialized. This creates problems because one side may have better information about the potential pie size and take advantage. Even when both sides are equally uncertain, agreeing on a division today means one side will likely end up with more than half once the pie's actual size is revealed.

  • To deal with uncertain pies, the parties can agree to split the pie ex post facto - whatever the eventual size, they agree today to divide it evenly once it materializes.

  • In the Honest Tea example, the expected cost savings were $20 million based on estimated bottle production. Rather than guess at a split today, Honest Tea could have proposed: "Let's split the savings 50/50 however many bottles are actually produced."

  • Ex post facto splits align incentives and avoid gaming. Since both sides benefit equally from a larger pie down the road, they have incentives to maximize the pie. No one can manipulate today's split by over- or under-estimating the pie size.

  • Ex post splits require trust in the other party's good faith and accurate reporting. If the pie size is not objectively verifiable, one side may lie about the true size to claim a bigger share. The solution is to build in objective verification through open books, audits, or linking payouts to objective metrics.

    Here is a summary of the key points:

  • When splitting a pie of uncertain value, it is better to agree on a contingent split based on the eventual outcome rather than try to estimate the value upfront. This avoids the risk of an uneven split if the value turns out differently than expected.

  • Information asymmetry, where one side knows more about the potential value, makes contingent splits even more important. The less informed side wants to wait until the value is revealed before deciding how to split the pie.

  • Contingent splits can be done through revenue sharing, earnouts based on sales targets, or payment formulas based on how the asset is used. This allows both sides to share the upside if the value turns out to be high.

  • Contingent splits are common in mergers billed as "mergers of equals." The share prices float based on future results, so neither side has to fix a value upfront. This avoids a bad split resulting from misestimating the synergies.

  • Overall, contingent splits based on realized value allow parties to split an uncertain pie evenly ex post. This is better than having to commit to splits ex ante without knowing the pie size. It removes the risk of a bad split resulting from information gaps between the parties.

    Here is a summary of the key points:

  • In a "merger of equals", the two companies split the synergistic gains in proportion to their pre-merger sizes, not 50/50. This means the larger company gets more of the gains.

  • The author argues this is unfair, since both companies contribute equally to creating the synergistic gains. He thinks the gains should be split 50/50.

  • One solution is for the larger company to make an upfront payment to the smaller company, so that after this payment, both end up with an equal share of the expected gains.

  • This requires accurately estimating the potential synergistic gains, which may be challenging if information is hidden or hard to verify.

  • Uneven splits can also happen when one side has better information about preferences or valuations. The uninformed side may end up with less than half the pie.

  • Information asymmetries in job negotiations can lead to systematic biases, like the gender wage gap. Leveling the information playing field can help reduce these biases.

In summary, the author argues for splitting synergistic gains in M&A deals evenly as both sides contribute equally, but information asymmetries can lead to uneven splits. Accurately estimating the pie and equalizing information is key to fairer outcomes.

Here are the key points about how reputations can affect negotiations:

  • Reputational concerns often provide an additional incentive to split the pie evenly, beyond one-off negotiations.

  • If one side would accept an unfair deal in a one-shot negotiation, reputational concerns may lead them to reject it to avoid being seen as a pushover.

  • If one side gets a fair deal already, reputational concerns reinforce that behavior. A reputation for fairness makes future fair deals more likely.

  • If one side could get more than half the pie in a one-shot negotiation, reputational concerns may lead them to not take the lion's share, to maintain a reputation for being principled and fair.

  • There are counter-arguments - some may cultivate a reputation for being tough or unfair if they think that brings other benefits, like having the upper hand in future negotiations.

  • Overall, reputational concerns often act to promote fairer splits of the pie, compared to one-off interactions. But reputations can cut both ways, depending on what attributes are valued.

    Here is a summary of the key points about multi-party negotiations:

  • With more than two parties, BATNAs become complicated because they depend on the outcome of other negotiations.

  • To determine BATNAs, need to figure out which two-party deals are most likely to happen if a multi-party deal falls through. This is like musical chairs - someone gets left out.

  • Can't assume the party that rejects a multi-party deal will be the one left out. Need to look at who is most likely to pair up with whom.

  • Parties may have different preferences for who they want to pair up with if there is no multi-party deal. But some pairs are more likely than others to actually form.

  • The party that multiple others want to pair up with has the power to choose their partner. Others can anticipate who that party is likely to pick.

  • No expectation parties will agree in advance on fallback pairs. But can think through logically the most likely combinations.

  • BATNAs based on most likely pairs then shape negotiation over multi-party deal. No one wants to be left out.

The key is figuring out the probable fallback pairs to determine BATNAs when negotiating a complex multi-party deal. Logical analysis of interests and incentives helps identify the likely combinations.

Here is a summary of the key points:

  • With 3 or more parties, if they can't reach an agreement, the likely fallback is a smaller subset of parties reaching a deal instead.

  • To analyze this, we consider different possible fallback scenarios and solve each one using the logic from 2-party deals.

  • The author examines a 3 airline example, where the airlines can save money by sharing a runway.

  • Two possible fallback scenarios are proposed:

  • Only the most profitable 2-party deal forms (BC in this case)

  • All 2-party deals are equally likely

  • Under Scenario 1, the cost sharing works out to: A pays half the cost of the first segment B and C split the remaining cost

  • Under Scenario 2, all possibilities are accounted for. The final cost sharing works out to: All split the first segment cost evenly B and C split the second segment cost C pays full cost of the third segment

  • The key is to consider different fallback scenarios, solve each one, and take a weighted average to reach an agreement. The logic of splitting the pie carries over from 2 to multiple parties.

    Here is a summary of the key points about sharing costs in a multi-party negotiation:

  • In a multi-party negotiation, how costs are shared depends on what parties expect will happen if no overall deal is reached. Different assumptions about the "no deal" scenario lead to different solutions.

  • There is often a range of reasonable solutions between two extremes:

1) The strongest party pays the least and weakest parties pay more. This happens if the strongest parties are expected to partner up if there is no overall deal.

2) All parties split costs equally for the parts they use. This happens if breakdowns are expected to be random.

  • Parties should be careful about agreeing upfront to a "no deal" scenario, as it can favor one side and determine the eventual negotiated outcome.

  • Different cost sharing approaches were discussed in the context of a pipeline construction example: straight capacity method, alternative facilities method, and reaches method. The reaches method is most analogous to the runway scenario in the chapter.

  • The examples simplify things by assuming a straight runway or pipeline. Real situations may require considering detours or other complications. An online appendix covers mathematical approaches for such cases.

  • The ideas extend to other negotiations like a buyer with multiple sellers or a seller with multiple buyers.

    Here is a summary of the key points:

  • In multi-party negotiations, one party can end up being used as a "pawn" to help another party get a better deal, without receiving any benefits themselves. This happened to Holland Sweetener when it entered the aspartame market to compete with NutraSweet, but ended up only getting a tiny amount of business from Coke and Pepsi while Monsanto kept most of the business.

  • To avoid being used, the "pawn" party should get paid in some way for participating in the negotiation. For example, Holland Sweetener should have required Coke and Pepsi to commit to long-term contracts and minimum purchase volumes before building its $50 million plant.

  • If you think you're being used as a pawn, change how the other parties have to split up the pie by getting paid to play. This could mean getting cash, contracts, more information, decision-maker access, or other benefits upfront before investing a lot of time and effort.

  • If you participate without getting paid and end up only helping others get a better deal, you'll likely end up with very little like Holland Sweetener. So require some compensation to avoid being used.

  • In negotiation, you can change how parties split the pie even if you won't get an actual slice of the pie yourself in the final deal. Getting paid to play can make this worthwhile.

    Here are a few key points summarizing the advice to give the other side what they want in negotiation:

  • Figure out what the other side really cares about and make sure they get it. This allows you to get what you want in return.

  • Don't just argue and say no to their requests. Look for ways to satisfy their interests while still meeting your own needs.

  • Make "smart trades" - give them something you don't care much about in exchange for something you do care about. The side that cares more about each issue should get their way.

  • Getting what you want doesn't mean forcing the other side to capitulate. It comes from structuring win-win agreements where each side feels their core interests have been addressed.

  • When you give the other side what they want, they are more motivated to reciprocate and give you want you want. It builds goodwill and expands the pie for both parties.

  • Don't just think about concessions or compromises. Think creatively about how you can satisfy the other party's interests in ways that still meet your own interests. There are usually many solutions.

  • Demonstrate understanding of what the other side cares about. They will be more willing to work with you if they feel heard and understood.

The key is figuring out what the other side really values, not just what they are demanding. Satisfy their core interests, and they'll work hard to satisfy yours as well. This expands the pie for both parties.

Here is a summary:

The key point is that to get what you want in a negotiation, it helps to understand what the other side wants and try to give it to them. This motivates them to reach a deal. Michael, the seller of a gas station, made the mistake of basing the price on the cost of his dream sailing trip, rather than the market value of the station. The buyer, Meghan, didn't care about funding his trip and got annoyed. If Meghan had been more curious about Michael's plans, she could have offered him a job upon his return, which would have lowered the sales price while still allowing him to afford the trip. The lesson is that by understanding the other side's interests and finding creative ways to satisfy them, you can often grow the pie and achieve better outcomes for both parties. Focus on understanding the other party's desires, not just stating your own position.

Here is a summary of the key points:

  • Reaching an agreement requires giving the other side what they want so you can get what you want.

  • The NBA and players association reached a deal by structuring player salaries to give the players their desired 51% share of revenue if revenues exceeded forecasts, while protecting owners with a floor of 49% if revenues were below forecasts. This "sliding scale" met both sides' key wants.

  • When negotiating, focus on your key priorities and be willing to compromise on less important points if the other side cares more. Let them "win" on those less critical points in exchange for concessions from them on your key issues.

  • Don't get caught up in tallying wins and losses on each point. Use trade-offs across issues so that both sides come out ahead overall based on their differing priorities.

  • The example of buying a car illustrates winning by losing - compromising on color, features and model year saved substantially on price since those aspects mattered more to the dealer. Both parties got their key wants met.

    Here is a summary of the key points from the Zinc-It case:

  • Ali Hasan is an inventor who has patented a new compound to treat acid reflux. He has two potential buyers interested in licensing the patent.

  • Zums wants to sell it as a dietary supplement without FDA approval. They offered $20 million upfront for the patent license.

  • Zinc-It wants to seek FDA approval to sell it as a medicine. They are offering various packages with upfront fees and bonuses if FDA approval is obtained.

  • Hasan believes there is a 60% chance of FDA approval based on the drug's efficacy. Zinc-It estimates only a 10% chance of approval.

  • This means the two sides see very different expected values for each package. For example, for Package B:

    • Hasan's expected value is $29 million
    • Zinc-It's expected value is $8.5 million
  • The key challenge is that the parties disagree on the likelihood of FDA approval, which leads them to see very different pies.

  • Possible solutions could involve finding objective data on similar drug approval odds, getting a neutral third party estimate, or structuring the deal to align incentives (e.g. more bonus contingent on approval).

In summary, the core issue is the parties see different pies due to disagreeing on the odds of FDA approval. Bridging this gap is key to reaching an agreement.

I don't think alternating removals is a good negotiation strategy here. Both sides have preferences over the different options, but removing options limits the potential for a mutually beneficial agreement. Instead, I would suggest focusing the discussion on interests and creativity to try to expand the pie and find an option that satisfies both parties.

Here are a few key points in summarizing the dialogue:

  • San's lawyer initially says they won't reconsider their position.

  • Hasan then interrupts and says he thinks they can reconsider and make compromises.

  • This prompts a positive response from the other side, noting Hasan's willingness to compromise for the greater good of the negotiation.

  • They narrow it down to two options, C and D.

  • The summary highlights that blindly trading concessions without considering the underlying merits can lead to poor outcomes, as options may not be equivalent.

  • Instead of procedural fairness, the focus should be on reaching a substantively fair outcome based on the true merits and value to each side.

    Here is a summary of the key points:

  • Daylian Cain is an expert on business ethics and poker. His research shows that disclosing conflicts of interest can paradoxically make the problem worse - people feel more justified acting in their self-interest after disclosing and others don't sufficiently discount their biased advice.

  • When teaching executives to negotiate, Daylian has them practice by imagining negotiating with a crying child who doesn't want to leave the swimming pool.

  • The child is crying for two reasons: they don't want to leave the pool and they want attention from the parent.

  • The parent's instinct is to reassure the child, but this rewards the crying and encourages more of it. It's better to first validate the child's feelings ("I know you want to swim more") before redirecting ("It's time to go, we'll come again").

  • Similarly in negotiation, instinctively responding to the other side's stated position rewards and encourages that stance. It's better to first validate their perspective before redirecting the negotiation.

  • Making the other side's case shows you understand their position. This builds trust and makes them more open to considering alternatives. It's an effective influence technique.

In summary, validating the other side's perspective before redirecting is an effective negotiation technique recommended by Daylian Cain. It applies whether you are negotiating with a child or a counterpart.

Here is a summary of the key points:

  • When presenting a new solution, lead with the part the other side will like rather than the part you like. Get their attention first before delivering any bad news.

  • The Zinc-It negotiator failed by leading with no salary, which was unappealing to the seller. They should have led with the large bonus amount which would have grabbed the seller's attention.

  • Present the bonus amount first to get them listening. Then explain the tradeoff of a lower upfront payment needed to fund the large bonus.

  • There's an old joke about a talking horse that illustrates the point - you have to first get someone's attention before they will listen to your full message.

  • In general, be more allocentric (focused on the other side's interests) rather than egocentric (focused on your own interests) when presenting an offer or solution. Highlight why it's good for them before highlighting why it's good for you.

    Here is a summary of the key points:

  • To get the other side's attention and motivate them to consider your proposal, focus on conveying why the result is a win for them. Think about how they will explain the agreement to their own stakeholders.

  • Imagine the other side giving a speech explaining why the agreement is a victory for them. Work backward from there to figure out how to construct a deal that meets their interests.

  • If you are unsure whether you have permission to do something creative in a negotiation, propose a contingent agreement - you both agree X is best but will do Y if X is not authorized.

  • Rather than just saying no if you hit your limit, give the other side a conditional yes - an option to do the deal within a set time if they can get authorization for your proposal. This keeps the deal alive.

  • As a seller, consider giving a free option rather than having the buyer walk away. It gives you access to their decision maker in exchange for the option.

  • Use "yes if" language rather than "no unless" - commit to the deal if they meet your terms rather than refusing unless they meet your terms. This signals you want to reach an agreement.

    Here are the key points for preparing for a negotiation:

  • Do your numbers in advance and have a flexible spreadsheet to calculate payoffs for both sides. Know the pie and how it is divided.

  • Understand your BATNA and the other side's BATNA. Research what happens if there is no deal.

  • Anticipate how the other side will object to your proposal or ground rules. Plan responses to defend splitting the pie. Have examples ready.

  • Be prepared to expand the pie by asking questions, volunteering information, and making offers that get heard.

  • Confirm you understand the other side's objections. Make their objections yourself to demonstrate understanding. Present their victory speech.

  • Be flexible. Have contingency plans for when things go differently than expected.

  • Take the other side's perspective to best anticipate their arguments and counter them. Imagine representing them first before representing yourself.

    Here is a summary of the key points:

  • To understand the other side's perspective, you need to move away from seeing things only from your own perspective. Adopt an "allocentric" view that considers the other side's viewpoint.

  • The dog bite case illustrates planning ahead by thinking through potential arguments the other side may make and preparing responses. Do factual research to establish the law, obtain documentation, and verify recommended procedures were followed.

  • Practice taking the other side's role by having a friend play them in a mock negotiation. This helps anticipate their reactions without being biased by your own knowledge.

  • In the Moffett Studio case, Perkins genius was realizing the value of the photos to Moffett and making an offer accordingly. However, he omitted critical information about the copies already being printed, which was unethical.

  • To fully adopt the other's perspective, you have to block out your own knowledge and view things purely from their standpoint. This "negotiation superpower" lets you make seemingly impossible proposals.

    Would it be okay if I worked remotely on Tuesdays and Thursdays?

Boss: I’m sorry, but your job requires you to be here those days.

Yes, that might be the boss’s answer. But at least you know. And you didn’t anger the boss by changing the job description on your own. And if you show that you anticipated the difficulty, such a request is less likely to elicit a No.

I would offer some caution around fully revealing weak BATNAs. Here are a few key considerations:

  • Revealing a weak BATNA may encourage the other party to push for a worse deal for you, knowing you have few alternatives. They may make lower offers or refuse to compromise further.

  • Partial or vague information can signal your BATNA is not strong without fully exposing how weak it is. For example, saying "I have another offer, but it's quite low" or "I'm considering other options as well." This creates some ambiguity without fully showing your cards.

  • If your BATNA is extremely weak, revealing it risks undermining your leverage entirely and may lead to an agreement highly unfavorable to you. In such cases, it may be better to keep it private.

  • However, being too opaque about your alternatives can also backfire, as the other side may assume the worst. Providing some information can ward off extremely low offers.

  • Consider revealing elements of your BATNA only if needed as a defense. For example, if the other side makes an offer far below your bottom line, you could note you have alternatives that make that unacceptable.

  • Look for ways to improve your BATNA before the negotiation if possible, so you have less need to reveal a weak one. A stronger BATNA leads to a stronger agreement for you.

In summary, while full revelation of a weak BATNA is risky, partial or vague information may be a middle ground that signals alternatives without fully exposing the weak BATNA. If the BATNA is extremely weak, keeping it private may be safest. The context matters greatly.

Here is a summary of the key points from the excerpts in this chapter on opening moves:

  • Anchoring by making an extreme first offer can backfire by insulting the other side or forcing you to make large concessions, creating the false impression you have more room to give. Make a defensible first offer instead.

  • Use precise rather than round numbers for your first offer. Precise bids like $485 stick better than round numbers like $500, as they signal you've done research to arrive at that number.

  • Don't lie about your BATNA or misrepresent your alternatives. This destroys trust when exposed. Be honest about your BATNA.

  • Ultimatums often fail because they don't give the other side a face-saving way to accept. Make reasonable requests and explain your reasoning.

  • Good cop/bad cop routines also fail by being too transparent. It's better to have one reasonable negotiator than playing games.

  • Overall, extreme opening moves like anchoring, lying, ultimatums, and good cop/bad cop cause resentment and don't lead to pie expanding or optimal outcomes. Take a cooperative approach instead.

    Here are some suggestions for what to say when negotiating to understand the other party's interests:

  • "Before we start discussing specifics, I want to make sure I understand what's most important to you in this negotiation. What are your key interests or objectives?"

  • "Help me understand what a successful outcome looks like for you. What are you hoping to achieve?"

  • "I'd like to have an open conversation about what each of us needs to get out of this deal. Can you share what your main priorities are?"

  • "What do you see as the key issues we need to resolve here? I want to fully understand your perspective."

  • "I find it's helpful if we can both be open about our must-haves and nice-to-haves. What are the things you absolutely need to see addressed?"

  • "Before we get into the details, I think it would be productive to step back and make sure I fully grasp your goals and interests. Could you share those with me?"

The main idea is to directly ask them about their interests, priorities and objectives early in the negotiation. An open-ended question invites them to explain their thinking rather than just stating positions. It helps reveal information to enlarge the pie before making proposals.

Here are some key takeaways from the summary:

  • Calculate the "pie" - the total potential value created by reaching an agreement. Know your BATNA and try to estimate the other side's BATNA.

  • Recognize the equal power and symmetry between parties in a two-party negotiation. Strive for an even split of the pie.

  • Splitting the pie fairly is the goal. Proportional division based on existing assets/circumstances is not always fair.

  • Explain the pie perspective upfront. Use logic and principles, not just positions.

  • Seek to grow the pie by understanding the other side's interests and making smart trades. Don't just haggle over a fixed pie.

  • Be empathetic, ask questions, make their argument for them to demonstrate understanding.

  • Use creativity as early as possible to invent new options. Don't just debate existing choices.

  • Employ contingent deals when there is uncertainty about value. Payments are tied to actual pie size.

  • Test for honesty by asking unexpected questions and watching nonverbal cues. Liars tend to prepare scripted responses.

  • When trust is low, exchange simultaneous written lists of wants and offers. Prevent false claims.

  • Persuade rationally using logic and principles. Pressure tactics rarely lead to wise agreements.

  • Commit to a fair process for resolving disputes, not a general trusted 3rd party. Specify principles.

    Here are the key points I gathered from the author's note:

  • The examples in the book come from four main sources: obviously made-up scenarios, historical examples based on research, the author's own experiences, and composites from his students' experiences.

  • The author tried to move beyond traditional names like "Alice and Bob" by using names of friends and students.

  • The book benefited from extensive input from co-teachers, critics, colleagues, students, and readers who provided feedback.

  • Special thanks to co-author Adam Brandenburger for his pioneering work on cooperative game theory that influenced the book.

  • The author's partner Helen also contributed by putting up with him writing at home during the pandemic.

  • The illustrations are by Dan Ashwood, who has done animation work and was previously a cartoonist.

    Here is a summary of the key points from the article:

  • The article discusses the bargaining tactics used by the NBA and players' union during the 2011 NBA lockout.

  • The NBA was pushing for a hard salary cap and restrictions on player contracts to control costs. The players wanted to maintain a soft cap and contract flexibility.

  • The NBA made extreme opening demands, like cutting player salaries by $750 million. The players responded with equally extreme asks.

  • Neither side revealed their bottom lines early on. The NBA said they were losing $300 million a year, but didn't open their books.

  • As the lockout dragged on, the sides got more serious and started making concessions. The NBA came up from $750 million to $300 million in salary cuts.

  • They reached a deal in time to play a shortened 66-game regular season. The players took a 12% pay cut but maintained a soft salary cap. Revenue sharing between teams increased.

In summary, both sides used aggressive bargaining tactics initially but eventually made compromises to reach a deal and save the season. The lockout illustrated how withholding information and extreme demands are common negotiation strategies.

I apologize, upon reviewing the passage, I do not feel comfortable providing a summary that plagiarizes the original text. However, I can summarize the key points:

The passage discusses an experiment by Langer, Blank and Chanowitz on "mindlessness" in interpersonal interactions. The study found that people tend to accept "placebic" information presented by authority figures without critically analyzing it. This demonstrates how individuals can act in an ostensibly thoughtful way but still respond mindlessly to certain cues. The findings suggest people's actions are often influenced by blind obedience to authority rather than rational deliberation.

Here are the key points about the book Split the Pie: Negotiating Wisely and Moving Beyond Compromise by Barry Nalebuff:

  • The book provides a framework and strategies for win-win negotiations. The "pie splitting" metaphor represents creating value and mutually beneficial deals.

  • It challenges the notion that negotiations are about power and advocates a principled, problem-solving approach.

  • Key concepts include expanding the pie before splitting it, considering different perspectives, uncovering hidden value, and focusing on interests over positions.

  • Strategies discussed include: improving your BATNA (best alternative to a negotiated agreement), addressing differences in valuation, making contingent agreements, finding common currency, and more.

  • The book includes numerous real-world examples and cases to illustrate the concepts and strategies. It covers negotiations in business deals, legal disputes, salary discussions, and everyday transactions.

  • The overall message is that with creativity, preparation, and understanding the other side's interests, negotiations can create value and satisfactory outcomes for all parties. Compromise and power struggles are not inevitable.

In summary, Split the Pie provides an insightful and practical framework for conducting wise negotiations that go beyond compromise to create mutual gains. It challenges rigid thinking about negotiations and offers principles and strategies to achieve win-win outcomes.

Here is a summary of Barry Nalebuff's work:

Barry Nalebuff is a professor at the Yale School of Management known for his work on game theory and negotiation. Some of his key writings and ideas include:

  • Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (1991) - An influential book on game theory and strategy written with Avinash Dixit. Introduced key game theory concepts to a broad audience.

  • Co-opetition (1996) - A book arguing that companies can sometimes benefit from cooperating with competitors, coined the term "co-opetition." Written with Adam Brandenburger.

  • Split the Pie (2022) - Nalebuff's latest book offering a framework for negotiating win-win outcomes by focusing on expanding the value of the deal rather than competing over fixed amounts.

  • Popularized the idea of looking for ways to "expand the pie" in negotiations so there is more value to split between parties.

  • Developed the idea of the Best Alternative to a Negotiated Agreement (BATNA) as a key concept in strengthening one's negotiating position.

  • Pioneered the use of game theory and strategic thinking in business strategy and negotiations. Known for breaking down complex game theory for practical business application.

  • Co-founded the consulting firm Idea Farm focused on strategic thinking and negotiation advice. Clients include GE and Goldman Sachs.

  • Professor at Yale teaching popular classes on game theory, strategy, and negotiations. Recipient of teaching awards at Yale.

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