Article Summary of "The Manager as Negotiator: The Negotiator's Dilemma: Creating and Claiming Value" by D. Lax and J. Sebenius

Lax and Sebenius argue that negotiation necessarily includes both cooperative and competitive elements, and that these elements exist in tension. Negotiators face a dilemma in deciding whether to pursue a cooperative or a competitive strategy. The authors suggest strategies to resolve this dilemma, and ways to encourage cooperative approaches to creating mutually beneficial outcomes.

Creating versus Claiming Value

Conflict analysts tend to view negotiations either as a matter of cooperating to create value, or as a matter of competing to claim values. In the value-creating view negotiators work primarily to increase the available resources, to find joint gains or "win-win" solutions, wherein all the parties will benefit. Negotiators must act cooperatively, and successful negotiators are open and creative. They share information, communicate clearly, maintain a cooperative attitude and focus on developing common interests.

In the value-claiming view negotiators work primarily to claim the largest share of the disputed goods. To be successful negotiators must engage in hard bargaining; they must "start high, concede slowly, exaggerate the value of concessions, minimize the benefits of the other's concessions, conceal information, argue forcefully on behalf of principles that imply favorable settlements, make commitments to accept only highly favorable agreements, and be willing to outwait the other fellow."[p. 50]

The authors argue that value creating and value claiming are linked activities. Creating new value improves both parties' outcomes. However, having created new value, negotiators must still divide the resulting goods. Unfortunately, the competitive strategies used to claim value tend to undermine the cooperative strategies needed to create value. The exaggeration and concealment needed for effective competition is directly opposed to the open sharing of information needed to find joint gains. Conversely taking an open cooperative approach makes one vulnerable to the hard bargaining tactics to a competitive negotiator.

The Negotiator's Dilemma

The tension between cooperative value-creating strategies and competitive value- claiming strategies results in a dilemma for the negotiator. This dilemma is closely related to the famous Prisoner's Dilemma. Lax and Sebenius describe the negotiator's dilemma thus: If both parties cooperate they will both have GOOD outcomes. If one cooperates while the other competes the cooperative party will get a TERRIBLE outcome, while the competitive party will achieve a GREAT outcome. If both parties compete they both will get a MEDIOCRE outcome. The dilemma is that both parties are better off if they both cooperate. They will both get good outcomes, as opposed to mediocre or terrible outcomes. However, in the face of uncertainty as to the other's choice of strategy, each side's best choice is to compete. They will either get the great outcome, or avoid a terrible outcome and get a mediocre outcome. If the other is cooperating,  the first side actually has an  incentive to compete. Of course, when each party follows this reasoning and adopts the competitive strategy they both end up worse off, with mediocre outcomes. Thus acting on a rational calculation of their individual best interests causes the parties to forego cooperative gains, and actually leaves them worse off than they could have been.

In real negotiations these choices present themselves at each stage, and the line between creating and claiming tactics is not clear cut. The authors suggest that the negotiator's dilemma be seen as a metaphor for understanding the general tension between cooperative and competitive strategies.

Avoiding the Dilemma and Achieving Joint Gains

Conflict researcher Robert Axelrod's has evaluated a number of strategies for dealing with the tension between cooperative and competitive strategies over the long run. His research on the related Prisoner's Dilemma suggests that a TIT-FOR-TAT strategy yields the most cooperation and best overall results when applied to repeated rounds of the dilemma. In general the most effective long term strategies were nice, "provocable," forgiving, and clear. The authors refer to such strategies as "conditionally open." Nice strategies do not defect from cooperative to competitive behavior first. They are however provocable, in that they will defect in response to the other sides' competitive behavior. They are also forgiving in that they will give the other party opportunities to resume cooperation. Finally the most effective strategies were clear and simple, so that the other party could anticipate the first party's responses.

Lax and Sebenius apply the idea of conditionally open strategies to actual negotiations. First they note that repetition is key to the effectiveness of conditionally open strategies. "Player cooperate when they know that their current actions can affect future payoffs, when they believe that a defection now will lead to sufficient defection by their opponent to make the initial move undesirable."[p. 56] One way to encourage cooperation in negotiations is to enhance this repetitive aspect. Negotiations can be broken down into a number of stages. Parties may have to deal with each other for a long time. Or concern for one's reputation may link behavior in one set of negotiations to other negotiations.

In real life, negotiators have two advantages over the more formalized situation of the Prisoner's Dilemma. Parties can communicate with each other, and they can make binding commitments. Parties can communicate their intentions, and so reduce the uncertainty which makes competition seem like an attractive option. Making binding commitments to punish competitive behavior (with a competitive response) and reward cooperative behavior (with a cooperative response) also reduces the other party's uncertainty and risk.

In real negotiations there are also a number of ways to make cooperation seem more attractive than competitive value-claiming behavior. Focusing on interests rather than positions encourages a cooperative approach. Negotiators can build cooperative momentum by exhibiting a strong early commitment to cooperative attitudes. A particular negotiation may be located within a larger relationship and an ongoing series of dealings. A past history of cooperative dealings can create the expectation of further cooperation. Shifting the focus to maintaining trust and relationships also encourages cooperation. The authors also note that "when the negotiation is in fact one of many similar repeated encounters, the negotiators may be able to mitigate claiming in subsequent rounds by agreeing initially on a principle for division of gains."[p. 58] Negotiators may stress norms of appropriate behavior, such as being reasonable, civilized or fair, which favor cooperative behavior. Over time these norms can become internalized.

 Creating Value

Lax and Sebenius argue that the most effective way to create value is to focus on the parties' differences. "The basic principle underlying the realization of joint gains from differences is to match what one side finds or expects to be relatively costless with what the other finds or expects to be most valuable, and vice versa."[p. 59] There are many sources of differences between parties. Negotiators may trade off differences in the parties' concerns with form and substance, or ideology and practice, or outcome and reputation. When the parties differ in their expectations of future benefits or costs contingency agreements can be useful. When parties differ in their aversion to risk then risk-sharing schemes which place the greater risk on the less averse party can be used.