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158 Chapter 9: Making Rational Decisions in Negotiations
security guarantees. Point D (the eventual resolution), however, suggests a redefinition
of the bargaining zone. In Figure 9.1, a positive bargaining zone exists to the extent that
there are solutions that achieve the reservation points of both parties along the dimensions
of sovereignty and security. The upper right-hand segment of the figure beyond
the dotted lines represents the reservation points of the two parties.
What appears to have occurred in the Camp David accords is that the two parties
realized the existence of a positive bargaining zone by considering each other’s interests,
not just their stated positions. With these interests in hand, it was possible to develop
an agreement by trading off the issue that each country cared less about for the
issue that each country cared more about.
Trading on Issues to Create Value
The concept of trading off issues is not unique to this example. In fact, most important
business transactions have the opportunity for value creation. Whenever one party
weighs the issues differently than the other party, there is the opportunity to find tradeoffs
across issues that make both parties better off than they would have been by simply
compromising on both issues. In contrast to this advice, our experience teaching MBA
students and executives has led us to believe that real-world negotiators frequently
overlook opportunities to create value. In many cases, their failure to do so costs their
firms millions of dollars.
When negotiators run into differences with other parties, the common response is
to see this as a problem. In fact, differences are often opportunities. Negotiators should
seize every opportunity to create value. If the other party values something more than
you do, let them have it. Don’t give it away, but trade it for something that you care
more about in return. Effective negotiators understand that the easiest way to create
value is to trade issues of differential value. By identifying what you care about and
assessing what the other side cares about, you will be equipped to create value based
on these differences. If you do care about the other side, then you have all the more
reason to create value. But creating value is not just what a ‘‘nice’’ negotiator does when
she cares about the other side—it’s what a rational negotiator does categorically to increase
the size of the pie that the parties have to divide.
The most common form of trade consists of one party making a concession on one
issue in return for a concession on a different issue from the other party, such as a lower
price in exchange for faster payment or a larger quantity of goods. Sophisticated trades
often involve factors such as risk and time. In Chapter 4, we saw how individuals’ differing
tolerance for risk affects their decisions. Risk can play a critical role in negotiations
as well. Imagine two partners in a new joint venture. One is risk averse and needs some
income stability, while the other is more open to risk and needs less of the guaranteed
income. The partners can make a tradeoff that gives one partner a higher salary and the
other partner a higher percent of the ownership in the firm, making both partners happier
than a simple 50–50 split of their assets would. Such risk-sharing strategies allow
for trades that might not otherwise occur.
Differences in time preference might arise from individual, cultural, or situational
preferences among the parties. The fluctuation of corporate budget cycles is one