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The Art of Negotiation

2 parties will generally get into a negotiation to achieve a common goal, that is to get a bigger slice of pie which they couldn't get if they work on it by themselves separately.

A and B were given a piece of pie and their task now is to divide it accordingly. Both would like to have a 'fair' outcome..

The problem with negotiation generally lies on these 2 fundamentals, that each party perceives 'fair' differently and that as much as possible each would like to have a bigger pie - maximizing the gains even if the other party might lose.

But to ever come to a conclusion, the real question isn't really on who'll get a bigger pie, it is about "What exactly is the pie?"

With this in mind, we should come back to why both parties get into the negotiation in the first place. Without the presence of A, B could only get 1/8 slice of the pie. Without B, A could only get 2/8 slices of the pie. That means, the real pie to be divided here is only 8/8 - 1/8 - 2/8 = 5/8. How to divide this evenly, many people would simply divide the 5/8 into 2, but is this 'fair'?

A and B would like to achieve a 'fair' outcome from the negotiation, and dividing 5/8 into 2 isn't a simple 'fair' outcome. There are many scenarios possible - one of which is to have them divided based on their share in the first place. Since A could've made only 1/8, then he should only get 1/3 * 5/8 of the pie, with 3 being the collective output of both A and B. This should be fair, I'm guessing?

But if we have this scenario applied to cases like airplane tickets, the solution may be different. Instead of using cost as a base, the savings rate could be the point in case. This is another way of being 'fair'.

In reality, however, with asymmetric information, this game theory isn't as easily as applicable. There are more scenarios where people are being cheated of their bigger share of pie rather than a rather fair outcome. But the playing field in the first place isn't even either, i.e. education level of negotiators, hence, the negotiation might not result in the best outcome.


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