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Robert Mnookin, author of "Bargaining with the Devil," speaks with economics correspondent Paul Solman about the rewards and challenges of negotiations.
Finally tonight, NewsHour economics correspondent Paul Solman reports on the art of doing a difficult negotiation during tough economic times.That's part of his ongoing reporting on Making Sense of financial news.
ERUM SATTAR, Harvard Law School Student:
Can we lower the interest rates that I pay?Can we can we make the mortgage extend for longer?
At Harvard Law School, learning to negotiate.Student Erum Sattar had agreed to role-play a typical debt-hobbled homeowner these days.
I don't see how it's in your interest to foreclose this property. Is there nothing that we can do to work this deal out, something that helps you and it helps, you know, us stay in the house?
Michael Aktipis played the banker who won't budge.
MICHAEL AKTIPIS, Harvard Law School student: I would love to help you out, but how can I make an exception for you, when I have hundreds of people every day contacting me, asking me to do the same thing?
ROBERT MNOOKIN, author, "Bargaining With the Devil:"If he doesn't have that authority, who does?Ask him.
Coaching and critiquing, negotiation guru Robert Mnookin.
The words you use, the tone you use, your language, it all matters, because it could affect how the other person reacts.
Mnookin is the author of a new book with a timely thesis.
"Bargaining With the Devil" is a book about the most difficult kinds of negotiations, where your adversary is someone you don't trust, who you think may be out to harm you.You may even think they're evil.Erum and Michael, you know all about the case.
But whether it's your loan servicer or a cousin demanding grandma's engagement ring, take the economic approach, says Mnookin.Try to make a trade.
Renegotiate.The metaphor I use is, the carnivore is eager to trade his broccoli for a lamb chop owned by a vegetarian.It's that they have different preferences that allows you to make both sides better off through trades.
In other words, a win-win solution.
Better for the bank and better for us.
Which, of course, sounds a lot easier than it is to achieve.
Emotions are often running very high, and it's very hard for what I call the Mr. Spock in yourself, the cool, dispassionate, rational actor, to think things through.
All I can tell you is, you have to pay $2,000 a month.
As if to prove Mnookin's point, emotions ran high in our mortgage negotiation, which wasn't even real.
We're literally going to have to leave this house if you don't help us.I mean, we are desperate.
Go for it.Good luck ever getting a mortgage again.
Aha, says Mnookin.Michael's warning is a typical case of BATNA bashing.
BATNA is negotiation jargon for your best alternative to a negotiated agreement.In other words, if I can't make a deal with you, what is the my best alternative away from the table that doesn't require any help from you at all?BATNA bashing is to say to someone, your alternative is terrible.It's to try to remind the other person how bad their alternative is.
Which is just how our mock session played out.
Your credit is going to be shot.You're dreaming if you think that you can realistically walk away and get another mortgage and take care of your kids.So, either find some way to pay this mortgage or go ahead and walk away and see what happens.
I mean, we're going to have to, right, because you are leaving us no choice?
Sattar actually broke down at this point, though this was a pretend negotiation.
Our conversation is over.
It just he painted this really bleak picture that my life was I mean, it was all bad.No one would ever give me any money.I would have to leave my house.It was horrendous.
But, look, says Mnookin, you have got to not take it personally. When a second pair of students, David Baumwoll and Jared Craft, stepped into the roles of homeowner and banker…
JARED CRAFT, Harvard Law School student:How can I help you?
DAVID BAUMWOLL, Harvard Law School student: Hi. It's a pleasure to…
… rationality trumped emotion.
The reason I'm coming to you today is to figure out if there is anything we can do together to come up with some agreement where you're getting paid, you don't have to go through all the problems associated with foreclosures, all those costs associated with it, and I get to keep my house.
You could respond by asking a question:Well, what do you have in mind?
OK, so why don't you give me a number?What can you pay every month?And I will take a look at it, and I will see if we have the discretion to help you out.
Well, because I want to make the most of our time here, I did some research beforehand and ran the numbers.
My approach is always to see if I can lead and persuade the other side to engage in problem-solving. Many more things are negotiable than people assume are negotiable.
A key principle is, you have got to be able to dispassionately try to think through in a circumstance where your emotions are likely to want to take over, what are my alternatives?What are the costs and benefits of different courses of action?And that's very challenging.
But it can also be very rewarding, says Mnookin.
And I really look forward to working with you on a better deal.
Weighing costs against benefits the essence of economics.
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