Split the Pie

A Radical New Way to Negotiate

Barry Nalebuff

• Publisher: Harper Business
• Year: 2022
• ISBN:
  9780063135499
• Topic: Desarrollo personal
• Subtopic: Negociación

Axiom Award Gold Medalist for Sales

From a leading Yale expert and serial entrepreneur, a radical, principled, and field-tested approach that identifies what's really at stake in any negotiation and ensures you get your half—so you can focus on growing the pie.

Negotiations are incredibly stressful and can bring out the worst in people. Wouldn't it be better if there were a principled way to negotiate?Wouldn't it be even better if there were a way to treat people fairly and get treated fairly in a negotiation?

Split the Pie offers a new approach that does both—a field-tested method that reframes how negotiations play out. Barry Nalebuff, a professor at Yale School of Management, helps identify what's really at stake in a negotiation: the "pie." The negotiation pie is the additional value created through an agreement to work together. Seeing the relevant pie will change how you think about fairness and power in negotiation. You'll learn how to get half the value you create, no matter your size.

Filled with examples and in-depth case studies, Split the Pie is a practical and theory-based approach to negotiation. You'll see how it helped reframe a high-stakes negotiation when Coca-Cola purchased Honest Tea, a company Barry cofounded with his former student Seth Goldman. The pie framework also works for everyday negotiations. You'll learn how to deploy logic to determine truly equitable solutions and employ empathy to expand the pie and sell your solution. Split the Pie allows both sides to focus their energy on making the biggest possible pie—to have your pie and eat it too.

Part I

The Pie

Chapter 1

A Pizza

I live and work in New Haven, Connecticut. Alongside Yale University, New Haven is famous for its pizza. Some are fiercely loyal to Sally’s and others to Pepe’s. Based on their long lines, you might think they are harder to get into than Yale. That’s because their clam pizzas are in a league of their own. At the risk of choosing sides, I look at a negotiation over a pie from Pepe’s.

Pepe’s will give Alice and Bob one of their 12-slice clam pizzas if the two can agree on how to divide it up. If they can’t agree, Pepe’s will still give them some pizza, but only half a pie, and with some favoritism: 4 slices will go to Alice and 2 to Bob.

There’s plenty of incentive to reach a deal. The challenge is there are many deals that work for both sides, some more favorable to Alice and others to Bob. But they need to pick one. Most people employ one of two perspectives for how Alice and Bob might negotiate an agreement.

The first is the power perspective. Alice starts with more power—her fallback of 4 slices is twice as good as Bob’s—so she should get twice as much: 8 slices for Alice and 4 for Bob.

The second is the fairness perspective. The two sides focus on what each ends up with. In this scenario, they divide the pizza in half: Alice gets 6 slices and Bob gets 6 slices.

There is a different—and more logical—way to divide the pizza. It’s more logical because it focuses on what the negotiation is really about: the extra 6 slices created by an agreement. If Alice and Bob don’t reach a deal, they will have a total of 4 + 2 = 6 slices. If they reach a deal, they will have a total of 12 slices. The value of reaching a deal is to go from 6 to 12 slices. That increase of 6 slices is what’s at stake or what I call the negotiation pie. To get those 6 slices, Alice and Bob are equally needed. Because they have equal power, the 6 slices should be split equally. In addition, each side gets their fallback. This leads to an overall division of 4 + 3 = 7 slices to Alice and 2 + 3 = 5 slices to Bob.

While it seems odd to say this, most people end up being confused over what their negotiation is really about. They argue over the 12 slices, rather than the 6 slices. They focus on the whole pizza pie, not the relevant negotiation pie. The negotiation pie feels like an obvious idea hiding in plain sight. Once you frame the negotiation in terms of the relevant pie, the logical conclusion is that the relevant part of the pie should be divided evenly. That’s what I need to convince you of. And then I’m going to give you the tools to convince others.

As a first step, I want to explain what’s wrong with the status quo. In my view, the power perspective confuses power outside the negotiation with power inside the negotiation. Why should the total amount be divided up in proportion to the fallback options? The slices are not negotiating with each other—Alice and Bob are. While 8:4 seems like a reasonable outcome because it mimics the ratio of their respective fallbacks, there is no inherent reason why the outcome should be based on that ratio.

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One way to see the weakness of the ratio argument is to consider a different scenario, one where Bob would get no slices, just a few crumbs, if there’s no deal. Trying to mimic the ratio of fallbacks in that instance would lead to absurdly high ratios of slices (approaching infinity), suggesting nearly all 12 slices go to Alice.

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Some might argue that Bob is in a weaker bargaining position since he will get just 2 slices if there’s no deal, while Alice will get 4 slices. That argument misses the point of the negotiation. If they don’t reach a deal, Alice will get nothing more than her 4 slices just as Bob will get nothing more than his 2. Effective negotiation is about beating your fallback. For Alice and Bob to beat their fallback, they are equally needed and hence equally powerful.

The second approach, an equal split of the total, is an oversimplified view of fairness. When it comes to dividing the 12 slices, Alice and Bob are not in equal positions. Alice has a better fallback. If 6:6 is really a viable view of fairness, it should work for any set of fallbacks. It doesn’t. Look what happens if Alice’s fallback option rises to 7 slices, while Bob’s remains at 2 slices. If fairness means a 6:6 split, Alice would reject it. She’d rather keep her fallback of 7 slices than accept 6. While this flaw in an even split may not be apparent when the fallbacks are 4 and 2 slices, we see that as a rule for fairness, splitting the total in two is fundamentally flawed.

Splitting the total is a common mistake. Let’s say we assign the fallbacks for Alice and Bob at random and then have them negotiate. What do you predict? Just such an experiment was done by Nejat Anbarci and Nick Feltovich.¹ Provided both fallbacks were less than half the total, the two sides split the total equally 42 percent of the time. It sounds fair and neither side does better by walking away. But as soon as one of the fallbacks exceeded half, equal division was chosen less than 8 percent of the time.

What is going on is the two parties were grasping for a solution that looks fair. The problem is they haven’t learned to see the relevant pie as 12 − (4 + 2) = 6 slices and so they end up splitting the wrong total. They split the 12 slices, not the 6 slices. It is fine to care about fairness, but fairness has to be applied to the relevant negotiation pie, not to the total. When it comes to the 6 slices of the negotiation pie, Alice and Bob are perfectly symmetric, equally positioned, and equally necessary. Dividing the negotiation pie equally is what’s fair.

Under the pie perspective, the negotiation pie of 6 is split 3 and 3. Each side gets their fallback plus half the pie. Alice ends up with 4 + 3 = 7 slices, and Bob gets 2 + 3 = 5 slices.

Splitting the negotiation pie is not just about fairness. Alice and Bob have equal power. If Alice doesn’t agree to the split, the negotiation pie is lost. The same is equally true for Bob. Neither party can be said to contribute more than the other to creating the negotiation pie of 6. Inside the negotiation, where the object is to create incremental value beyond where the parties are starting, the two parties are entirely symmetric. The two do have differential power outside the negotiation as reflected in their unequal fallbacks. But that has no bearing on how to divide up the negotiation pie.

Now you’ve seen the secret sauce. It may look deceptively simple in the pizza case, at least in hindsight. When we apply this approach to more complicated real-world problems, the pizza example underlies everything we do.

Henceforth when I use the term “pie” I will always mean the relevant negotiation pie. That’s the pie that matters. As I said up front, the hard part of negotiation is to measure the pie correctly. It isn’t always as straightforward as in the pizza example. You may have to work with the other side to discover the pie. Recognizing the pie is the key to getting half. And once you resolve the problem of dividing the pie, you can focus your attention on working together to grow the pie.

Let’s get started.

Chapter 2

Negotiating with a Troll

I know what some of you are thinking. This is all fine if Alice and Bob are reasonable and rational. But what if the other side doesn’t care a whit about fairness and isn’t interested in learning about the pie. What then? And how do you calculate the pie in a real setting?

I have this friend who thought he could save some money by filing a trademark without hiring a lawyer. That led to a rookie mistake. He didn’t know that trademark filings are public information. When he went to register the associated domain name, he discovered that someone had recently bought the URL. That led to a negotiation via email.

The squatter—I’ll call him Edward because that was his real name—offered to sell back the domain. He wrote:

Sorry that we did not know and expect that our domain is related to your trademark. Sorry if it made you feel bad. . . . So here we propose you that with USD 2500, we can transfer the domain to you. Kindly let me have you confirmation ASAP.

Edward was trying to anchor the negotiation with a high starting price, $2,500. This is a typical negotiation tactic. As for his apologies, my friend wasn’t buying it. The purchase of the domain name was no coincidence: it was bought the same day the trademark filing was made public.

The friend had a very high value for the domain name, perhaps $5,000 or even $10,000. (Of course, Edward had no way of knowing that.) Edward’s value was zero. That might suggest the stakes were quite high. But to figure out the size of the pie requires understanding what would happen if there were no agreement. That led my friend to do some research.

He discovered that there’s a nonprofit organization called ICANN that manages domain names on the internet. Under ICANN rules, what Edward had done was registration in bad faith. ICANN has a dispute resolution process that costs $1,300 and was virtually guaranteed to assign the domain to the trademark owner. If my friend didn’t reach an agreement with Edward, he could get the domain name back by paying a $1,300 fee to ICANN. No matter if the domain name’s value to my friend was $5,000 or $10,000, the pie was only $1,300. The reason to negotiate was to save the ICANN $1,300 fee. He would save a bit of time as well, but that was a minor concern. And he was in no hurry since the business was still a few months from launch.

In his reply to Edward, the friend explained the ICANN dispute resolution process and pointed out that its $1,300 cost was a lot less than Edward’s $2,500 asking price.

I appreciate your concern. While I feel bad that you have the domain, I would feel even worse paying $2,500. I would rath...