A lesson in negotiations

June 13, 2007 at 4:03 pm | Posted in Uncategorized | Leave a comment

Here’s an interesting lesson on negotiations as told in a story. This is taken straight out of one of my favorite business books, “Thinking Strategically”:

Late one night, after a conference in Jerusalem, two American economists found a licensed taxicab and gave the driver directions to their hotel. Immediately recognizing them as American tourists, the driver refused to turn on his meter; instead, he proclaimed his love for American tourists and promised them a lower fare than the meter. Naturally, they were somewhat skeptical of this promise. Why should this stranger offer to charge less than the meter when they were willing to pay the metered fare? How would they even know whether or not they were being overcharged?

On the other hand, they had not promised to pay the driver anything more than what would be on the meter. If they were to start bargaining and the negotiations broke down, they would have to find another taxi. Their theory was that once they arrived at the hotel, their bargaining position would be much stronger. And taxis were hard to find.

They arrived. The driver demanded 2,500 Israeli shekels ($2.75). Who knew what was fair? Because people general bargain in Israel, they protested and counter-offered 2,200 shekels. The driver was outraged. He claimed that it would be impossible to get from there to here for that amount. Before negotiations would continue, he locked all the doors automatically and retracted the route at breakneck speed ignoring traffic lights and pedestrians. Were they being kidnapped to Beirut? No. He returned to the original position and ungraciously kicked the two economist out off his cab yelling “See how far your 2,200 shekels will get you now!” They found another cab. This driver turned on his meter and 2,200 shekels later they were home.

Certainly, the extra time was not worth the 300 shekels to the economists. One the other hand, the story was well worth it. It illustrated the dangers of bargaining with those who have not yet read our book. More generally pride and irrationality cannot be ignored.

Sometimes, it may be better to be taken for a ride when it only costs two dimes.

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