Negotiation Genius 80/20 Summary
Updated: Oct 6, 2021
Mental Models: Algorithms, Anchoring, Asymmetric Warfare, Consistency, First Impressions Bias, First Principles Thinking, Language Instinct, Logrolling, Mise en place, Opportunity Cost, Pareto Efficiency, Questions, Reciprocity, Reframing, Second-Order Consequences, Social Proof Vividness Bias
“You’ve got to have models in your head. And you’ve got to array your experience ‑ both vicarious and direct ‑ on this latticework of models.” -Charlie Munger
I've extracted the most important mental models from this book and distilled them below:
As humans, we often run on autopilot and use heuristics to navigate life. The word "because" is often enough to get people to do what they want because what follows the word is less relevant than the word "because" itself. As a negotiator use "because" when making a demand.
Don't be so focused on winning that you forget time is money. Our culture has conditioned us to look for the best deals, to not waste money, to avoid penalties/fines and to finish everything on our plate. There is nothing wrong with this advice as such, but sometimes these ideas cause us to lose value.
If you know enough about your counterpart's reservation value, you should make a reasonably aggressive offer. If you do not have enough information about your counterpart's reservation value, then it is best to let your counterpart make the first offer.
3. Asymmetric Warfare
If your position is very weak, consider relinquishing what little power you do have. Sometimes it is better to give up fighting and to ask the other side for their help.
4. Consistency /Irrationality/Flywheels
Research on non-rational escalation of commitment shows that we have a strong desire to justify our prior decisions and behaviors.
Be careful to label someone as irrational, it can have a negative effect on you. If you think someone is irrational, you think that there is nothing you can do or say to make them negotiate effectively and you give up.
Behavior that appears to be irrational often has a rational (but hidden) cause such as:
They are uninformed
They have hidden constraints
They have hidden interests
5. First Impressions Bias / Mise en place
The more prepared you look the fewer people will lie to you because it increases the risk that their lie might be discovered.
6. First Principles Thinking
Often negotiators think they should listen to find out what the other person wants. This can be a bad idea because it detracts attention from discovering, why they want what they want.
7. Language Instinct/Emotions
People become angry if you don't give them the chance to talk. If someone becomes angry say: "I can see that you are angry, and I want to understand why that is, please tell me what is on your mind?"
8. Loss Aversion
Would you rather find $20 on the street today or $10 on two separate days? Most people would say the latter. However consider an alternative scenario, would you rather lose $10 on two occasions or $20 once? To maximize happiness, separate total gains into lots of small wins instead of one big win. To minimize pain, put all losses together, which allows only one loss to think about.
When making concessions, don't make them all at once. Doing so will make your counterpart see them more favorably compared to one lump sum concession.
When sharing good news, break it up. For example, if a task was completed earlier than planned and under budget, tell your client these two pieces of information at different times. For losses do the opposite: Make one big demand, instead of many small demands, and if you have bad news, share it all at once.
If the other person values something more than you do, you should give it to them in exchange for something that you value more.
Logrolling is the give and take, across different issues. Logrolling requires that you not only know what you want but also what the other person wants.
10. Mise en place (Preparation)
The biggest mistake in negotiation is a lack of preparation.
If your counterpart perceives that you have done your homework, they are less likely to deceive you.
Mention to your counterpart that you know many people in the industry on a personal level and/or that you keep an eye on market rates regularly.
11. Opportunity Cost
Make multiple offers: By making two offers that are of equal value to you, you make your counterpart choose, allowing you to see which issues are most important to them. Using this strategy not only allows you to get more information but it shows that you are flexible and allows you to anchor on two issues.
To help get a read on their priorities, take note of:
Which issues do they keep returning to?
Which issues have an effect on their emotions and make them tense?
Which issues do they talk more on vs listening?
Which issues are they least compromising on?
12. Pareto Efficiency
Pareto efficiency is when there is no way to make a person better off, without making another person worse off. Pareto improvements create value. They are changes to a deal that make one person better off without making another person worse off. You can look for Pareto improvements after the deal has been signed using a powerful tool called post-settlement settlements. After a deal has been signed people feel calmer and less anxious and as a result more willing to share information.
Negotiators often ask threatening questions that cause their counterparts to lie or become defensive. Put people at ease by asking less threatening, indirect questions:
"How much would I need to increase my order to qualify for a discount?"
"What are the characteristics of your typical buyer?"
"Do you purchase your materials domestically?"
Be explicit about what reciprocation means: "I'm making a concession with the understanding that you will reciprocate with concessions of similar magnitude. This is the only way we will be able to reach an agreement we both can accept."
Be the first to share some information: "I know we have a lot to talk about, if you'd like, I can start by discussing some of the issues that are most important to me. Then you can do the same."
Highlight your concessions so that it is top of their mind: People often undervalue or ignore concessions to avoid feelings of obligation to reciprocate. Make it clear that you concession is costly to you. Make concessions contingent: For example: "I can pay the higher price if you guarantee an early delivery".
Recipients of gifts do not care so much about the cost of the gift, therefore even a low-cost (and unrelated) item can help make a deal.
Reframe demands as opportunities: Often when we are given a demand we get defensive and think "How can I avoid doing this?" Instead try and reframe a demand by asking yourself: "What can I learn from this demand?" What does it tell me about my counterpart's interests? How can I use this information to capture value?
16. Second-Order Consequences
Don't accept an offer that you really like quickly. Your counterpart may feel like they have made a bad offer. Take some time to ponder it or ask for a nominal concession. The outcome is the same, but the other person is happier. If you are pleasantly surprised by an offer, don't celebrate, think to yourself: why am I getting such a good offer?
17. Social Proof
Some examples of how social proof can be used in negotiations:
When selling a property have an open house, so that everyone comes at the same time.
When a prospective client asks for a list of times for a meeting, only provide a few to make it appear you are busy.
18. Vividness Bias
"The one who fares better is the one who makes the other side's weakness more salient throughout the negotiation."
We pay too much attention to vivid features of a deal and overlook less vivid ones that could have a larger impact on our satisfaction. For example, we might focus on the fact that a property has a swimming pool, hot tub, or terrace, even though we may not use them much. We tend to focus on items that are easy to communicate such as wages, not only are these easy for us to understand but they are also easy for us to communicate to others, to show off and to gain status. To avoid the vividness bias: Be aware of it and secondly create a scoring system so that you keep yourself focused on the things that truly matter to you.
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