From my doctoral course
This note comes from the doctoral course “Game Theory and Bargaining”. I rewrote the explanations in my own words and recomputed the numerical examples.
Position-based negotiation
Most negotiations are “bargaining over positions”: I say 100, you say 50, and each retreats a little. The hard approach (stubborn and suspicious) and the soft one (conciliatory and friendly) both have problems:
- It is inefficient: every concession gets stuck midway, and whoever retreats more loses.
- It scratches the relationship: arguing over positions means “me against you”, and an ongoing relationship is endangered.
- An unsuitable agreement: positions hide interests.
- With more than two parties it gets worse.
The main problem: when we insist on positions, we use our own bargaining power (Bargaining: power factors and the cost of waiting) thoughtlessly and do not see shared interests.
Principled negotiation (Fisher and Ury, Getting to Yes, 1981)
There is a third way: neither hard nor soft; problem solving. Four principles:
- Separate the people from the problem: let us fight the problem together, not each other.
- Focus on interests, not positions: behind every position there is a “why”. Two sisters fight over an orange; one wants the peel and the other the juice. If they ask about interests, both are fully satisfied.
- Invent options for mutual gain before deciding; a brainstorming session separate from evaluation. “Expand the pie before dividing it.”
- Insist on objective criteria: market price, precedent, expert opinion, so that negotiation does not become a contest of wills.
BATNA
All of this is controlled by one concept: BATNA (Best Alternative To a Negotiated Agreement). Until you know what you have if the negotiation breaks, you do not know what agreement is good. And the stronger your BATNA, the greater your power. It is the same as the “outside option” of game theory.
Relation to game theory
Game theory says if interests are in complete conflict, bargaining is zero-sum and only division is at issue (Nash’s solution and Rubinstein’s model). Principled negotiation says interests are often not in complete conflict and by discovering interests and creative options one can enlarge the total (non-zero-sum). Both views are needed: first try to enlarge the pie and then work out how it is divided.
Where is it useful?
International and commercial contracts, inter-unit negotiations in an organisation (finance versus marketing) and requirements analysis with conflicting stakeholders: see Conflict and conflicting systems and the lesson Analysing and classifying requirements.
Related: Bayesian games and signaling.