How Negotiation Works

handshake over paperwork
Corporate Life Image Gallery Negotiation is an integral part of life. Whether we like it or not, it pervades all interpersonal relationships. See more corporate life pictures.
©iStockphoto/Kristian Sekulic

"I'll gladly pay you Tuesday for a hamburger today." Does this sound like a good deal to you? The answer probably depends on how much extra interest you'll collect from me on Tuesday, if you trust me to pay and if you want to prevent bitterness from growing between us. If you're interested, you probably want to draw out or alter the terms.

Open the newspaper, and you'll find the latest conflict among world leaders, celebrity divorce or local labor union dispute. You may also hear a shout from the other side of the breakfast table that tells you it's not your turn to read the paper, but rather to take the dog for a walk. Conflict seems to be everywhere. It's one thing that's been with us throughout history. So, how do we get anything done without resorting to violence?


Whether it has to do with buying a car, divvying up errands or spreading world peace, negotiation is usually the best way to accomplish anything fairly. In general, negotiation is the process of resolving a dispute or settling a business deal.

But humans, though rational animals, are also emotional. Conflicting interests almost always involve more than the terms on the table. Between the lines, you'll find that people's motivations sometimes include anger, desires to maintain honor, saving face, or just plain greed. Effective negotiation takes strategy, tact, understanding and forethought. Theorists study and characterize the elements of fair and effective negotiation to find the best ways to resolve disagreements. We'll take a look at the different methods and explore theories about possible outcomes.

First, we need to recognize the steps involved in negotiation. How about this: If you'll agree to click to the next page, we'll tell you what they are.



Haggling: Let's Dance

haggling for used car
Most people associate negotiation with haggling the price of a used car.
Erik Rank/Photonica/Getty Images

In its basic form, negotiation is pretty simple and probably already familiar to you, even if you've never formally engaged in it. For instance, deciding on a price for a used car or a house are typical situations in which two parties negotiate. These classic examples represent a kind of negotiation commonly known as haggling. Here, when arguing over price, negotiation entails a simple give-and-take until the parties reach a compromise or fail to agree. Skilled negotiators will often include arguments for why a price should be more or less. Here's an example of a negotiation for a used car:

Buyer: It's alright, but it has an awful lot of miles on it. I'll give you $2,000 for it.


Seller: I couldn't possibly let the car go for just $2,000 -- it's a classic. It's worth at least $6,000, but I like you, so I'll let you have it for $5,000.

Buyer: A classic? This thing is an antique and a gas guzzler; I guess I could raise my offer to $3,000, but no more.

Seller: I can see you recognize a good deal when you see it, so I'll let it go for $4,000 -- my final offer.

Of course, this tug-of-war could go on until the two parties agree on a price between $3,000 and $4,000, or they could simply never reach an agreement and give up. But this scenario demonstrates the basic formula for a negotiation:

  1. Recognizing Conflict: In the transaction, the buyer wants to spend as little as possible, while the seller wants to receive as much as possible.
  2. Stating claims: The buyer claims he deserves the car for a certain dollar amount while the seller claims he deserves more money.
  3. Conceding points: The buyer and seller make concessions by altering their claims --lowering or raising their offers -- in an attempt to reach a compromise that will satisfy both parties.

The process of negotiation appears everywhere, from arranging who will run the errands to discussing which country can continue building nuclear weapons. It's a good idea to understand the different tools you'll need to be a successful negotiator. We'll equip you with those next.


Negotiation Weapons: This is War

business negotiations
Get your game face on and be prepared for a fight when you enter a negotiation.
Tim Robberts/Photonica/Getty Images

Before entering a battle, it's smart to do some reconnaissance, inventory and, if ethically possible, espionage. Keep in mind that knowledge is power -- both knowledge of your own situation and knowledge of the other side's. Learn as much as you can about your situation and alternative options. Keep these details hidden from the other party so they're not used against you. Learning as much as possible about the other party's situation could give you the upper hand.

One factor that experts recommend you learn about yourself before you enter negotiations is your best alternative to negotiated agreement (BATNA). This is the option you would take if the talks fell through. For instance, if you're negotiating over the price of a house, your choices of BATNA could be staying where you live or trying to get a different house.


Knowing your BATNA is essential to making smart decisions during negotiation because you can't make a wise choice when you don't know what your choices are. Like the game show contestant who must choose between what's behind mystery door no. 3 and the $10,000 cash prize she just won, you'd be entering a negotiation blindly by not figuring out your BATNA. And, the better your BATNA is, the stronger -- and more confident -- your negotiating can be. For this reason, authors Fisher and Ury advocate doing what you can to improve your BATNA.

Unless you have a very good BATNA, keep it hidden from the other party until you're ready to use it. However, letting the other party know you have a strong BATNA -- without going into specific details -- is a solid negotiation tactic. Also, learning that the other side has a poor BATNA will improve your negotiating position.

A related factor to figure out before entering a negotiation is your reservation price, also called the walk-away price. Your reservation price represents the worst terms you'd be willing to accept for a deal [source: Harvard Business Review]. For instance, this might be the highest price you'd be willing to pay for a house or the lowest salary you'd be willing to accept to work for an employer. And unless you want it to be your only option, keep it to yourself.

To know the battlefield, get familiar with the zone of possible agreement (ZOPA). This is the range at which two opposing parties can possibly agree. In other words, it's the difference between the seller's reservation price -- the lowest price he'll accept -- and the buyer's reservation price -- the highest price she'll pay. You might figure out that the two reservation prices don't overlap at all, meaning that no ZOPA exists and negotiation is impossible.

Some negotiations require a third party to intervene. This person could be a hired mercenary for your fight -- an advocate paid to negotiate on your behalf. On the other hand, an impartial mediator can step in to either help the parties understand each other, to make steps toward resolution, or to come up with a solution that all parties would be willing to accept [source: WIPO]. The parties aren't required to accept this solution, however. This is different from an arbiter or arbitrator, whose decision is final. An example of this is when a matter goes to court in front of a judge.

But, what are we fighting over, anyway? Is it possible to alter the playing field, or is every inch I gain one that you lose? Read on to find out how it might be one or the other.


Negotiation Theory: Don't Take a Slice of My Pie

the negotiaton pie
We use the idea of a pie to illustrate what people fight over in a negotiation.
©iStockphoto/Jill Chen

Given how many different situations in which negotiations pop up -- from the kitchen to the office to the war room -- you can imagine how many different kinds there are. But negotiation theorists give us several different concepts to help us sort out and understand the process. One of the most basic symbols for talking about negotiations in general is called the pie. In negotiations, whatever people fight for -- be it money, power, the bigger office or even the privilege of not having to take the trash out today -- is the pie. Usually, negotiations involve slicing up that pie, with each side fighting for the biggest slice they can get.

Using this pie symbol, think of negotiation as either distributive or integrative. Distributive negotiations are those in which there is a certain, fixed sized pie over which the sides fight. One party wins, and the other loses. For example, if countries are drawing political lines in peace negotiations after war, the territory one country gains is a loss to the other nations. Another name for this is a zero-sum game. Although this concept may seem obvious, it's not the only kind of negotiation.


Depending on what the pie is, you can also have an integrative negotiation in which the parties can actually enlarge the size of the pie. Theorists call this process creating and claiming value. This happens when parties think of new things that one side can offer the other and then claim parts for themselves. For instance, when negotiating salary increases, an employer could also offer extra vacation or better benefits in exchange for the employee settling for a lower salary.

Some people refer to distributive negotiations as win-lose and integrative negotiation as win-win. Others, including professional negotiator and writer Jim Camp, take issue with such terms, saying "win-win" is not possible. In the integrative negotiation, not all parties will walk away with exactly what they want or even be happy about what they get. In some cases, all parties will walk away thinking they got the worst end of the deal. However, the Harvard Business Review recommends staying creative and using integrative negotiations because enlarging the pie helps sustain long-term relationships [source: Harvard Business Review].

Next, we'll take a closer look at the different approaches we can take when entering a negotiation.


Negotiation Strategies: Good Cop/Bad Cop

Whether you're negotiating over chores with a spouse or salary with an employer, the manner in which you approach the discussion dictates how successful you are. If you're too timid, you may give in too quickly and end up making an unfair deal for yourself. This may also lead the other party -- and even onlookers -- to believe they can walk all over you. On the other hand, if you're too stubborn and unrelenting, you may provoke the other side to walk away from the negotiation. This causes the deal to fall through, leaving everyone involved permanently bitter.

Nevertheless, depending on the emotions and the parties involved, sometimes it may be more appropriate to lean one way or the other. A soft approach to negotiation refers to being generally more willing to give in, make concessions, trust the other, and stay honest and forthright with one's situation. A hard approach is the opposite. It means keeping a hard line, being unwilling to make concessions, and keeping one's own situation under wraps. The authors of a book called "Getting to Yes" argue a third option, which is a balanced approach [source: Fisher].


In the book, authors Roger Fisher and William Ury advocate principled negotiation, which has four components:

  • Separate the people from the problem: Try to account for others' emotions and cool your own. Communicate honestly and show that you actively and attentively listen to the other side.
  • Focus on interests, not positions: Although the outright demands (positions) of either side might prove incompatible at first, getting to the root of the demands (the underlying interests that motivated them) allows the parties to rethink and adjust demands to make them compatible.
  • Invent options for mutual gain: This part involves using the integrative approach of enlarging the pie we discussed on the previous page. Inventing new ideas could necessitate brainstorming and thinking of as many options as possible -- both ones you can offer the other side or the other side can offer you. Afterward, decide which ideas sound best to bring to the negotiating table.
  • Insist on using objective criteria: As a preventative method of keeping emotions at bay, try whenever possible to use objective criteria. Beforehand, make sure the parties agree on what is "objective," be it legal precedent or scientific studies [source: Fisher, Glaser].

For people who just don't feel comfortable with negotiation, the principled negotiation approach serves as a great alternative to the difficult choice between being conciliatory or aggressive. By minimizing emotions and focusing on objective sense of fairness, people gain more confidence without feeling that they're making enemies or being victimized.

But some negotiation theorists say it isn't quite that simple. The question of strategy usually revolves around predicting the other side's moves. Because we predict you will go to the next page, we'll explain this concept there.


The Negotiator's Dilemma: Cooperate or Compete?

negotiator's dilemma
This table illustrates the options and possible outcomes of the Negotiator's Dilemma.
HowStuffWorks 2008

Critics of principled negotiation say it's too soft. Negotiation, after all, is usually about conflict and competition. Particularly in a zero-sum, distributive situation, someone must come out ahead. For these reasons, some people say that principled negotiation isn't the best strategy in certain situations. Authors Lax and Sebenius came up with one way to think about strategy in what they call the Negotiator's Dilemma, which is similar to the famous Prisoner's Dilemma.

If you know anything about Game Theory, you've heard of the Prisoner's Dilemma. In this scenario, two prisoners who are isolated from each other must decide whether to confess to their captors or keep quiet. If one prisoner confesses and the other doesn't, the confessor gets freedom and the other gets 20 years imprisonment. However, if both confess, each of them gets 10 years behind bars. Finally, if both decide to keep quiet, each gets only 5 years of hard time. Each prisoner must choose between two options, but can't make a good decision without knowing what his cohort will do [source: Heylighen].


Negotiators face such a decision when choosing whether to cooperate or compete. Cooperating in this sense involves staying soft and creating value -- enlarging the pie -- whereas competing involves staying hard and claiming value. When you apply this theory to the Prisoner's Dilemma scenario, cooperating means to keeping quiet, and competing means to confess.

The Negotiator's Dilemma states four different scenarios:

  1. Great: If you compete and the other cooperates, you will have a great outcome, and the other will have a terrible outcome (the best result for you). In Prisoner's Dilemma, this happens if you confess and the other person keeps quiet.
  2. Good: If both you and the other side decide to lay all cards on the table and cooperate, both will have a good outcome (the second best result for you). In Prisoner's Dilemma, this happens if both of you keep quiet.
  3. Mediocre: If both you and your adversary take the offensive and compete, both will receive a mediocre outcome (the third best result for you). In Prisoner's Dilemma, this happens if both of you confess.
  4. Terrible: If you decide to cooperate, while the other decides to compete, you will have a terrible outcome while the other gets a great outcome (the worst result for you). In Prisoner's Dilemma, this happens if you keep quiet, but the other person confesses [source: Lax].

Using this logic, your best strategy is to compete -- stay hard and claim value -- so that you end up with either a great or mediocre outcome [source: Tenbergen]. However, if both you and the other party realize that this is the best strategy for yourselves individually, you'll get a mediocre outcome. This way, both of you miss out on the better opportunity -- the good outcome -- which you'd get if both of you had cooperated by staying soft and creative value to enlarge the pie. No wonder they call it a dilemma.

Faced with this problem, theorists use computer models to try to come up with the best practical solution. The tit-for-tat strategy proves more steadily successful than others [source: Tenbergen]. This process involves starting out with a cooperative approach. As the negotiations go on, the strategy adapts by immediately responding to what the other side does. This means that it responds to competitive moves with a competitive move and responds to a cooperative move with a cooperative move. However, some people take issue with this strategy, saying it should be used only in the absence of misperceptions and fear [source: Tenbergen].

Let's make a deal: Take a look at the next page to find links to related subjects, including hostage negotiation.


Lots More Information

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More Great Links


  • Babcock, Linda, Sara Lashever. "Women Don't Ask: Negotiation and the Gender Divide." Princeton University Press, 2003. (July 24, 2008).
  • Babcock, Linda, Sara Lashever. "A Conversation with Linda Babcock and Sara Lashever." Women Don't Ask Website. (July 29, 2008)
  • Fisher, Roger, et al. "Getting to Yes: Negotiating Agreement Without Giving In." Houghton Mifflin Books, 1991. (July 24, 2008)
  • Genesis 18:20-33. (July 24, 2008)
  • Glaser, Tanya. "Book Summary of 'Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury.'" Conflict Research Consortium, University of Colorado, Boulder, Colorado, USA. (July 24, 2008)
  • Harvard Business School Press, Richard Luecke. "Negotiation: Negotiation." Harvard Business Press, 2003. (July 24, 2008).
  • Lax, David A., James K. Sebenius. "The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain." Simon and Schuster, 1986. (July 24, 2008)
  • Lewis, C.S. "The Screwtape Letters." HarperCollins, 1996.
  • Rosenberg, Sarah. "Face." Conflict Research Consortium, University of Colorado, Boulder, Colorado, USA. (July 24, 2008)
  • Tenbergen, Rasmus. "Principled Negotiation and the Negotiator's Dilemma -- is the "Getting to Yes"-approach too 'soft?'" Institute for Leadership Development. (July 24, 2008)
  • WIPO. "Mediation: Frequently Asked Questions." World Intellectual Property Organization. (July 24, 2008).