Game Theory for Negotiators

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Secondly, in the classic PD game, the prisoners only have two options: defect or cooperate. But in business negotiations, negotiators often have multiple choices and they can even come up with new options. Thus, negotiators should carefully to evaluate every option and try to enlarge the pie. Also, in real life, it can be much more difficult for negotiators to observe their opponent’s move than in the repeated PD game. So for negotiators who use TFT strategy, they should carefully monitor their opponents’ move before comparing the relative size of concessions to ascertain whether there was a gap between the moves made.

Thirdly, communication and mutual trust are crucial roles in negotiation. In the PD game, lacking of communication prevent two prisoners from building trust and cooperating. However, in general, negotiators can communicate with each other and create trust in business negotiations. In the negotiation process, negotiators can use both languages and action to express their intention of cooperation. For example, suppose wine producer A now is negotiating on a retail contract with a supermarket, A can tell the supermarket something like, "With so many factors to consider in this deal it seems clear to me that we can find some great win-win opportunities if we're able to discuss our interests openly. At the same time, I recognize that this can be difficult so I'd like to start by telling you about some of our preference. Then you can do the same, and we can build on that." In this way, negotiators can show their willingness to cooperate and share information. If negotiators can be more open and clear about which factors of a potential deal are relatively more valuable, it is easier for both parties to built mutual trust and to create higher value deal (Chad, 2011). For example, the current deal being discussed between wine producer A and supermarket is a 3-year contract with a minimum annual sale of 600 bottles. But in fact, the wine producer wants a longer commitment from the supermarket with higher quantity minimums; the supermarket prefers a shorter commitment and lower quantity minimums. Since two parties can value deal factors differently, it may be that both wine producer and supermarket will be more satisfy with a 2 year contract with minimum annual sales with 800 bottles. The illustration here is that the more openly and clearly two parties share their interests the more likely they can achieve the optimal outcome (Chad, 2011).

Lastly, in reality, the reputation of a negotiator can play an influential role in the negotiation process. If one business negotiator known in his industry as someone who doesn’t act consistently with his promises, it will be hard for him to build mutual trust with other people in new negotiations. Thus, the ability to make commitments such as promises and threats can be extremely valuable (Satell, 2009).

Learning from game theory, business negotiators are able to use a scientific and systematic model to build up a basic frame to analyze and prepare for the negotiations.

On the other hand, it is also important for business negotiators to learn how to jump out from the frame and to break the “negotiators’ dilemma.” Similar to sports game and military wars, competition and conflicts are spread all over in business negotiation. However, business negotiation also has the feature of “mutual cooperation”. Focusing on mutual interest, cooperation can generated new benefits and maximizes individual company’s gains without hurting the others. From the long-term perspective, negotiators should learn to built mutual trust and pursue the “win-win” outcome.

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