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How to Create or Capture Value in Negotiation

CREATE OR CAPTURE VALUE IN NEGOTIATION? The Prisoner’s Dilemma

One famous game strategy in social science is the Prisoner’s Dilemma. For those not familiar with it, the Prisoner’s Dilemma has two suspects being interrogated in separate rooms. Their choices are spelled out for them: If neither suspect confesses, each gets 1 year in jail for the minor crime. If both confess, they each get eight years. If one confesses and the other doesn’t, the one who confessed gets off clean while his partner goes to jail for twelve years.

It seems that no matter what the other suspect does, confessing would be the dominant strategy in this game; you are in a better position confessing regardless of what the other suspect does. Therein lies the dilemma—the rational/dominant thing to do results in the worst outcome. Both suspects confessing would result in a sentence totaling 16 years, when they would both be better off not confessing and getting a year each.

David Lax and Jim Sebenius applied a negotiation angle to this dilemma in 1992. Let’s take not confessing as a strategy to cooperate, while confessing as a strategy to defect (in the hopes that the other doesn’t confess). In negotiation, the choice to cooperate, that is to create value, would improve the overall result while choosing to defect, capture value, would result at a better result for the individual, but at the expense of the other party. This further translates into cooperating being to create value while defecting is capturing value, and the question of whether you should create or capture value arises.