Anthony Russo
I love my Yale students. They’re smart, empathetic, and principled—until they start negotiating. Then some disorder takes over and many of these otherwise wonderful people start acting like jerks.
They do this as a matter of self-defense. They go up against folks who make lowball offers and ultimatums and generally try to take advantage of them. The other side may be a true jerk or, more likely, a good person just acting like a jerk.
Either way, some feel they have to act like a jerk in response. Others are too nice and give away the store. Neither is a good option. This is why so many people dislike negotiating.
There’s a better way, an approach that brings principles and logic into the negotiation. The key insight is to identify what’s really at stake in a negotiation—what I call “the pie.” The negotiation pie is the additional value created through an agreement to work together.
Seeing the pie will change how you understand fairness and power in negotiation. While the notion of “dividing the pie” is commonplace in negotiations, most people split the wrong pie; they focus on the total amount, not the gain created by an agreement. As a result, they argue over the wrong numbers and issues, and take positions they perceive as reasonable but are, in fact, self-interested. The hard part of negotiation is to measure the pie correctly. When the stakes are correctly understood, it is far easier to reach an agreement.
Anthony Russo
Lesson 1: People are confused about what a negotiation is about; they don’t see the negotiation pie.
A negotiation is really about the increase in value that two sides can achieve through an agreement. Let me give you a recent example.
My mom was renting a house in Sarasota. The owner saw a hot market and decided to put the house up for sale. He offered her a “deal”: the chance to buy at $790,000 before he listed it at $800,000. My mom was happy to buy the house but wasn’t so happy with the offer.
What was the negotiation pie? It was the opportunity to save the 5 percent commission fee—$40,000, in this case—that would have otherwise gone to a real estate agent. There were also other savings, in that my mom didn’t have to move, and the seller didn’t have to fix up and stage the place. Let’s call those two a wash.
She proposed they split the $40,000 pie fifty-fifty. He said he had more power, because it was a “hot” market. True, the market was hot—but that meant the market price would be high, not that he should get more of the $40,000. In order to save the commission, he needed my mother to be the buyer. If he sold to anyone else at $800,000, he’d net only $760,000. And my mom needed him to be the seller. With anyone else, she’d have to pay $800,000 to get an equivalent house. They needed each other equally to save the $40,000. So they should split it equally.
After hearing the pie perspective, he agreed to sell at the market price minus half the real estate commission. We determined the market price by looking at several recent sales that had taken place on her street. We turned the negotiation into a data exercise. And then we found ways to make the pie bigger. We agreed to hire the same lawyer for the closing, split the cost, and thereby saved another $2,000.
Once you understand the pie, you recognize that both parties have equal power.
You can see that the only fair solution is to divide the pie equally. People throw around the F-word in negotiation: I’ve offered you a fair deal. But they may define “fair” in a way that’s favorable to them. Splitting the pie provides an objective view on fairness.
Anthony Russo
Lesson 2: Even zero-sum negotiations aren’t.
It’s great to grow the pie, but what about zero-sum negotiations? You might have thought my mom’s division of the real-estate commission was a zero-sum negotiation—the more of the $40,000 the seller gets, the less my mom gets. But if they don’t reach a deal, they both get zero. That’s a lose-lose outcome. Avoiding the lose-lose outcome provides an opportunity to grow the pie even in a zero-sum negotiation.
People reject deals that they perceive as unfair. Experimental evidence says this is deeply ingrained; even capuchin monkeys reject unfair splits. But people (and monkeys) don’t reject deals they see as fair. Thus, coming up with an objectively fair split allows people to reach a deal in a zero-sum negotiation and thereby avoid the no-deal lose-lose outcome.
Anthony Russo
Lesson 3: Start a negotiation by discussing how you will negotiate.
Negotiators jump to discuss price way too quickly. You want to understand the other side’s interests. You want to help them understand yours. But even before you explore interests, it helps to first set up a framework for the negotiation. Can you agree that the goal of the negotiation is to create a big pie and split it?
If that seems too direct, you might try humor: “I think we should use a confrontational zero-sum jerk mindset in this negotiation. Don’t you agree?” When they (hopefully) say no, you can propose the split-the-pie approach. Either way, you learn right away who you are negotiating with.
If you can agree up front on splitting the pie, you can focus your attention on working together to make a bigger pie. And they can, too. This allows you both to put your natural curiosity and empathy to work to expand the pie. You don’t have to watch your back and worry about being taken advantage of, because you’ve already solved the contentious part—you’ve agreed to split the gains you can create.
Anthony Russo
Lesson 4: Fight fire with water.
When negotiating with people acting like jerks, don’t fight fire with fire. Fight fire with water. Your job is to put out the fire.
Let’s say that the market price of the house, based on comparisons, truly is $800,000 and the two sides are “fighting” over the $40,000 savings. If the seller insists on $790,000, you might be tempted to counter with $770,000. They’ve offered you 25 percent of the pie. If you offer them 25 percent, you’re delivering a taste of their own medicine. That’s fighting fire with fire.
Instead, put out the fire. Explain that you wouldn’t expect them to accept $770,000, as that leaves them only 25 percent of the pie. For the very same reason, they shouldn’t expect you to hand over $790,000. Explain the unfairness using a hypothetical, not an actual, flip. Explain why the $20,000 split is fair and why you (and your capuchin relatives) reject unfair deals.
At the end of the day, the other side may not care about equal power or fairness. But if they recognize that you care, they will have to come to you for a deal and thereby avoid the lose-lose outcome. You are taking a principled stand. Their number is arbitrary.
Yes, there are jerks out there. When you find yourself on the other side, explain the pie and hold firm on getting half. Use symmetry to turn their arguments around. But more importantly: don’t copy them. Help walk them off the jerk ledge. Put out fires. Don’t put aside the skills that let you succeed and grow the pie. Don’t become the very person you wouldn’t want to negotiate with. Don’t let two smart, reasonable, principled people act like jerks when neither wants to behave that way. With this mindset, you might even come to like negotiating.
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