Negotiation
Notes
Introduction to Negotiation - Barry Nalebuff
Week 1
The pie is the reason the negotiation is taking place. It's what the parties are trying to divide. The first question almost everyone asks is, how do you divide it? In particular, how do you get as big a slice as possible? Now that's a fine question, and I'll help you answer it, but it isn't where I start. My starting point is what is the pie?
The pie is how much more two parties, A and B, can achieve by working together than they can get if they don't reach an agreement.
In more technical terms, the pie = net benefit from working together – (A’s net benefit on its own + B’s net benefit on its own) where net benefit is the benefit leftover after costs.
The Principle of the Divided Cloth says to give each party what has been conceded to him by the other and then split the amount in dispute.
In a multi-side negotiation, the Shapley value tries to make things fair by averaging costs across all possible orderings.
Week 2
Best Alternative to a Negotiated Agreement (BATNA): your walkaway price - the least amount of money you'd be willing to accept as a seller, or the most you'd be willing to pay before walking away as a buyer.
Zone of Possible Agreement (ZOPA): basically the same as the pie to be split.
Instead of refusing a deal flat out, try to come back with a proposal - no matter how absurd it might be - and let the other party decide whether to say no to that. People like to reach agreements, so they might actually say yes more often than you expect.
The opportunity to make ultimatum gives you more power - but use this power with discretion.
Week 3
Pareto optimality: if it's the case that everyone prefers option B to option A, we should never choose option A (we say option A is pareto-inferior to option B).
Usually the best approach is not to fight fire with fire (if somebody lies during the negotiation, do not call it out and/or reply with a lie), but to put out the fire (propose new terms that are going to better for both parties whether or not the lie is supposed to be true).
Meeting in the middle is not always the best solution for a compromise: if one parties only likes broccoli and the other only likes beets, meeting in the middle would mean that each party gets half broccoli and half beets, making everyong unhappy. Instead, you can communicate to the other party that you only like broccoli and, if the other party only likes beets, you can divide them so that each one gets only want they want, making everyone happy.
Using the principle above, the pie can be made larger than it was before when a compromise that was not fully accepted by both parties was to be found.
Week 4
Step zero: know in advance what you want to obtain from the negotiation.
Anchoring theory: the first number you will hear will serve as an anchor or a starting point - a lower number will drag down the starting point, while a higher number will pull up the best asking price.
If you have the opportunity to make the first offer, a low bid may help you get a lower final price.
Starting too low or too high may be counterproductive: if you ask for a price too high, many will be discouraged to engage, while if you bid for a price too low, the other party might think you don't know the real worth or you are trying to "steal" it from the seller.
Often making a precise bid works much better than throwing a round number and see if it sticks. Usually people will think you have some logic or some principle behind the precise price, and given consideration and thought to your ask.
Having a conversation about how both parties can expand the pie by working together at first rather than at last would make both parties more interested in investing time and energy, and ultimately reaching a deal.
Rather than saying no, propose a contingent plan: you say that you're going to ask your boss if they are willing to do more if you say yes right now. Don't make this easy peasy for the seller, though: instead of going all the way up to their price, toughen up and still propose something halfway.
Week 5
A party's added value is the size of the pie when the party is in without the size of the party when the party is out.
One party will never get more than its added value.
Being allocentric means trying to imagine ourselves in other parties' shoes and try to see the situation also from their point of view. This might help us reach a decision faster and with greater accuracy.
Week 6
Men are usually more prone to negotiating than women.
Women are way better when negotiating for another person rather than for themselves, while men have equal results in both scenarios.
Advice for women to get better at negotiations include framing the negotiation as a cooperative endeavour rather than a competitive one, and framing the negotiation to be for somebody else rather than for themselves.
Week 7
Virtually everything is negotiable.
The biggest problem people have while negotiating is they fall in love with the thing they are negotiating for, impeding them from walking away.
The main ingredients of a success negotiation are power, time, and information.
Having deadlines can be a call to action to make the negotiation move forward, but there needs to be a reason why a particular date has been chosen instead of another one.
Appearing to be the smartest person in the room can be counter-productive, as it might trigger a fighting reaction in the other party, and does not allow you to reach out asking for help to the person you're negotiating with.
Week 8
Listening is important because there's a tendency about making assumptions of what the other party thinks, and by listening you have a chance to prove or disprove those beliefs.
Try to discuss the major principles of the deal early on in the negotiation, so they can be agreed upon and taken off the table completely. In this way, it will be possible to concentrate on the smaller details without going back in circles.
Week 9
Top 10 negotiation principles: start by asking, make principled arguments, fairness, calculate the pie, employ symmetry, know your BATNA, never accept less than your reservation price, joint problem solving, be allocentric, remember beets vs. broccoli, create new options.
Other important negotiation principles: don't fight fire with fire, never say no, choose a good anchor, don't lie, don't be nibbled, get paid to play, (almost) everything is negotiable, care but not too much, deadlines need to have a reason, get agreed-upon items off the table.
Salary Negotiation Workshop - Josh Doody
Prepare for interviews
Basic research
try to learn what the company does and what's its mission
search on Google for stock performance / blog posts / press releases
What's their story?
Demonstrate their story will be better with you at the company
The dreaded salary question
Current salary: "I'm not really comfortable sharing this info. I'd prefer to focus on the value I can add to this company"
Desired salary: "I want this move to be a big step forward for both responsibility and compensation."
Do not disclose these numbers early on, as they might limit your bargaining power down the line
Negotiation strategy
You should negotiate!
You don't want to start with the wrong foot => do it the right way and this won't happen
You fear the offer will be pulled => that's very unlikely
What is your minimum acceptable salary?
Find some references points: current/desired salary, comparison with other employees at the same company
Pending raises and bonuses
Overall feel of the company
Pick your number and stick to it!
Counter 10% to 20% to their initial offer
10% is basically a baseline for every company
20% is a bit pushy, do this only if you sense they need you pretty badly
Define your negotiation window
Baseline is what they offered you in the first place
Upper bound is your counter offer
Prepare for incremental steps
What if you're staying put?
Define your goal
Raise: target salary
You need a compelling case
Raise: what's changed?
Promotion: show your work
Prepare your case
Make your request
Schedule a 1:1 with your manager to make the request
Follow up with the same request in writing (e.g., email)
Q&A
Maximise you base salary rather than stocks and equities
Glassdoor / Salary.com to gain information about the company and salary
Successful Negotiation: Essential Strategies and Skills - George Siedel
Week 2
The first question you should be asking yourself is: should I even start a negotiation? Sometimes the opportunity cost for a proper negotiation is higher than the value being negotiated in the first place
The second question you should be asking yourself is: is this a position-based or interest-based negotiation? Position-based is when the two agents take opposite stances (e.g., high price vs low price) and they fight for something in the middle; interest-based is when the two agents seek why the other party wants to make a deal such that they can try to have a win-win situation
The third question you should be asking yourself is: is this a dispute resolution or deal-making kind of negotiation?
There are six main processes for resolving disputes:
avoidance: give the other party what they want without negotiation
negotiation: try to strike a deal with the other party
mediation: a negotiation assisted by a third party
arbitration: bring in a third party, which has the right to decide the dispute
litigation: a public form of arbitration, with judges and courtrooms supplied by the State
power: one party uses their party on the other to win the dispute
Arbitration, mediation and negotiation fall under the umbrella term of Alternative Dispute Resolution (ADR)
Litigation, arbitration and mediation are all examples of third party processes
Litigation and arbitration are rights-oriented, while mediation and negotiation are interests-oriented
While analysing a negotiation, there are a few importang things to keep in mind:
what is your Best Alternative To a Negotiated Agreement (BATNA)?
what is your reservation price (the lowest/highest prices that you will accept)?
what is your stretch goal?
The Zone of Potential Agreement (ZOPA) is contained between the two reservation prices
A decision tree is a very useful tool to do the BATNA analysis - whenever you a decision you split the current branch of the tree in two halves, each with a corresponding probability, and after adding numbers you calculate the weighted average going back to the root of the tree
An agent can have three possible types of authority: express when the principal says to the agent "you have authority to negotiate this deal"; implied when the principal hires the agent for a particular position in the company; and apparent when the principal does something to indicate to you that the agent has authority when in fact there is no authority
Week 3
Your BATNA (Best Alternative to a Negotiated Agreement) is your source of power during a negotiation. Your BATNA gives you leverage to walk away if the other side doesn't give you a better deal than your best alternative
In some cultures, spending some time to getting to know the other side before even starting the negotiation can yield a much better outcome than diving straight into the deal
The main sources of power in a negotiation are information (learned by asking many questions and listening carefully to the answers) and the other side's BATNA (which you should try to find out early on in the negotiation)
You should disclose your BATNA only if it is strong (as it signals to the other side that you have more power in the negotiation) and try to hide it if it is weak
As soon as you find out the other's side BATNA, you should try to weaken it to diminish their negotiating power
Mythical Fixed Pie Assumption: our interests are in direct conflict with the interests of the other side - not always true!
Reactive devaluation: immediately dismissing or not considering the other side's proposal, even if it could be a good deal if listened to carefully
Anchoring: when estimating an object of unknown value, we tend to "anchor" on an initial value
Conventional wisdom says the other side should be the first one to throw out a number, but anchoring says it would be better for you to throw out a number and get the other side close to that
Overconfidence: we are overconfident that our judgements are correct
Framing: the way the options are framed cause us to be risk averse (if positive frame) or risk seeking (if negative frame)
Availability: we are influenced by information that is most easily available
Escalation: the most successful negotiators are able to look at negotiations from the perspective of the other side
Reciprocation: we feel the need to repay what someone has given us
Contrast principle: things look different in sequence than when taken in isolation
Big-Picture Perspective: do not get lost in details
Week 4
A contract is an agreement enforceable by law
One main variable in contracts is whether we are dealing with common law, which looks at precedent cases, or civil law, which is based on deduction starting from a code of laws
Another main variable is what type of contract we have: contracts for real property and services are again divided into common law and civil law, while contracts for "goods" are usually within a uniform law framework
The first question to ask when forming a contract is: do we have an agreement?
If a party makes an offer, and you reply with acceptance but with additional terms, this is not acceptance, and the original offer is gone
The second question to ask when forming a contract is: is there consideration?
Consideration means that, for a deal to be binding, both parties have to give up something
The third question to ask when forming a contract is: is the agreement legal?
The fourth question to ask when forming a contract is: must the agreement be written?
Parol Evidence Rule: once you reduce your agreement into writing, then the agreement is limited by the four corners of that writing - a court will not try to unravel what has been discussed or decided during the negotiation
Week 5
ADR stands for alternative dispute resolution
Dispute prevention is about understanding what people would do in case of a dispute, and not what a court would do
Even if you win a lawsuit, that could have unexpected consequences in terms of business relationships
The corporate pledge is a policy that a company can choose to use such that, if there is a business dispute with another company which has made a similar pledge, both parties will try to explore negotiation or ADR techniques before resorting to full-scale litigation
A screen is a series of questions for business people (non-lawyer) such that, depending on the answers given, it will advise you whether to go for a binding or non-binding ADR process
Usually an arbitration outcome is final, and cannot be appealed even in case of an evident injustice
Litigation and arbitration have similar costs, and sometimes arbitration can be more expensive because of arbitrator's fees and courtroom fees, which you get for free with public litigation
There are three main types of mediation: transformative, evaluative and facilitative - facilitative means trying to facilitate the conversation between two parties, evaluative means that the mediator is going to provide some expertise, and trasformative seeks to change the relationship between the two parties, especially when one has less power than the other
The main difference between a negotiation and a mediation is that the mediator meets individually with each of the parties and request information, effectively creating a Zone of Possible Agreement (if it's possible to create one)
Resources
Articles
Exactly what to say when recruiters ask you to name the first number… and other negotiation word-for-words - Aline Lerner, interviewing.io
How to sabotage your salary negotiations efforts before you even start - Aline Lerner, interviewing.io
How you can ~1.5x your salary through negotiation - Jordan Cutler
Negotiating a job offer - Leigh Thompson
Salary Negotiation: Make More Money, Be More Valued - Patrick McKenzie
Courses
Successful Negotiation: Essential Strategies and Skills - George Siedel
Websites
Fearless - Salary Negotiation for High Earners
YouTube Videos
How To Negotiate Compensation Like A Boss - A Life Engineered
Salary Negotiation Workshop - Josh Doody
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