Negotiating 101

This all-or-nothing approach has become the standard for what”;s considered to be success in negotiations, but it doesn”;t have to be.

Maurice Schweitzer (MS), a Wharton professor, has written a paper with Einav Hart, management professor at George Mason University, that answers the question: When can negotiators get the best deal without squeezing their counterpart?

Schweitzer joined Knowledge at Wharton (KAW) to talk about the paper titled “;When Should We Care More about Relationships Than Favourable Deal Terms in Negotiations: The Economic Relevance of Relational Outcomes”;.

KAW: Can you summarise this research and explain why you wanted to study negotiating?

MS: I teach negotiation here at the Wharton School, and I see it as a really rich and interesting decision problem where we have interests that are congruent. We both want a deal.

Maybe there are ways for us to make each other better off, but we also have some competing interests where, for example, I want a higher price and you want a lower price.

In this project in particular, what”;s so interesting is that the way people think about negotiations is often narrow and wrong.

KAW: Why do you think it”;s wrong?

MS: We often think of a successful negotiator as somebody who”;s really tough, who”;s hard-nosed, who”;s going to walk away. The idea that we can win a negotiation leaves the impression that we”;re really competing with our counterparts.

In some cases, you can win a negotiation by beating up your counterpart or deceiving them or leveraging your opportunities to take more of the pie . . . but I think the vast majority of cases are really quite different.

For example, in the United States, 80% of the economy is in services, where we think about negotiating somebody”;s job offer or negotiating with the babysitter, where so much of the value that gets created happens after the negotiation ends.

That”;s the part that”;s typically missing.

Imagine I hired you, but through the negotiation I really squeezed every opportunity I had to claim surplus.

I figured out the very least I could pay you, and I knew you didn”;t have good alternatives, so I demanded that you couldn”;t have many benefits.

By the end of the negotiation, I”;ve created a competitive dynamic in our relationship.

Now we”;re working together, and I ask you to take on an extra assignment or mentor a new employee or stay late.

I”;ve damaged our relationship in ways that could really impact the economic outcome I ultimately get.

It could be that I”;m paying you a lower salary, but the work product is far less than it would be if I had really built a great relationship through a much more collaborative negotiation process.

KAW: In this paper, you and your co-author created this new negotiation paradigm called the Economic Relevance of Relational Outcomes (Erro). Please tell me about it.

MS: We created this concept to think about the importance of the relationship to economic outcomes.

We”;re thinking about drawing a very crisp distinction between some transactions.

Imagine I”;m buying a used car from you. We reach a deal, shake hands, sign the paperwork, and I drive off with my used car. I never see you again.

Maybe there, if I engage in aggressive bargaining, I start high, I concede slowly, I express anger.

Maybe I use deception. I may do things that are really tough on the relationship, where at the end, you”;re like: “Wow, that was tough. He really got a great deal, but I never want to do that again. I wouldn”;t want to work with him again.”

I”;ve extracted a couple hundred extra dollars, and I”;m driving away, and we”;re not going to deal with each other again.

That type of transaction characterises some of the negotiation context we”;re in.

But most of our negotiations are really quite different . . . more like a salary negotiation with an employer and many things in between.

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