What are some common game theory dilemmas in negotiation and how can you overcome them?

1 What is game theory?

Game theory is a branch of mathematics and economics that studies how rational agents interact and cooperate or compete in various scenarios. Game theory can help you analyze the possible outcomes and strategies of a negotiation, as well as the incentives and risks involved. A game can be defined by four elements: the players, the actions, the payoffs, and the information.

2 What is BATNA?

BATNA stands for Best Alternative To a Negotiated Agreement. It is the most favorable option that you can pursue if you fail to reach a deal with the other party. Knowing your BATNA can help you set your reservation price, which is the lowest or highest amount that you are willing to accept or offer in a negotiation. Your BATNA can also give you more confidence and leverage, as you can walk away from a bad deal or make a credible threat.

3 What are some common game theory dilemmas in negotiation?

One of the most famous game theory dilemmas is the prisoner's dilemma, which illustrates the tension between cooperation and defection. In this scenario, two suspects are arrested and interrogated separately. If they both confess, they each get five years in prison. If one confesses and the other remains silent, the confessor goes free and the silent one gets ten years. If they both remain silent, they each get one year. The rational choice for each suspect is to confess, but the optimal outcome for both is to remain silent.

Another common game theory dilemma is the chicken game, which involves a situation where two parties are headed for a collision unless one of them swerves. If they both swerve, they both lose some face. If one swerves and the other does not, the swerver loses more face and the other wins. If they both do not swerve, they both crash and lose everything. The rational choice for each party is to swerve, but the optimal outcome for both is to coordinate and avoid the crash.

4 How can you overcome game theory dilemmas in negotiation?

One way to overcome game theory dilemmas in negotiation is to use your BATNA as a reference point and a bargaining tool. If your BATNA is better than the expected payoff of the game, you can reject the offer or make a counteroffer that reflects your value. If your BATNA is worse than the expected payoff of the game, you can accept the offer or make a concession that signals your willingness to cooperate.

Another way to overcome game theory dilemmas in negotiation is to communicate and build trust with the other party. You can share information, make commitments, offer guarantees, or create incentives that can reduce the uncertainty and the temptation to defect. You can also use third-party mediators, arbitrators, or facilitators that can help you reach a fair and efficient agreement.

5 How can you improve your negotiation skills?

Negotiation is a skill that can be learned and improved with practice and feedback. To enhance your negotiation skills, it is important to prepare and research before the negotiation. You should know your goals, interests, alternatives, and limits, as well as the other party's perspective, needs, and expectations. During the negotiation, it is important to listen and ask questions, show empathy, respect, and curiosity, and clarify the issues, concerns, and assumptions. Additionally, you should be creative and flexible in generating and evaluating options, think of win-win solutions, and be assertive and cooperative in expressing and responding to offers. After the negotiation, it is important to follow up and implement the agreement, confirm the details, terms, and responsibilities, and monitor the progress and performance. Lastly, you should resolve any disputes or problems that may arise.