Bargaining Games: A New Approach to Strategic Thinking in Negotiations

Much of life consists of strategic interactions between two or more individuals. In many cases, each individual's choices will be constrained by what that individual expects others to do. Game theory provides formal models of strategic interactions that simplify social settings by stripping out irrelevant details. As such, the stories game theorists tell often seem highly unrealistic. Yet, a theory is properly judged by its predictive power with respect to the phenomena it purports to explain, however, not by whether it is a valid description of an objective reality. As Milton Friedman put it, "the relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximations for the purpose in hand." The claim of game theorists is that simple models allow us to make powerful predictions about behavior.In "Bargaining Games," management professor Keith Murnighan wrote what is still the most accessible introduction to game theory. (Unfortunately, much of the game theory literature is almost totally inaccessible to the non-specialist--it is dominated by the sort of formal modelling some of us refer to as "recreational mathematics.") The academic will find much that is useful here, but so will anybody who wants to be a better negotiator. Indeed, single most the striking thing about this text is its combination of academic rigor and everyday practicality.To take but a single example, consider Murnighan's treatment of prominent solutions to indeterminate games. Suppose you were going to sell a used car. The seller wants to end up with at least $10,000 for the car. The canny seller knows that people are instinctively attracted to prominent solutions, such as round numbers. The canny seller therefore sets a price of $10,650, anticipating that the prospective buyer's first offer probably will be $10,000--because that is the nearest (lower) prominent round number. They will then end up somewhere in the middle, but the seller was assured of making at least $10,000 on the sale. The book is full of little gems like this one.In sum, highly recommended.