The Art and Science of Negotiation – Prof Abhinay Muthoo

On Tuesday 10th September, 2015 – the Academy hosted its second Speaker Series on “The Art & Science of Negotiation” by Prof. Abhinay Muthoo.  Apart from MDAE students, the talk was also attended by students from various city colleges such as HR, Jai Hind, KC, Mithibai, Xavier’s, NM, Poddar and Ruia.

Prof. Muthoo commenced the session by highlighting the omnipresence of negotiation in day to day lives. By definition, negotiation exists between any two parties who wish to co-operate for mutual benefits but have a conflict of interest in the division of those benefits. Now this could happen between 2 firms merging with each other, between political parties forming a coalition or even between children & parents bargaining on pocket money.

Prof Muthoo then reached the core of his speech – ‘What determines bargaining power? What really drives the outcomes of a negotiation?” He highlighted three factors:

  • Time – Whoever is more patient gets the larger pie of the cake. “But, however- you don’t have to be infinitely patient. You just have to be more patient than your opponent. You just have to have greater value of time than the other player in the game”, said professor Muthoo. Whoever is less eager is more powerful. Professor Muthoo gave the example of negotiations between rich and the poor and why almost always the rich win because the poor are more impatient to achieve their ends of the bargain.
  • Availability of options – The party that has a plethora of options will tend to be in a superior position as opposed to one with lack of alternatives. “Think about a market where you go to buy jeans. If one seller doesn’t offer you a desirable rate, you could move to the other. The other seller, therefore, is your outside option.” But, the outside option needs to be credible. “Sonia can’t tell Lalu if he doesn’t listen to her- she’ll go to Modi. Lalu knows she never will and if she plays the game this way- she has lost it. Thus, credibility of the threat is important.
  • Commitment Tactics – One has to commit to the position they are taking in the game. Of course, they could revert back but that would have consequences. Thus, to make commitments after understanding the consequences of backing out is essential to get into the skin of a master negotiator.

Touching upon the art of negotiating, he mentioned that while it was important to keep these three parameters in mind, one must always take into account judgment & behavioral traits of the person who he is bargaining with. A shrewd negotiator may pretend to have a better option to put himself in a better position while the reality may be different. To further demonstrate the dynamics between negotiating parties – He played the ultimatum game with the audience. A game where two members had to split a certain sum of money in a co-operative fashion. One member (the proposer) decided the ratio of split while the other member (responder) had to either accept or reject. The rules did not allow for a counter-offer although it specified that if the responder rejected the offer – no party would get their share of the money.

“This game tells us that procedures matter.” And with this simple exercise he made a larger point about power being distributed to achieve efficient outcomes. This is why, in organizations like Parliaments and the UN, who sits where becomes important- and this is why negotiating tables are generally circular in shape.

After touching upon anecdotes from the lives of scholars like John Nash, Kenneth Arrow, Bob Lucas and Frank Hahn, Professor Muthoo ended by repeating something he had said at the beginning of his speech. Except now, everyone was appreciating it a lot more. “Everything is a game. Addressing Gender Inequality is a game between the government and society. Impressing someone at the bar is a game about your credibility. Getting into a marriage is a game with divorce as you’re only outside option.”

To conclude, Prof. Muthoo gave the audience an insight into the science of negotiations- the tools and the structure of thought required to be a negotiator. But he left the Art of negotiation for the audience to apply their genius and reach optimal outcomes.



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Date(s) - 10/09/2015
4:00 pm - 6:00 pm

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