Sunday, March 27, 2011

Why Negotiation?

When I was five years old, my brother realized something very important.

At that time our parents would hide jelly beans (my favorite) and chocolate eggs (his favorite) around the house at Easter.  Once we'd gathered them up we would trade something like two beans for one egg (since the eggs were bigger).  Then Harold realized that I didn't like chocolate eggs at all.  He declared that he would only trade if for every jelly bean he gave me he got five eggs.  I grumbled, but since the eggs were worthless to me I gave in.

The next year Harold took it a step further.  Instead of grabbing any candy he saw he would only go for the jelly beans.  Since he could trade a few beans for all the chocolate eggs later, they weren't worth slowing down for.

Unfortunately for him, I refused to go along as I had the year before.  I said I was willing to throw my eggs in the trash rather than trade them to him at five eggs to one bean.  We eventually settled on something like one to one, which was still better for him than where we'd been two years ago but much better for me than one year ago.

Today I understand that childhood conflict much more clearly...and talk about it in jargon.  I had a bad BATNA and he used his knowledge to capture all the value in our ZOPA.  I recognized that our negotiation was iterative so I refused to accept a deal even though it was ahead of my theoretical reservation price.

Jargon aside, the point is that negotiation is part of life.  We do it all the time and if we do it well we get better results.  Best of all, so do many other people we care about.  As we'll see, a lot of good negotiation is about making everyone involved better off.

Negotiations are also very important.  Clearly we care a lot about reaching mutually positive agreements with our husbands, wives and children.  We also risk leaving a lot of money on the table if we don't negotiate effectively (or, as so many do, don't negotiate at all).

One brief example.  A couple of years ago a friend of mine called me for negotiation advice.  She'd been offered a promotion at work with a salary bump.  She really wanted the new job and the salary was quite competitive with what she might get elsewhere, so she had good reason to be happy but she also suspected that she might be able to ask for more.  She was leaning towards just accepting the offer and had just about talked herself into that position.  We spent about an hour on the phone, going over her interests, the key players where she worked and what could happen depending on her choice and came up with a number we were confident she could ask for that had no downside but which I was sure would either be accepted or met with an improved offer.

That conversation, and her decision to negotiate rather than accept the first offer, was worth several thousand dollars to her -- every year.  I'm sure she was nervous or uncomfortable coming back with a counter-offer rather than grateful acceptance, but I'm even more sure it was worth it.

This blog is going to be a mix of theory and practice.  We'll discuss important articles and concepts in negotiation theory and we'll touch a bit on the lighter side of game theory but we'll also look at a lot of real life examples.  My hope is that we learn some things together and have fun doing it.  I hope you'll join in and share your own insights and experience or ask questions if anything isn't well explained.


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