Principles of Successful Negotiation

Principles of Successful Negotiation

Abhinay Muthoo

30 years: Public policy

Negotiation skills are important in all walks of life, from economic deals to social consensus. Join Abhinay Muthoo as he delves into the key concepts and principles that make a great negotiator.

Negotiation skills are important in all walks of life, from economic deals to social consensus. Join Abhinay Muthoo as he delves into the key concepts and principles that make a great negotiator.

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Principles of Successful Negotiation

14 mins 40 secs

Overview

Negotiations occur in a myriad of contexts – economic, social and political. The primary concerns in any negotiation are efficiency and distribution. Efficiency refers to whether a deal will be reached or not. Distribution refers to the division of benefits if a deal is reached. There are four negotiation variables – outside options, information and trust, patience and risk. Each of these are key to explaining whether a deal is reached and what drives bargaining power.

Key learning objectives:

  • Identify the two negotiation questions of interest

  • Outline the four negotiation variables

  • Understand the commitment tactic strategy

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Summary

What are some examples of negotiations in various contexts?

Negotiations occur in a myriad of contexts – economic, social and political. In an economic context, a new business owner will negotiate with investors to raise capital. Socially, negotiations occur in households on a daily basis such as deciding on dinner venues or who does chores. Politically, international climate negotiations and Brexit negotiations exemplify the significance of negotiation skills.


What are the two main questions of interest in any negotiation?

The primary concerns in any negotiation are efficiency and distribution. Efficiency refers to whether a deal will be reached or not. Distribution refers to the division of benefits if a deal is reached. For example, in a peace negotiation, the efficiency question would be whether peace can be attained, and the distribution question would concern the specifics of the peace agreement.


What are the four negotiation variables? 

The negotiation variables are relevant in explaining whether we reach a deal or not and what drives bargaining power. 


1. Outside options

The Best Alternative To The Negotiated Outcome (BATNA) is your outside option. Always invest in building your outside options even though you may not exercise them. It confers leverage and bargaining power. It needs to be credible and sufficiently attractive that you would take it if your primary option was not forthcoming.  


2. Information and trust

One of the main reasons that negotiations fail is because of an asymmetry of information – meaning one party has material information that the other party does not. In such a situation, building trust is critical as it fills the information gap. When there is asymmetry of information, it may be difficult to convey information credibly. 


3. Patience 

Patience confers bargaining power. The more desperate one negotiator is relative to another, the worse the deal they will get because desperation means you badly need a deal. Inequality within and across countries is reinforced by this difference in bargaining power. 


4. Risk 

Being risk averse will decrease your bargaining power. The adage ‘who dares wins’ is true. Those willing to risk failure in negotiations will get a better deal. A deal is struck when a compromise is reached. The question is which party ends up compromising the most? It will be the party that is more risk averse and more desperate or impatient to get a deal. 


What is the commitment tactic in negotiation?

The commitment tactic in negotiation involves establishing ‘red lines’ or non-negotiable points before the negotiation begins. These red lines can influence the negotiation process and outcomes, and can be either soft or hard, impacting the likelihood and quality of the deal. 

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Abhinay Muthoo

Abhinay Muthoo

Abhinay Muthoo is a Fellow of the National Institute of Economic and Social Research (NIESR), a Professor of Economics and the Dean of the Meghnad Desai Academy of Economics (MDAE), and a member of the Cross Parliamentary Party Youth Violence Commission. Abhinay is an economist, with broad interests which include negotiations, game theory and public policy. He was educated at the London School of Economics and the University of Cambridge. He has 37 years of teaching and research experience, across several universities including Cambridge, the London School of Economics (LSE), Harvard, Bristol, Warwick, Essex, Paris, Mumbai, and Delhi. He has been a full professor of economics for around 25 years. He has published extensively in top economics journals. Abhinay has 20 years of leadership and management experience, including have been the Head of the Departments of Economics at the Universities of Warwick and Essex (spanning a period of 16 years), and the Dean of Warwick in London for four years. Abhinay has 30 years of policy experience. In particular, he co-founded and co-directed (jointly with an ex-senior civil servant) a policy lab - which engaged and worked with civil servants, policy makers, and academics.

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