What Makes a Negotiator a Winner?

Posted By Saba Shatara, Jan 15, 2013

The Question

As part of this year’s Shark Week (http://students.law.ucdavis.edu/negotiations/blog/posts/shark-week-and-the-return-of-regularly-scheduled-blog-entries.html), three KHNT members and I put on a negotiations demonstration geared towards first-year law students and those who are relatively unfamiliar with ADR processes. The mock negotiation lasted all of twenty minutes, after which we opened the floor to questions. Of the many questions which we received, one in particular resonated with me and, in fact, inspired this blog post. The question was: “Who won?”

Although a seemingly simple question, it prompted a reaction much like the gun shot at the start of a race. Almost instantaneously, my partner and our opponents took this as a cue to answer: “we did!” When the audience’s laughter finally died down, I piped up and replied that each side’s lawyers had served their client’s interests and therefore all of us were “winners.” This diplomatic reply was met with rolling eyes and a few grumbles of dissatisfaction, but the truth was, at that moment, I didn’t have a better answer.

In retrospect, I should have been better prepared for this question. From the moment we step into law school, we begin our indoctrination into the adversarial system. So it’s only natural that everyone there wanted to know the answer to the question: who is the winner in a negotiation? Despite this impulse, it is extremely difficult – if not impossible – to judge a negotiator’s success in bargaining, as compared with other negotiators, by examining settlement outcomes. This is because the legal merits of a case often obscure this kind of analysis – i.e., a negotiator representing a client who has the law strongly behind him will likely obtain a better settlement outcome than a negotiator representing a client who has weaker legal arguments.

Although it is difficult to determine a negotiator’s success by examining his or her outcomes, it is not impossible to determine what makes a negotiator a “winner.” Professor Russell Korobkin of the UCLA School of Law successfully answered this crucial question through his study of a single negotiation scenario, conducted by 136 first-year law students at UCLA and USC. Professor Korobkin found that several factors predict a negotiator’s success in settlement bargaining. For the purposes of the study, “success” was defined as maximizing the amount of cooperative surplus – the amounts between each parties’ “walk-away price,” where a potential agreement and gain exists – captured by a party in the negotiation.

The Answer and the Importance of Discovering the Opponent’s Reservation Point

Most notably, the study found that negotiators who best estimated their adversary’s bottom line — the point at which they are indifferent between achieving a negotiated agreement and walking away, or “reservation point” – obtained a larger award for their client. Although Professor Korobkin found a number of other important factors in predicting a negotiator’s success (e.g., the gender of the focal negotiator, the amount of the first offer made, and the negotiators aspirations), the determinative factor was most often a negotiator’s ability to deduce their opponent’s bottom line. The reason for this is simple: a negotiator who knows their opponent’s reservation point is more willing to demand and hold out for a larger settlement amount, which increases their client’s ultimate pay out.  A great example of this occurs in the context of real estate negotiations:

If a home seller knows a buyer’s bottom line for a particular house (the maximum price the buyer is willing to pay), then the seller can put a higher initial price-tag on the home and hold out for the buyer’s maximum offer during a negotiation. Alternatively, if a seller’s approximation of the buyer’s reservation point is wrong, and he or she believes that the buyer‘s max-price is lower than it actually is, then the seller can potentially give the property away for a lower purchase price.

The Key for Winners: Preparation

 So, when we again face the lingering question of ‘who won?’ perhaps the better question is: what makes a negotiator a “winner?” Well, in the context of the Shark Week demonstration it’s impossible to say. There, each side knew the other’s reservation price and split the potential surplus evenly—this was because our simulation required both parties to know the other’s confidential facts. In reality, however, what makes a negotiator a winner has to do with the quality of his or her  preparation. Negotiators who take the time to learn about the other party by carefully researching their positions and interests before sitting at the bargaining table will have the best chance to correctly estimate their opponent’s bottom line. Therefore, preparation is a negotiator’s best tool for accurately estimating their opponent’s reservation point. Having a good sense of their opponent’s bottom line empowers negotiators to maximize their own client’s awards, develop confidence in their positions, and ultimately “win” in the course of the negotiation.

For more information on predictors of success in negotiations, see Russell Korobkin, Who Wins in Settlement Negotiations?, 11 Am. L. & Econ. Rev.162 (2009).