Article | Harvard Business Review

How to Make the Other Side Play Fair: The Final-Offer Arbitration Challenge Gives Negotiators a Valuable New Tool

by Max H. Bazerman and Daniel Kahneman

Abstract

In legal disputes, contested insurance claims, and similarly adversarial negotiations, one party is likely to open with an inflated claim or a lowball offer. And if the other side’s position is unreasonable, it may make little sense to be reasonable yourself. But if everyone routinely came to a dispute with a realistic starting position, the offers would be more or less aligned, and any negotiation that followed would most likely be relatively civil, speedy, and fair. How can a negotiator who wants to be fair from the start ensure that his or her counterpart will be reasonable as well? The authors propose the final-offer arbitration challenge, which leverages an approach first applied in labor negotiations in the 1960s. You can employ this tactic by opening with a demonstrably fair offer and then—if the other party is unreasonable—extending a challenge to take the competing offers to an arbitrator who must choose one or the other rather than a compromise between them (the usual outcome of conventional arbitration). The authors describe how AIG used the approach and how other companies can begin to adopt it.

Keywords: Negotiation Tactics; Negotiation Offer;

Format: Print Find at Harvard Register to Read

Citation:

Bazerman, Max H., and Daniel Kahneman. "How to Make the Other Side Play Fair: The Final-Offer Arbitration Challenge Gives Negotiators a Valuable New Tool." Harvard Business Review 94, no. 9 (September 2016): 76–81.

About the Author

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Max H. Bazerman
Jesse Isidor Straus Professor of Business Administration
Negotiation, Organizations & Markets

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