Question

how can you tell if a negotiation has the potential for mutual gains?

Answer 1

Negotiators can and achieve equal gain by trading on their differing beliefs about the future. Suppose that an entrepreneur is highly optimistic about his productive success but the product investor with whom he is negotiating is more skeptical. The investor might agree to pay a certain amount upfront, with future payouts contingent on the product's success. By trading on their different forecasts, the parties are able to reach a deal through a so-called contingent contract -and reap mutual gains.

Negotiators can use differing risk preferences to realise mutual agains. Take the case of two firms that are considering a joint venture, but one is more risk-averse than the other. The more risk averse party might offer to give the other party a large percentage of potential profits in return for accepting a larger percentage of potential profits for accepting a larger percentage of losses. This deal would achieve mutual grains not by maximizing both parties earnings, but by addressing key interests of both parties.

Negotiators can also secure mutual gains by trading on their different time preferences. If one party in a joint venture values early returns more than the other, it could propose that it accept a greater percentage of early profits and a smaller share of later profits relative to the other party.