I'd like you to think of negotiation as a question of how people divide a pie. You can think of the pie as a Boston cream pie, a lemon meringue, a cherry pie. The pie is going to be our image of what people are negotiating over. It's what's at stake. To illustrate what I mean, let's start with a situation where there are two parties, Abe and Bea. And they have something of size 9 to divide up, if they can agree. Were these two to be your stereo typical negotiators, you might expect things to go down as follows. Abe says, I want the whole amount, and Bea responds, no, I want the whole amount. Naturally, that’s what they each both want, but that's not really an argument. Each claim for the pie is equally valid, or equally invalid. I think negotiation should be done using principled arguments. Simply asking for the whole pie isn't a principle. I want you to think of negotiation as more like a math problem than a tug of war. Thinking of negotiation this way allows you to be dispassionate and to better understand what's really at stake. Our first goal is to understand what the pie is. We'll stick with the example where Abe and Bea together can create something of size nine. Of course, the negotiation might not be successful. Thus we also have to ask, what happens if this negotiation fails? In that case Abe and Bea will go out and do something on their own. If Abe goes out on his own, well imagine he can create a pie of size 1, without any help from Bea. And Bea can create something of size 2, without any help from Abe. So now we have all the facts. Moreover, both Abe and Bea know all of this. Everybody knows everything. There's nothing hidden. There's no room for bluffing. All the cards are face-up on the table. It may seem obvious that the two of them should reach an agreement. Since the amount to be divided is much bigger than what they can create on their own, but to get there, they have to agree on how to divide it. Abe might propose what seems like the simplest and fairest solution of all, just divide the nine in half so that both parties get four and a half. That's fair, right? Bea counters that she should get six while Abe gets three. Why? Well, Bea is twice as strong as Abe. She is worth twice as much as Abe on her own and so they should divide the pie into three equal parts. Bea gets two of the three, and Abe gets one of the three. That leaves six for Bea and three for Abe. I don't think either of these proposals is right. I think we have to look at what Abe and Bea can get on their own, compared to what they can get together. On their own, Abe can get 1, and Bea can get 2. So really what they're negotiating over is not a pie of size 9, but a pie of size 6. Why is that? Well, if they don't reach an agreement Abe and Bea can get one and two respectively. So their motivation for reaching an agreement is to increase their payoffs from one plus two which is three, all the way up to nine. That's a gain of six, and that's the pie. That is what this negotiation is about. Another way of saying this is, of the nine, Abe can automatically claim a slice of one. He doesn't need Bea's help to do that, and similarly Bea can get something of size two, without any help from Abe. If they decide to work together that's another 6 that they can get and here's the big point. Abe needs Bea just as much as Bea needs Abe to get that extra 6. Bea can try and make the claim, oh I can get twice as much as you if we don't work together, so I have twice the claim to the pie, I want four and you can have two, because I'm twice as strong as you. But if Abe says nope, that doesn't work for me, I'm walking away, the whole extra six is lost. Similarly if Bea says no, no, no, I'm not going for it, that six is also lost. At the end of the day, Bea needs Abe just as much as Abe needs Bea. Since they have equal power, I think they should split the six evenly. The real pie, the real negotiation, is about how to split that six. When the two sides realize they are in a perfectly symmetric position, the six ends up getting split evenly, three and three. What that means is Abe gets the one on his own plus another three from the six, or four in total. And Bea gets two on her own plus another three from the six, for five in total. Now, this example is simple, in the sense that there's no uncertainty. Everybody knows what they are negotiating over, but it highlights the fundamental point that underlies all negotiation, what is the pie? Why are we having the conversation? What’s at stake? In the real world, no one’s gonna say to you, you see this? This is the pie. In more complicated problems, people may not agree about what the pie is, or try and keep some pie hidden. But the same principles apply. Indeed, the more complicated the problem, the more important it is to have a principle.