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How to Approach Negotiations: Game Theory and Generous Tit for Tat

How to Approach Negotiations: Game Theory and Generous Tit for Tat

In business negotiations, it’s critical to develop a reputation as someone who will cooperate and get things done. But business is competitive and occasionally aggressive, and there’s a fine line between having a desire to cooperate and ending up a pushover to more aggressive competitors.

So where does one strike a balance between the need to cooperate and the need to stand up against potentially ruthless competitors?

My preferred strategy is derived from a game-theoretic model called “generous tit-for-tat.” It’s one of the most successful evolutionary iterative strategies for repeated play in the famous game-theory scenario called the prisoner’s dilemma, and I think it has important practical implications for those who are in business negotiations regularly.

If you are familiar with prisoner’s dilemma (and if you are not, please spend a few minutes on the above link), the strategy goes like this: always start out cooperating. If your opponent cooperates, keep cooperating. But, if at any time your opponent defects, you should defect, too.

In practical negotiating terms, this means that you should start out trying to engage in mutually beneficial conduct that seeks to maximize the possible return for both parties. Start out cooperating and keep cooperating as long as you see that your counterparty is doing the same. But if your opponent shows hostility or attempts to subvert the cooperative tone of negotiations, then you have to retaliate in turn by making it hurt for them as well. If your opponent shows a tendency to extort or exploit in any way, you have to stand up for yourself in that moment, or you will continue to be exploited.

But here’s what makes generous tit for tat unique: Even after your opponent turns things sour, you should still show an occasional grace to see if you can turn the negotiations back to a cooperative tone. For most rational negotiators, an occasional kindness leads to kindness returned. In prisoner’s dilemma and in life, things work best when people in business cooperate. And if you can make cooperation happen or revive a cooperative spirit where it once existed, I think it behooves you to try.[1]

Generous tit for tat isn’t foolproof. One of the reasons not to use generous tit for tat is if your opponent is using a static strategy of never cooperating. In practical terms, that will likely lead you to finding another company to do business with or resorting to formal litigation, depending on the circumstances. Each scenario is different, and there is no one-size-fits-all approach to negotiating.

However, whether through a sense of decency or a simple understanding of the expenses of heavy conflict, I find that the generous tit for tat approach works well for most scenarios.


[1] A quick footnote for true game theory nerds: Yes, I am aware of the Press and Dyson papers that feature zero-determinant (ZD) strategies that allow players to unilaterally enforce a linear relationship between his and his opponent’s scores and outperform generous tit for tat. But as a practical matter, I don’t know of any attorney or company that has adopted a ZD strategy in negotiations, and in terms of social cooperation, I don’t know what such a practical strategy could even look like. I suspect that adopting such a strategy would seem nearly psychotic to a counterparty in real negotiations and would lead to a terrible reputation in a scenario where multiple games were played with multiple parties. That’s another way of saying that I don’t suspect that there’s a practical and feasible takeaway for aggressive ZD strategies in legal negotiations.

 

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