Co-Opetition - Adam M. Brandenburger [28]
There’s another consideration. If Adam were to offer less than $50, he might get turned down and end up with nothing. The student has the power to determine whether Adam will get any money at all. With the student in such a powerful position, it would be foolish for Adam to demand too much of the pie.
But that’s only half the picture. The student will get nothing if he or she rejects Adam’s offer. That seems to put the student in a weak position. So which is it? Is the student’s position strong or weak? Is the power in the hands of the person who makes the offer or in the hands of the person who accepts or rejects it?
To find out, we call a time-out at the end of the first negotiation and debrief the players. To help the person playing Adam’s role get the perspective of the other party, we allow him to confer with the student he’s just bargained with before making an offer to the next student.
Typically, the student advises Adam to be much more aggressive. The student was prepared to accept much less than $50, perhaps as little as $5. So for the next negotiation, Adam offers a 90/10 split, with the $90 going to Adam. It’s true that if this student says no, then Adam will end up with nothing, but so will the student. If the student focuses on the dollars, then the student will prefer $10 to nothing, and Adam will get his $90. A show of hands typically reveals that the vast majority of people—95 percent is not uncommon—would take $10. A 95 percent hit rate on $90 is better than a guaranteed $50.
To analyze this game, put yourself in the student’s shoes; recognize that the student is likely to accept the offer as long as he or she gets some money. The take-it-or-leave-it rule confers all the power to the person making the offer, none to the person accepting or rejecting it. As Adam, you can get a lot more than $50 if you play your cards right.
Of course, you shouldn’t push your luck too far. If you were to offer only a penny, or even a dollar, the student might well turn you down out of pride or spite. You have to offer an amount that the other party considers better than nothing. Experience shows that with a $100 pie, one is extremely safe offering an 80/20 split, and even 90/10 is reasonable. But don’t try 99/1.
In this ultimatum version of the Card Game, we were again able to argue our way through to who gets what. The general principle is that to every action there is a reaction. In physics, this is Newton’s third law of motion. It’s an equally true statement about games—but with an important difference. According to Newton’s third law, the reaction is equal and opposite; in games, the reaction need not be equal or opposite. Reactions aren’t programmed.
To anticipate other players’ reactions to your actions, you have to put yourself in their shoes and imagine how they’ll play the game. You look forward into the game and then reason backward to figure out which initial move will lead you where you want to end up. This principle applies to any game with a specified sequence of possible moves and countermoves.
This is exactly what we did in the ultimatum version of the Card Game. The rules were simple: Adam makes an offer, and the student either accepts or rejects. So, in this game, there was only one reaction to anticipate: either acceptance or rejection. Even so, the implications of the rule weren’t entirely transparent. With more complicated rules, the implications can be harder to tease out. In the Rules chapter, we’ll analyze the effects of many common rules in business—most-favored-customer clauses, meet-the-competition clauses, take-or-pay contracts, and more—to see how such rules can change the balance of power in a game.
3. Perceptions
Different people view the world differently. Just as the players’ added values and the rules are important elements of a game, so are the players