What is Negotiation?

Negotiation is the reaching of agreement, where before there was none, by means of dialogue and communication.

How often do you negotiate? Much more than you think. In fact, almost all difficult discussion falls under the rubric of negotiation.

Negotiation occurs whenever there is an issue of contention. It happens when you buy a house, discipline a child, pick a restaraunt, ask your boss for help, as well as buying an orange at a fruit market.

Most people think of negotiation as something that happens rarely, when buying something with an uncertain price tag, or trying to get a raise in your job. That is a mistake; negotiation is the process that occurs whenever there is some form of dispute or disagreement that is resolved by discussion.

People are negotiating all the time. Most people will do dozens of small negotiations every day. The only way to avoid negotiation is to go live on a desert island, and avoid society altogether. Don't forget to find an island with sub-intelligent animals, as you can also negotiate with the smarter animals...


One of the most important skills in existence is negotiation. It ranks up there after reading, and before writing and arithmetic. If you are good at negotiation, you can negotiate someone to do your sums and your letters for you.

Most people don't ever get a chance to learn it properly, and pick it up as they go along. For this reason, most people make terrible negotiators. There are a very few naturals, but for the most part, only learning some home truths will set you on the path to real negotiation.

Negotiation is used far more than mathematics or writing, and probably as much as reading. Why don't schools teach it? I have no clue. Why don't universities teach it? Still, I have no clue, but they do teach a little negotiation in business school. Not enough, just a little, just enough for the smarter students to realise they've been diddled.

The Basics

Negotiation divides into two halves: win-win and win-lose.

Win-win sits in contrast with win-lose. The two do not go together, and much of ones skill is in knowning when each is appropriate, and how to move between the two.

The Prisoner's Dilemma

The basic principle behind the separation of negotiation into these two components is known as The Prisoner's Dilemma. In this simple problem, two people have to cooperate, but the problem is such that if one of them cheats, that cheater earns a larger payoff.

Who wins? I lose I win
You lose (failure) win-lose
You Win win-lose win-win

The Prisoner's Dilemma is a game from economics. Do not be scared by this, it is a very simple game, with some wonderful and thought provoking results that explain many complexities in your day to day life. Understanding this game will payoff in many ways.

This problem is a dilemma, as the combined payout for cooperation is higher, but the individual payout if one can successfully cheat is higher for the cheater.

Payouts: yours / mine I cheat I cooperate
You cheat -10 / -10 10 / -20
You cooperate -20 / 10 5 / 5

In the above table, two crooks have been arrested and might spend a long time in jail. But, as the only evidence the police have is from each of the crooks, there is a dilemma: can the police get one to blab on the other? Of course, the crooks know this, so the equation reduces to: do I, as crook, cooperate with my fellow crook, or do I cheat him? If only one of us cheats, the payout for the cheater is high, but the cooperator is punished badly! If we both cooperate, we get less each, but we are both in the positive.

Now add the numbers together - the sum for both of us cooperating is 10, and all of the others are summed to much less. So, as a group, we are better off cooperating, and individually, we are better off cheating, but making sure the other does not cheat.

Classically, we talk about two accused crooks brought in for questioning by the police. If both of them keep quiet, then both walk, as there is no real evidence of the crime. If one of them blabs, then the other goes to jail for a long time because he also lied, while the blabber gets off lightly for turning evidence.

What can we do to try and reach the best payoff? How can our two crooks stay out of jail? These are the central questions of negotiation - once answered, they allow a selection of tactics and process that helps achieve the best payoff.

But, before we can achieve the best payoff, we must know in which square of the Prisoner's Dilemma we find ourselves.

How Two Cons Avoid Prison

How do two crooks ensure that neither blabs?

Simple. They could work together and establish trust, by doing lots of heists, one after the other. This is called in economics terms the Iterated prisoner's dilemma because the heists are done repeatedly, and in each future heist, there is a chance to punish the other for previous misdeeds.

Alternatively, the two crooks could employ revenge - if Joe blabs and Fred goes to jail, Joe will find the mob chasing him later on. This expands the basic game into a more complex form of game involving external payoffs.

Another way is to establish trust via bonds. Maybe marry each other's sister, or owe each other a bounty.

Or they could simply decline to work together.

How Two Cons make a Bottom Right

The key is to create an external context, to add something else to the game. In the first suggestion above, the two crooks establish trust, and thus they expect to do many jobs in the future. So, their combined payoff in the future depends on doing many jobs together, and they can only do that if they keep together as a team.

In the second suggestion, they add a future punishment, so that the rules of the game, and the consequent payoffs, are modified to ensure the cheater loses his incentive. If Joe knows his legs are going to be planted in a concrete lump before being planted at the bottom of the harbour, he will factor that in to the calculations before blabbing.

Or, they create Family - which is an extended, powerful relationship. Just like a company, or a tribe, or a football team, our two crooks can bond together in a group that carries them past today's challenges.

The Essence of the Division

The simple extension is to change the payoffs, as is shown in this old Naked Gun scene. That doesn't change the nature of the game, however, it simply solves it more easily. Further, in most negotiating, it is often not possible to change the payoffs so dramatically.

The more complex solution is to make the game a repeating game. That is, to make each dilemma one of many, so that each cheating payoff has to balance the loss of potential future shared benefits.

And, that is the key to understanding whether one is in a win-win scenario or a win-lose scenario:

Is this the only time we negotiate? Is this the end of the game? Is there another round?

If there is more to come, then you are, basically, in a win-win negotiation session. If there is no more to come, then you are in win-lose.

The First Lesson

That's the first and most basic lesson of negotiation.

Am I in win-win or win-lose?

You must ask yourself this question so frequently it becomes second nature. And, this question is often the same as asking

Is this the only time we negotiate, or do we have a future?

Then, as much second nature should be your assessment as to whether you, and your negotiating partner, are considering the future or not.

From here, the world forks. You go to either the relationship process of win-win or, you go to the best payoff of win-lose. Or, you can check out a book or two. This is an alternative treatment of Lesson #1 on Negotiation. With movie screen shots, which might make sense if you've seen Enemy of the State....