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Barry Nalebuff’s book sheds light on a seemingly obvious way to negotiate

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  • Barry Nalebuff’s lively and elegant new book, “Split the Pie: A Radical New Way to Negotiate,” seems particularly timely.
  • The fair approach he describes will help both parties speak the same language and not talk to each other.
  • This is an opinion column. The thoughts expressed are those of the author.

This moment in history seems to represent a slight ebb in the ability of all kinds of negotiators – individuals, companies, regulators, politicians and countries – to find common ground.

This makes the publication of Barry Nalebuff’s lively and elegant new book, “Split the Pie: A Radical New Way to Negotiate”, particularly timely.

While the book is unlikely to resolve all of the myriad impasses caused by our increasingly polarized world, it does provide tools and frameworks that may just keep the parties talking a little longer. In the current context, this would represent significant progress.

Nalebuff has a lot of credibility on the street when it comes to negotiations.

In addition to teaching negotiations at Yale and online for years, he has advised various private parties, including the NBA, on negotiations, and even navigated the sale of his own startup, Honest Tea, to Coca Cola. .

Split the Pie book cover

“Split the Pie” by Barry Nalebuff.

Amazon



His approach is deceptively simple: calculate the additional benefits created by a deal – what he calls “the cake” – and share them equally. The actual calculation of the size of the pie requires the parties to add up the value available to each of them without an agreement (also known as the “Best Alternative to a Negotiated Agreement” or BATNA) and compare it to the total value available with a deal.

While this may seem intuitively obvious, “Share the Pie” does a great job of demonstrating both how rarely this approach is used and how many of the most popular benefit-sharing mechanics of a deal are really bad.

For example, pro-rata benefit sharing is often used by default, but this ignores the fact that each party – regardless of relative size – contributes exactly the same amount of incremental value created. Without any of the parts, no cake is created, but together the complete cake materializes. It is difficult to articulate a principled basis for not sharing the benefits equitably.

Despite the provocative subtitle, Nalebuff’s approach isn’t radical or novel. Boards of directors have been analyzing for decades how the synergies in proposed combinations — the cake available in M&A deals — are distributed among the parties.

But by organizing the entire negotiation process around maximizing the size of the pie and ensuring a fair distribution of benefits, “Split the Pie” increases the chances that negotiations will be constructive and lead to a satisfactory outcome. for both parties.

This is the true value of Nalebuff’s approach.

Its intuitive fairness and apparent symmetry make it a relatively uncontroversial framework for discussion. Once agreed, it avoids debate over extraneous emotional factors that often derail deals. There will remain a number of topics that will be the subject of heated dialogue – notably, the size of the cake and the BATNAs of the respective parties – but this improves the chances that they will speak the same language and not talk to each other.

Nalebuff argues throughout that parties should generally avoid taking more than half the pie, even when they can get away with withholding information, issuing ultimatums, or similar ploys. He acknowledges that, in his experience, ‘a strange mess grips’ even ‘smart, empathetic and principled’ parties which somehow cannot help but transform as a “caricature of a tough negotiator”.

But beyond describing the use of such aggressive tactics as “a dangerous strategy” and warning that “you might have trouble looking at yourself in the mirror”, Nalebuff isn’t very convincing that trying to getting more than half the cake won’t be the norm.

In Robert Axelrod’s 1984 classic, “The Evolution of Cooperation,” he identifies a variety of strategies to combat structural and psychological tendencies to seek short-term benefits at the expense of maximizing the overall size of the pie. The most important of these concern ways to create long-term effects from short-term decisions.

“Split the Pie” makes a similar point when it points out that “reputational issues reinforce the incentive to split the pie”. But in an increasingly transactional culture, it feels like relying on long-lasting relationships and reputation concerns is wishful thinking.

Nalebuff identifies a broader theme of his book as the importance of being “on the lookout for default splits of the pie that come from tradition, regulations, proportionality, or mistaken equality”. But without changes to our culture and institutions, I fear Nalebuff’s exhortation to avoid “opportunities to get more than half the pie” will be ignored.

“Split the Pie” is a valuable practical addition to the vast literature on applied game theory as well as a useful guide to a wide range of one-off negotiations. More structural work remains to be done, however, before we can expect its more ambitious goals to be achieved.

Jonathan A. Knee is Professor of Professional Practice at Columbia Business School and Principal Advisor at Evercore. His most recent book is “The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans”.