I am Barry Nalebuff. I’m a professor at Yale where I teach game theory and negotiation (I’m also the cofounder of Honest Tea.) My new book is Split the Pie: A Radical New Way to Negotiate. AMA

Hi Professor Nalebuff. Perfect timing for this AMA. I'm in the middle of negotiating a raise at my current firm since I got an offer at a different firm. I love my current firm- the work, the work / life balance, the people, etc., but the pay is simply not enough to start a family (which my wife and I are looking to do in the near future). The problem is that the pay increase is the only thing I need since everything else is great, but none of those things can help pay for a house or child care. The other offer expires tomorrow so we're down to the wire and having a final meeting in a few hours. Any help?

Since you are thinking about starting a family, it seems like other things might matter. Life insurance, parental leave, healthcare. Other things that could matter are potential for promotions, bonus, need to travel, ability to WFM, ... Do you have a mentor at current firm? Does salary at rival firm allow you to start family? You could also ask current employer to help you solve your problem. Say that you love your current firm- the work, the work / life balance, the people, ... What can they do to help you be in a position where you can afford to start a family?

In terms of parental leave and work from home, this place I'm currently at is second-to-none. I basically can set my own schedule and am given about as much autonomy as possible. The perfect situation would be for my current company to match the offer from the other one, since all the boxes will be checked. The thing is that it really is a matter of math in terms of pay being too low. We don't spend a lot of money as is and already can't even begin to think about buying a place, let alone upgrading to a 2 bedroom. I know the company has the money since we're not a startup anymore, I'm just trying to get them to see I don't have the luxury of working at a place I like since I've never heard anyone refer to children as inexpensive...

The salary at the other firm would be enough for a family and save for retirement. The current firm is just enough for my wife and I to keep our heads above water.

One thing I like to do in these situations is a "Yes, If." By that I mean if they are able to match the salary, then you are prepared to say yes. You are asking them to go the extra mile for you and they may be worried that you are going to leave in any case.

You can also ask them what you should do. They must appreciate that their salary is not competitive. They can't ask you to stay without giving you a big bump.

Do they really need to match? If they were to come in at $1k less, it seems like you would stay.

On the other hand, perhaps the new place really does appreciate you more.

p.s. How much do you know about what other folks make at your present company? How much can you find out before your meeting. Is there a good way to quantify the value you create at the firm.

I am 100% ready to say yes if they match, let alone beat, the compensation of the other firm. I told them what the other firm is offering, so I don't think they think I'm expecting them to go the extra mile. I flat out said to them "help me stay here. I need enough to start a family." I've been very transparent with them. I have no idea how much other people make at the firm. I tried to quantify how much value I add to the firm by explaining to them that it would take 2-3 people to replace me since I built a lot of the infrastructure of the company. I was one of the first hires at the firm 12 years ago and never really felt like I fully participated in the company being successful. I know the owners make significant money I do think they believe they're fair. It's just getting the point across that what they pay is simply not enough without being offensive to them.

I think you are doing everything right. Try to keep a smile on your face as your proceed. Also, while it seems like they have not been fairly compensating you as you look backward, try to focus on looking forward. Saying you took advantage of me could be seen as offensive (even if true). Saying that you have a great opportunity elsewhere but you'd rather stay with them is a compliment. They just have to help you make that possibe.

Two more thoughts. While you don't think matching the rival offer is going the extra mile, they might think that. And while you are 100% ready to accept if they match, they may not have the same confidence that you do. It isn't just what is in your head. It is also what is in their head.

Sooooo… how did the meeting go?!

It went well. At first they were a little shocked about me seriously leaving, but after discussing a few things, they decided to beat the offer from the other company. This came in return for me taking on some added responsibilities since they're currently swamped with tasks, so my workload will increase as well, which I'm fine with given how the comp worked out. I feel very lucky and am very excited for the future. Thanks for your interest!

Awesome! I'm so happy for you. Sounds like you found a way to create a bigger pie and in the process get what you wanted. One of the lessons I talk about is giving the other side what they want .... so that you can get what you want. Taking on some additional responsibilities helped allow them to pay you want you wanted. WELL DONE!

I think you are doing everything right. Try to keep a smile on your face as your proceed. Also, while it seems like they have not been fairly compensating you as you look backward, try to focus on looking forward.

What are your thoughts on Chris Voss's book on negotiation and his theory that splitting the difference causes noone to be really happy?

Similar to Voss, I'm not a fan of splitting the difference. People make arbitrary demands and halfway between two arbitrary points is still arbitrary. Voss and I agree that promising to provide a fair solution is a good strategy. The challenge is what is meant by fair. To my mind, the only fair result is figuring out what is the pie and splitting it evenly. That is the controversial point of my book. Note that splitting the pie is quite different than splitting the difference. The pie is the value created by a deal, not the difference between the bid and the ask.

What do you mean about splitting the pie, ie, splitting the value created by the deal.

What does that really mean? If you could elaborate or provide an example that would be nice.

Feel like the scene in Annie Hall (https://www.youtube.com/watch?v=jRcMsqCbzWk). What xmarai write below is classic Getting to Yes, but isn't what I mean by Split the Pie (STP). In the example below, it isn't clear that both parties end up equally ahead. Two steps to STP. First figure out the pie. Then divide it equally. Here's an example to illustrate my point.

A has $5,000 to invest and can earn 1%

B has $20,000 to invest and can earn 2%

If A&B pool their funds then will have $25,000 to invest and can earn 3%.

Of course, to do the coinvestment then need to agree on how to divide up the $750. Most people, prior to STP, think of a proportional division. B has 4x the funds and so should get 4x the money. Thus a $600 to $150 split.

My view is that the Pie, the negotiation, is really over $300, not $750. The Pie is $300 as without an agreement the two sides could earn $50 + $400 = $450 on their own. To go up to $750 -- the extra $300 -- each side needs the other equally. Thus they should split the $300 equally, $150 : $150. So in total A gets $50 + $150 = $200 while B gets $400 + $150 = $550.

The book, Split the Pie, offers lots more detail along with ideas for how to grow the pie. If the parties can agree upfront on splitting the pie, they can then focus their attention on growing the pie.

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That's the very next example in the book. What if there is a C who can supply $5,000 as perhaps 3% interest (or $150). Well, that changes the pie but not the idea of splitting the pie. Not B's BATNA is doing a deal with C. That leaves A with $600 (after paying C $150). A's BATNA is going solo and getting $50. Thus A and B should still do a deal together as they can go from $650 to $750. The pie is now $100. And to get that $100 pie, A needs B every bit as much as B needs A. Thus they should split it $50 : $50. So now A gets $50 + $50 = $100, while B gets $600 + $50 = $650.

I don't think this is damaging to a long-term relationship. Each person has to think of what is the pie that is created by this particular deal. I start out with just two players -- in which case they must be symmetric. When we start bringing more players into the negotiations, things get more complicated, but the idea of the pie is still the guiding principle.

Professor, how do I start doing my homework? It''s not so hard, just enough but I can't focus. Thank you.

Is there a reward you can give yourself for finishing?

Can you break it up into parts. When I'm writing a book, the task seems like it is way too hard at the start. Can't see the end. But if I commit to writing 1,000 words / day then I know I will be done in under 3 months. And 1,000 words seems manageable.

Also, having an outline can really help.

How long do you think it will take to complete?

I love Honest Tea! What’s your favorite flavor?

That's like asking me to choose among my children. That said, I'll answer. Used to be Kashmiri Chai. Now is Ginger Oasis (which I'm enjoying right now.) Pineapple Turmeric is also amazing. Both are in glass.

Ok now who's your favorite child? ;)

While we have two daughters, my wife often says that she has to deal with three children. So I'm going to go with my inner child.

I’m curious why and how you started Honest Tea while maintaining your academic career. Did you work with others and how did you find/choose them? In such a crowded space, vying for limited shelf space, what do you think helped you win? Besides being a great product, there’s a 0th step and a 0th-nth step that starts that flywheel that I’m curious about.

I started the company with my former student Seth Goldman. He was the CEO and I was the cofounder and Chair of the Board. Otherwise, I would not have been able to keep my day job. As for the step-by-step, Seth and I wrote a book in which we share all of our mistakes and I add some perspective we've gained with the benefit of hindsight (as in the most important word in our name was Honest, not Tea.) The book is called Mission in a Bottle. Sorry to be self-promoting, but questions like your are we we wrote the book.

Time for me to sign off! Take care all.

Is there a top 3 wishlist you have, for specific steps a government could take to radically change our overall knowledge as a group?

Not sure I fully understand. But one thing I would do is change the way we teach math in schools. Way too much emphasis on geometry and trigonometry, and almost no time spent on data and data analysis. We are living in a world with huge amounts of data. If people have no ability to comprehend statistics, we end up with terrible ignorance and poor decisions.

Professor, can you share your thoughts on negotiating with someone who's suspected to be narcissist? Those that want the whole pie and would rather loose it all than getting half and any argument around fairness goes out the door. Many thanks.

Many people think that negotiations are like being read your Miranda rights: Everything you say can and will be used against you. They clam up. They are afraid of being taken advantage of. While it is true that there are jerks and narcissists out there, I wonder if lots of otherwise sane, smart, and empathetic people act like jerks in a negotiation because they think they have to. One of the lessons I teach is FFWW -- Fight Fire With Water. When you see the other side behaving badly, try to get them to change how they are acting rather than escalate. One way to do so is to start the negotiation with a discussion of how you will negotiate. Can you agree to create a large pie and split it? If the other side says that they want to embrace a zero-sum mindset, then at least you know who you are dealing with at the start. Even in these cases, I show how employing the pie approach can be effective. The other side might not care about fairness, but if they come to understand that you do and they want to do a deal, then they will have to meet you at the fair deal. A principle beats arbitrary.

p.s. Why is it that everyone now spells lose as loose? It actually takes more time to write out loose.

Chris Voss says never split the difference...how do your two theories co-exist?

The difference is not the pie. See my comment above with the interest example. I agree that splitting the difference makes no sense. Each of the two offers is arbitrary and halfway between two arbitrary numbers is still arbitrary. Split the Pie offers a principled way to reach an agreement. Key is to recognize what the negotiation is truly about. Sounds obvious, but that's only true in hindsight. See if you recognize the pie in the interest rate negotiation above.

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If I may be immodest, I like to think that my books on game theory are more accessible than most. Indeed, Split the Pie is a game-theorist's guide to negotiation.

As to the second part of your question, not so much to your work in the OR. But in everything else you do, I'd say yes. You need to manage people, work with others in the hospital, get patients to do proper follow up, ... Much of life involves negotiation.

Key lesson of game theory is to be allocentric rather than egocentric. That ability to focus on and understand the motivation of others is a critical life skill.

As to whether you could have preserved or more likely persevered, I'm confident the answer is yes. But that specific course might not have been worth it.

Do you do anal? AMA right?

I do analysis, if that's what you mean.

The blurb says 'A radical new way to negotiate'... what is radical or new about seeing the whole as well as the parts? Perhaps I've missed something?

Thanks!

The basic idea comes from the 2,000 year old Talmud. It's the principle of the divided cloth. But that idea has been lost when it comes to modern negotiation. I challenge you to find a book or article on negotiation that talks about the negotiation pie and why the two parties have equal power. The typical approach says that the side with the better BATNA has more power in a negotiation and thereby mixes up power outside the negotiation with power inside the negotiation. Fisher and Ury say that one should use objective criteria to reach an agreement. Have a look at my interest rate example. I claim that once you correctly measure the pie, there are no objective criteria (that come from facts outside the negotiation). The key is to recognize the symmetry and equal essentiality of both parties. I'm willing to agree if you think this is obvious in hindsight, but this is not how most people negotiate.

HI Professor Nalebuff!

Thank you for doing this. I stumbled on Life cycle investing yesterday, and here you are! Would you recommend leveraging up in those sort of ways to someone who is UHNW and young? Or is that unnecessarily risky?

If the principles hold true for a couple zeroes, does it work for large portfolios too?

Thank you again for your time.

No, I don't recommend leverage for someone who is UHNW and young. The reason for leverage when young is that your capital is all illiquid. It is tied up in your human capital. Thus people don't have enough financial or liquid capital to invest when young. But if you are lucky enough not to be constrained in this fashion then you don't need to employ leverage to better diversity across time.

You’ll learn how to get half the value you create, no matter your size. 

But if I get half the value I create, plus presumably half the value they create, and they get the remaining halves, isn't it the case that they win and I lose if if the value I created was greater than the value they created? If I create +2 and they create +100, I'd sure be happy to go halvesies and get +51.

The mistake in your logic above is to think that one side creates X and the other side create Y value. The value you create is X+Y in that neither X nor Y is possible unless you reach an agreement. Thus in your example above, you'd each get 51. Take a look at the interest rate example I gave above. Can't say that A or B is more responsible for the interest rate total rising from $450 to $750. Need both. And that's the big insight of the book. What the negotiation is really about is the value the two of you create by coming together. Thus, by definition, you are both needed to make it happen. Hence there is no meaning to the idea that A brings more to the table than B.

Thank you for the AMA. What do you think about "the Haward concept" and what is radical in the way of negotiation described in your book?

I admit I was confused as I didn't know what the Haward concept is. But upon reflection, I'm going to guess you meant the Harvard concept or the Getting the Yes approach. I'm a fan of that book. They are spot on when they say to focus on interests, not positions. That is one way to grow the pie. The challenge is that they have almost no guidance to offer when it comes to how to divide what the parties create. And that's the contentious part of negotiation. Absent that guidance, people propose views of fairness that benefit themselves and that leads to bad feelings and no deal. Thus I see Split the Pie as a complement, not a substitute for Getting to Yes.

Did you ever use your glasses to burn ants by pointing them at the sun?

No

In reading your posts, I am curious about how STP would handle the classic negotiation exercise in which two parties must agree how to divide ten dollars. Party A makes the proposal, and if B accepts it, they divide the money along those terms. If B rejects it, neither side gets anything.

Would STP say $5 to each?

Yes.

And while this might seem like a zero-sum negotiation, I note that if they two parties can't agree, then they will both get zero. Thus having a principled way to reach an agreement helps avoid the no-agreement outcome and thereby creates value.

In your book Lifecycle Investing, you and Ian Ayres recommend that certain investors should use leverage to increase their market exposure when they are young, then ramp down the leverage and eventually shift their portfolio into bonds as their savings increase. Your book states, insightfully, that this approach diversifies the market risk over time.

Assuming a particular investor has chosen to adopt a lifecycle strategy, would it be logical to extend the same principle into the retirement period, and have the investor leverage back up as they spend down the portfolio?

No. The reason for leverage is that the investor doesn't have enough financial capital. Over one's life, one converts human capital into financial capital. During retirement, one has little human capital and mostly financial capital. Thus one should be able to invest in equities the desired amount.

There are two exceptions. If the majority of person's savings is in Social Security, that is like a bond. Say the person has $20,000 in cash and a SS pension worth $200,000, and the person would like to be 50% in equities. Well, their wealth is $220,000 and so that would imply $110,000 in equities. But they don't have enough cash to do so. That would be a case for leverage upon retirement. The other case is that the majority of their wealth is tied up in a house. Here, again, if they don't have enough cash that could create a reason to invest with leverage upon retirement.

How were the negotiations with Honest Tea in Australia?

From her side it sounds like Coca-Cola got nasty. Is showing up with a bigger pie slicer a good tactic.

Is advertising as "less sweet" part of the negotiation you make with customers to convince them them 25g of sugar is healthy?

I gave an academic talk at Melbourne at the very early days of Honest Tea. I mentioned what I was up to and next thing I knew someone got the clever idea of registering the Honest Tea's trademark in Australia. They never used the name except in a minor way on the back label. The primary point of their action was to try to prevent us from entering the Australian market. They painted us as a big bad American company. We were tiny at the time with something like $3m in sales. The whole thing left a bad taste in my mouth.

By the way, we offered the existing company the chance to continue using the expression Honest Tea. We weren't looking to block their use. But they were looking to block our entry into the country.

Later, when Coca-Cola took over the company, they tried to clean up the situation.

It is very interesting how the story is portrayed in the media. It is very much a case of the little entity standing up to the big American bully.

My personal feeling is that it was in fact a bad faith registration by the company in Australia (where there is a pattern th3..) but mistakes were made at the early stages. It is not surprising you were annoyed.

That being said, there seems to be a lack of arbitration and negotiation in the attempts to resolve things though by Coke. Again, maybe the truth is hidden behind the media.

I brew my own tea and I like things a tad less than 6 teaspoons sweet ... but the Peach tea is good 😜

We tried on several occasions to resolve the dispute prior to Coke buying the company. They just used us as a punching bag to get more publicity. We never tried to stop them from using the wording.

If you like your teas less sweet -- as I do -- try the Ginger Oasis or Pineapple Turmeric, both of which have zero sugar. Amazing.

Honest Teas range from 0 to 100 calories for 16.7 ounces. I note that some Snapples have 42 grams of sugar in 16 ounces.* One of my favorite Honest Teas, Moroccan Mint, has 9 grams of sugar in the whole bottle.

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• https://spoonuniversity.com/lifestyle/snapple-is-not-the-best-stuff-earth#:\~:text=Much.,Sugar.&text=Snapple%20is%20bursting%20with%20sugar,of%20sugar%20to%20be%20exact.

Can’t I just do what I want instead of listening to economic principle?

You can, but I doubt it will work as well. We've done experiments that show explaining the pie is an effective tool in a negotiation.