Negotiation Basics: The Missing Lesson

This article is part of the Negotiation Series.

There are many books and articles that discuss contemporary negotiation basics and I won’t repeat what they have to say. My aim, instead, is to discuss how my experience differed from what I was taught about negotiating basics. This experience includes buying and selling companies, raising funds from investors and shareholders, entering into operating and equity partnerships as well as hiring dozens of employees. My conclusion is that game theory doesn’t apply to negotiating but psychology does.

Before negotiations even begin, you are faced with a serious challenge and that is determining what your position is. What is it that you want? What are you willing trade away? If you are not crystal clear about this then you open the door to being manipulated by your opposite during negotiations. To understand how difficult this is, just consider any time in the past when you were applying for a job or asking for a raise. How hard was it to decide what salary to aim for, what minimum salary to accept and what you might ask in return for the lower salary? It is not easy.

What I quite often see is people use the negotiation for information discovery, understanding what the market price for their skills is. This gives their opposite in the negotiation a strategic advantage as they will be negotiating whilst the employee is gathering information. A strong start to any negotiation is to invest the time in advance to gather the information that you need and develop a clear understanding of what you want and what you are ready to give up. If you are not clear on your goals then you cannot develop a negotiating plan.

The next challenge that you will face, and it is your biggest challenge, is that people are not rational. I don’t care what economics and other academic subjects have to say, just have a 5 minute conversation with a random stranger and you’ll understand what I mean. Or watch YouTube. Or explain Justin Bieber. For a logical argument, consider that economics is a subject meant to teach us about being rational yet assumes that everyone is already rational.

What does this mean to you in terms of negotiations? If logic is not being applied, then it’s all going to be emotions and psychology. Whilst you are trying to engineer an economic win-win your opposite in the negotiation might be more interested in how to save face. You are not going to get what you want if you don’t understand your opposite’s goals. A good introduction to all of this is the book Influence and for the heavy duty stuff there is Judgment under Uncertainty.

Finally, there is the fact that nearly everyone has read books and articles, or attended training courses, on negotiating. I have seen many a negotiation’s goals change from achieving commercially acceptable goals to simply the application of recently learnt negotiating strategies in an attempt to win at negotiating. This of course leads to deadlocked negotiations, high levels of frustration and opportunity loss, all for no good reason. Make sure that you do not fall into this trap, and keep a wary eye out that your opposite does not either.

So how do you get better at negotiating? Practice. Pick various deals, real or imaginary, and practice with your colleagues at work. Go out into the real world and practice with anyone seeking to sell something that does not have a set price, for example used merchandise. Thrift stores, flea markets, souks, used car retailers, real estate agents, insurance agents, etc. Most of you will feel anxiety about negotiating, practice will help acclimatize you and get you over your fear. Some of you will play hard-ball to the extreme and practice will teach you human norms and limits so that you don’t necessarily blow up a negotiation.

It is because negotiation is more about psychology and emotions than it is game theory that practice is so important, because you cannot learn these skills only in class.

In subsequent posts I will focus on individual tactics and how to counter them.

You might also like Negotiation: Defending Against the Concession Tactic.

1 Comment

  1. Nadeem

    Great post as usual! However, don’t u mean that economics assumes all are irrational (you wrote rational)? I’m sure this is just a typo…

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