Conventional wisdom suggests that you must never leave money on the table when negotiating. However, research in my field suggests that this may increasingly be entirely the incorrect approach.
Is an increasing number of evidence that a short-term victory at the negotiating table could mean a loss by way of overall trust and cooperation. This could leave everyone – including the “winner” – at a drawback.
As a former director, I managed large contracts each as buyers and sellers. Now, as business professor, I examine the relationships of business partners, checking what works in practice. My work confirms what economic theorists and social scientists have been about arguing for years: The best results are achieved when people work together to create long-term value, somewhat than fighting for short-term wins.
What game are you playing?
Research dates on the art, science and practice of cooperative approaches back to the Nineteen Forties when mathematician John von Neumann and economist Oskar Morgenstern used mathematical evaluation to model competition and cooperation in living organisms.
Interest in the collaborative approach increased when researchers John Nash, John C. Harsanyi, and Reinhard Selten won the Nobel Prize in Economic Sciences in 1994. Their work inspired scientists around the world to delve deeper into the so-called game theory.
Game theory is a science that studies the outcomes of strategic interactions between decision-makers. Using rigorous statistical methods, researchers can model what happens when people resolve to cooperate or take an aggressive, power-based approach to negotiation.
Many business leaders learn strategies that give attention to using his power and playing for victory – often at the expense of the other side. In game theory this is the so-called zero-sum gameand it is easy to fall into the trap.
But not every game has a transparent winner or loser. In economics, a game during which either side win is called a non-zero-sum game. In such a situation, people do not argue about whose piece of the pie will probably be larger. They are working to grow the cake for everybody.
The second dimension of game theory is whether people play a single-shot or repeated game. Think of a one-time game like going to a flea market: You probably won’t see your trading partner again, so in case you act like a jerk to them, the risk of repercussions is low.
An interesting fact discovered during the study of repeated games is that when one party uses its power in a negotiation, it causes the other party to want to retaliate.
It was coined by Robert Axelrod of the University of Michigan, a mathematician turned game theorist. tit-for-tat strategy.. His research, perhaps best known for his book “The evolution of cooperation” uses statistics to show that when individuals work together, they perform higher than after they do not.
A case of leaving money on the table
Another Nobel Prize winner, an American economist Oliver Williamsonproposed negotiations advice what most would call a paradigm shift and a few would call heresy.
This advice? Always leave money on the table – especially while you keep coming back to the same “game”. Why? According to Williamson, it sends a powerful signal of trust and credibility to the negotiation partner when someone consciously decides to cooperate and construct trust.
The opposite approach leads to lack of trust and what Nobel Prize-winning economist Oliver Hart calls “shadowing.” This is retaliatory behavior This happens when a celebration does not achieve the expected result from the contract and feels that the other party is at fault.
Simply put, a non-collaborative approach creates an absence of trust and creates friction, which increases transaction costs and increases inefficiencies.
The million-dollar query is whether collaborative approaches work in practice. From my perspective as a scientist, the answer is yes. In fields as diverse as Healthcare Down high technologyI see an increasing number of real-world evidence supporting game theory insights.
The lessons are easy but profound: Playing together to achieve common interests is higher than playing to solely pursue self-interest.
