Split the Pie: A Radical New Way to Negotiate

by Barry Nalebuff

• Start by asking. If you don’t ask, you’re unlikely to receive. You can have the greatest understanding of negotiation, but if you don’t negotiate, it doesn’t matter.

• Don’t just ask; make principled arguments. There’s a famous experiment done in the 1970s by Ellen Langer, Arthur Blank, and Benzion Chanowitz in which a person asks to cut in line to make copies. Most people only know their first result, namely that asking “May I use the Xerox machine, because I have to make copies?” led to 90 percent success compared to just saying “May I use the Xerox machine?” which was only 60 percent effective. The wrong conclusion people draw is that any reason works, no matter how inane. But the inane reason (“I have to make copies”) only worked when the person wanted to make five copies. Once the person wanted to make twenty copies, both approaches had an identical 24 percent success rate. If you wanted to cut in line, you had to provide a legitimate reason, as in “I’m in a rush.” In a negotiation, I don’t advise asking for more just because “I’d like more money.” The pie framework provides logical and principled arguments that persuade others.

• Know your BATNA. Your BATNA (Best Alternative To a Negotiated Agreement) is what you will do if you can’t agree on a deal. If you don’t know your BATNA, you won’t know how well you are doing in the negotiation or even if you should walk away. When your BATNA is uncertain, you should still make an estimate. And remember that your best alternative may be better than your current second-place option, as there may be the potential to improve the offer should you go down that route. Never accept something worth less than your BATNA. Ending up with no deal is better than accepting a bad deal.

• Work to understand the BATNA of the other party. You may be doing well in absolute terms, but if you don’t consider how much the other side is getting relative to its BATNA, you don’t know how well the other side is doing.

• Calculate the pie. In any negotiation, employ the pie perspective. What is really at stake? With two parties, the pie is how much more the two can achieve by working together compared to what they can get if they don’t reach an agreement. To calculate the pie requires three numbers: what the two can achieve together, your BATNA, and the other party’s BATNA.

• Recognize the equal power in any two-party negotiation. Since each party is essential to the deal, each has equal power. For this reason, you should split the pie evenly.

• Recognize the symmetry in any two-party negotiation. Parties that otherwise look different become symmetric under the pie lens. People in symmetric positions should be treated equally. For this reason, you should split the pie evenly.

• Employ symmetry. Once you are in the pie framework, everything is symmetric. Any argument the other side makes can be flipped. If they propose a ⁹⁰⁄₁₀ division in their favor, you can counter with ⁹⁰⁄₁₀ in yours. But you may want to do this as a hypothetical rather than actual flip.

• A poor BATNA does not mean low power. If there is no deal, neither party beats their BATNA. Just as you want to beat your BATNA, the other side is looking to do the same. A low BATNA means there is more at stake in the negotiation as the pie is bigger; it doesn’t mean you should accept less than half the pie.

• Splitting the pie is the fair outcome. All our notions of fairness come down to a form of equal treatment. But equality of what? Proportional division treats all dollars equally. I want to treat people equally. The pie framework will help you figure out how to treat parties equally.

• Beware the lure of proportional division. It is easy to fall into the trap of proportional division, especially as larger parties will present this as the default.

• Just because you care more doesn’t mean you should get less. The side that cares less should find it easier to make a sacrifice. Each side should get the same share of the maximum potential gain as they perceive it. When valuations are linear, that means each side gets half their ideal pie. When valuations are nonlinear, it may be possible for each side to get more than half their ideal pie.

• Present this new way of negotiating up front. People jump too quickly to numbers and offers. Start with principles and ground rules. Don’t expect the other side will be familiar with this approach. If you meet resistance, at least you know up front what type of person is on the other side.

• Even if the other side doesn’t care about fairness or the pie, you can still get half the pie. Use the pie perspective to explain what the negotiation is really about. You can do so without having to use the pie terminology. (“The reason we are negotiating is to save the $1,300 ICANN fee.”) Explain why both parties are equally essential to create the pie. Symmetric power implies an equal split. Use this logic to explain why you are holding firm on requiring half the pie. The other side won’t have a principled counter. Principles and logic beat arbitrary positions.

• Agree to split the pie to grow the pie. If you can resolve the issue of pie division, you will find it easier to work in a cooperative fashion to grow the pie.

• Use the pie as a measuring stick. It is all too easy to fall into the trap of comparing an offer to your BATNA. The offer handily beats your BATNA and so you accept. But you have no idea how good the offer is (or how much better it could be) until you look at what share of the pie you are getting. If you are going to accept less than half the pie, you should know it at the time. And if you are asking for or already getting more than half the pie, you should know that, too.

• Use the pie as a beacon. You don’t just want to get half of a small pie. Your objective is to create a massive pie (of which you get half). Think about what type of deal structures create the biggest pie.

• Give the other side what they want. If they get what they want, you can get what you want. To do so, begin by learning what it is that they want (and what they don’t want). Let me share some advice here I learned from Daylian Cain: time spent trying to change minds is better spent figuring them out.

• Be empathetic (or at least curious). Ask questions. Ask about their goals for the deal. Figure out what is important to them. What are their concerns? Besides giving more money, how can you help?

• Answer along with asking. If you don’t answer their questions, they’ll stop answering yours. Moreover, if you don’t share information, the other side won’t be able to figure out what you want and give it to you. People are too afraid that anything they say can and will be used against them. But if you don’t answer their questions, what you don’t say may lead to inferences that can and will be used against you.

• Make smart trades. Figure out what is and is not important to you. Give up items that are valuable to the other party and less valuable to you. Get the items valuable to you and less valuable to them. This is how you expand the pie.

• Remember beets versus broccoli. A good deal gives each party more of what they value. Don’t be afraid to go to extremes. If A likes beets more than broccoli and B likes broccoli more than beets, A should get all the beets and B should get all the broccoli.

• Use creativity as a first resort, not a last resort. If you wait too long, both sides will be frustrated, and you may run out of time or patience. Try to expand the pie at the start of the negotiation, when people are in a more cooperative mood and there is less time pressure.

• Demonstrate you understand the other side’s perspective. This is best done by making their argument for them. Check that you’ve got it right.

• Create new options. Don’t limit yourself to the options on the table. People spend too much time debating different poor alternatives. One reason you may be having trouble reaching an agreement is that none of the options are fair (in that they lead to an equal split) and none lead to the largest pie. Focus on devising new options that maximize the pie and provide an even split.

• Employ contingent deals (I). One reason to propose a contingent deal is that you are unsure as to the size of the pie but fear that the other side has better information. To ensure you aren’t taken advantage of, set payments based on how big the pie turns out to be. This also applies when both sides are equally unsure about the size of the pie and would prefer not to take a risk.

• A negotiation solution should be consistently applied across any range of parameters. Part of selling your solution is demonstrating flaws with other approaches. A negotiation solution shouldn’t be ad hoc. It should be based on a single procedure that applies across a broad range of situations. One can’t make an argument in favor of proportional division in one context and then make an argument against proportional division in another when proportional division is no longer favorable. The consistency test leads to splitting the pie. With any other rule, there are always inconsistencies. In the pizza example, we saw how an equal division of the twelve slices fails the consistency test as it breaks down when one side has a BATNA of seven or more slices; a division in proportion to the BATNA fails when one of the BATNAs is close to zero. In the negotiation between Anju and Bharat, Anju showed that dividing up the interest in proportion to the amount invested was no longer fair (to Bharat) when the interest rate on a $20,000 and $25,000 CD were the same.

• Anticipate potential objections to your proposal. You won’t need a plan if the other side says: “Great, I never thought of that. Let’s split the pie.” Since that is unlikely, have a plan for what to do when the other side says no. What are the objections you’d make if representing the other side and how can you counter them? Anticipate their proposal by considering what heuristic approach works best for them. Plan to show how their approach might hurt them if the numbers were different or how their heuristic breaks down as the numbers become extreme.

• When presenting a new idea, frame it in a way that the other side wants to hear. Be allocentric. Think about what they will like in the new idea, not what you like. If you plan to offer a big bonus and a low up-front payment, lead with the large bonus, not the low up-front payment. It seems obvious once you say it, but people tend to lead with the part of the deal they like the most. At that point, the other side may stop listening.

• Employ contingent deals (II). If you aren’t sure that you have the authority to try something new, propose two deals: one that is conventional and one that you both prefer if permitted.

• Say “Yes if” rather than “No unless.” People are more willing to give you what you want if they know that doing so will lead to a deal. Figure out what it would take for you to say “Yes if.”

• Don’t overask. I started by advising you to ask. Don’t get carried away. If you are already getting half (or more) of the pie, accept what you’ve been offered. There’s an old saying: pigs get fat and hogs get slaughtered.

• Beware opportunities to get more than half the pie. Even if the other side doesn’t understand the pie, you will have to rely on their misunderstanding. It’s not the best way to build trust.

• Don’t fight fire with fire. Fight fire with water. If the other party says something inflammatory, instead of escalating, try to diffuse the situation. Use humor.

• If someone gives you an ultimatum, don’t give one in return. That’s fighting fire with fire. Instead, look to find an option that would make them clearly better off. Even if hypothethical, it demonstrates they are open to options other than the ultimatum.

• Let them say no to you. Rather than saying no to an unfavorable deal, consider what it would take to get you to say yes. Ask for it. You have nothing to lose.

• Choose a reasonable anchor. The first offer can affect the outcome of the negotiation, but being too aggressive may lead to no deal. Exact numbers are stickier than round numbers, e.g., $1,217 vs. $1,200. But be prepared to defend where your exact number came from.

• Many procedures that sound fair aren’t. While it’s important to reciprocate in sharing information, there is nothing inherently fair about meeting in the middle of two arbitrary points or reciprocally taking options off the table.

• When there are more than two parties, things get complicated fast. The same idea of the pie applies, but the challenge is that the BATNAs are no longer exogenous. Consider who is likely to partner with whom if things go south.

• Even if you have no power in a negotiation, you may have power in terms of changing what others get. Don’t settle for Diet Squirt. Get paid for changing the game.

• Don’t tell white lies. White lies may seem harmless, but they can lead to misdirection. You don’t know what problems the other party can help you solve, and they don’t know what problems you have.

• Don’t tell bald-faced lies. It is unethical. As a strategic matter, if you get caught in the lie, you may lose any chance to reach an agreement. Even if you don’t get caught, you may lose the agreement if the other side thinks your BATNA is better than what they can offer: “That’s a good offer, I would take it if I were you.”

• Care, but not too much. It’s easier to negotiate on behalf of others, instead of for yourself, because you’re not as emotionally invested. When you are negotiating for yourself, it may help to think of yourself as negotiating for this other person who happens to be a lot like you.

• Be aware of cultural differences. Listen to the other parties and be aware that what is important to them may not be important to you and vice versa. Herb Cohen says that every negotiation is cross-cultural. He explains: We don’t see things as they are, but as we are. Indeed, negotiating with someone who looks like you may be even harder as you assume you are being understood.