Clam pizza is taken into account a deal with in New Haven, Conn., the place Yale college students line up for it. So when Barry Nalebuff wished to introduce his Yale Faculty of Administration college students to a key idea in negotiating principle, he defined it by way of dividing a 12-slice clam pizza between two hungry folks. Learn carefully and also you’ll be taught a method that you should use whether or not you’re a mother or father of squabbling youngsters or a titan of finance (or each!).
A pizzeria tells Alice and Bob that they’ll have a whole pizza free if they’ll agree on easy methods to cut up it, but when they’ll’t agree they’ll get solely half a pizza — six slices. The twist is that if they’ll’t agree, Alice will probably be given 4 of the slices and Bob simply two. The query: How ought to they cut up the 12 items?
Untrained college students are likely to say both that Alice ought to get eight of the 12 (in the event that they imagine that she has extra negotiating energy due to her higher fallback place) or six of the 12 (in the event that they imagine in equity). Neither reply is appropriate, Nalebuff explains in an interesting guide that’s being launched on March 8, “Cut up the Pie: A Radical New Method to Negotiate.”
Nalebuff says that the proper approach to construction this negotiation — and actually, any negotiation — is to give attention to the additional worth that’s created by reaching an settlement, and divide that further worth equally. The additional worth on this case is six slices, so giving three to every along with the slices they’d have gotten anyway leaves Alice with seven and Bob with 5.
It’s so easy that you simply’re tempted to suppose Yalies must be tackling tougher issues. Nalebuff cheerfully admitted to me this week, “There’s no journal that might ever publish this work.”
In actuality, although, most individuals, together with the professionals, get this incorrect in negotiations. They attempt to divide the incorrect quantity as an alternative of zeroing in on the related bit, which is the worth that might not exist if a deal weren’t performed.
Or folks assume, incorrectly, that the one who has the higher fallback place (like Alice with the clam pizza) ought to be capable to extract an even bigger share of the additional worth. As an example, Roger Fisher and William Ury make this assumption of their guide “Attending to Sure: Negotiating Settlement With out Giving In.” They write, “The relative negotiating energy of two events relies upon primarily upon how enticing to every is the choice of not reaching settlement.”
That may be a frequent misunderstanding, Nalebuff mentioned (whereas stressing that he’s a disciple of Fisher and Ury’s name to give attention to pursuits, not positions). When it takes two to tango, every tango dancer is indispensable and due to this fact ought to get an equal share of the worth of what they create collectively, he informed me. “It’s a kind of issues that I feel is hiding in plain sight,” he mentioned. “When you say it, it’s fairly apparent. As an alternative, folks give attention to verbal tips to get extra of the pie.”
Nalebuff used his personal approach for the primary time in the true world in 2008 when he negotiated with Coca-Cola on its two-stage buy of a beverage firm he co-founded, Sincere Tea. “Early on,” he writes, “everybody agreed to the idea of splitting the pie. Due to the pie framework, the onerous half ended up being the simple half. With the settlement in place, everybody may work collectively to create a large pie. Writing now, a dozen years after the deal closed, the teas are offered worldwide, and the enterprise is greater than 10 occasions its dimension in 2008.”
Nalebuff is a graduate of the Massachusetts Institute of Know-how and a Rhodes scholar who earned his doctorate on the College of Oxford. Along with efficiently negotiating the sale of his beverage firm, he teaches a preferred negotiation course on Coursera and has written or co-written seven books, most of that are primarily based on sport principle, the research of strategic interactions amongst rational brokers.
Splitting the pie is an idea from sport principle, however not the sort of noncooperative sport principle that’s utilized in battle video games or the “prisoner’s dilemma” (the place prisoners rat one another out, to their mutual detriment, as a result of they’re separated and may’t coordinate with one another to stay silent). Nalebuff is drawing as an alternative on cooperative sport principle, which covers conditions the place folks can work together and agree on rules that can govern their interactions.
Cooperative sport principle is the friendlier sort of sport principle. The 2012 Nobel Prize in economics went to Alvin Roth of Harvard and Lloyd Shapley of the College of California, Los Angeles, for making use of cooperative sport principle to allocations and market design, equivalent to easy methods to match potential medical college students with medical faculties or organ transplant candidates with organs. John Nash, he of the gorgeous thoughts, did vital work on each sorts of sport principle, Nalebuff mentioned.
Nash famous that in a cooperative sport the place there’s something to be cut up, 50-50 is the pure allocation. Nalebuff’s contribution is to establish the one thing that’s to be cut up. “What I’m doing is taking this factor that I feel was a pure assumption and exhibiting why it’s in truth, I feel, your entire reply,” he mentioned.
I took the chance to ask Nalebuff for recommendation on how I ought to use his method to barter over some used furnishings I’m pondering of shopping for. He enthusiastically jumped on the issue and despatched me two follow-up emails with detailed recommendation. I informed him that assuming all of it works out I’m going to call one sofa Barry and the opposite Nalebuff.
The readers write
Relating to your Wednesday publication on worth controls: What we’d like as an alternative is antitrust enforcement. The three largest consortia in transport, a serious supply of our rising costs, are Swiss-Italian, French and Danish. They’ve utilized an age-old pricing approach referred to as “what the site visitors will bear.” Prices to ship a container from Asia to the USA have elevated fivefold or extra over the previous two years and have engendered huge income for these corporations. The governments of the USA and Europe are apparently uninterested or powerless. They discuss the sport, however do nothing.
Chris Kane
Grass Valley, Calif.
Quote of the day
“Theories are all the time utilized of their vulgarized type, and it must be the take a look at of an excellent financial principle that its vulgarization doesn’t result in dangerous coverage.”
— Robert Skidelsky, “Keynes: The Return of the Grasp,” preface to the paperback version (2010)
I’m occurring trip. The publication will probably be again on March 9.
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