BATNA: Best Alternative to a Negotiated Agreement
The Basic Idea
Imagine you’ve received an exciting job offer from a great company, and you’re being offered a salary of $75,000. While this salary is higher than your previous job, you have a hunch that there may be better options out there, and higher salaries to meet your coveted skills and experiences. You decide you’ll negotiate with your new bosses a little bit more, take their best offer into consideration, and then decide if you’d like to proceed with accepting the job.
This negotiation trajectory seems typical: you look at the final offer of the company and then peruse your alternative options, seeing if you can do better elsewhere. However, what if knowing your alternatives from the get-go could actually raise the final offer of this company? How could knowing your other options initially make you a stronger contender in the original negotiation?
Herein lies the concept of BATNA: Best Alternative to a Negotiated Agreement. Determining your BATNA means knowing your best potential course of action if a given negotiation does not work out. Knowing your BATNA in advance of a given negotiation makes you a more confident negotiator, and a more attractive potential investment to your opponents. Ultimately, knowing your BATNA will empower you to make the rational choice: accept any terms better than your BATNA, and reject any terms worse than it.
Theory, meet practice
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Game theory: The study of how interactions between economic parties produce outcomes that adhere to the preferences or goals of those economic agents, even when unintended.
Nash equilibrium: A group situation in which no player can benefit from changing strategies, as long as everyone else sticks to the current strategy.
Reservation point: The minimum terms a negotiator is willing to accept before walking away.
Zone of potential agreement (ZOPA) (AKA bargaining range): The range in which the buyer and seller both negotiate.
The term BATNA is a proposition that William Ury and Roger Fisher put forth in their 1981 bestselling book, Getting to Yes: Negotiating Agreement Without Giving In.
Ury and Fisher were both expert negotiators who together founded the Harvard University Program on Negotiation, an association dedicated to developing theory and practice around negotiation. Through their studies, Ury and Fisher collected tips and tricks that they compiled into a concept they called “principled negotiation.”
Principled negotiation has its roots in game theory and Nash equilibrium, relying heavily on behavioral science to determine how interactions with negotiators could influence outcomes. Its goal is to show businesses how to conduct negotiations without jeopardizing future business relationships—in other words, how to focus on people before dollars. Today, successful principled negotiation is often referred to as a “win-win situation.”
In their book, Getting to Yes, Ury and Fisher explained the five propositions of principled negotiation:
- Separate the people from the problem
- Focus on interests of the individuals, not their positions
- Invent options for mutual gain
- Insist on using objective criteria
- Know your BATNA
Knowing your BATNA is considered important, as it emphasizes not “giving in.” If you know your BATNA, you will always have other alternatives to choose from, and will therefore intentionally choose the best one available. In the book, Ury and Fisher describe an example in which selling a house becomes difficult. They prompt readers to think about all other options if the house were not to sell—what is the best alternative to a negotiated agreement? Giving in, hoping for another offer, or risking not selling the house at all?
Getting to Yes was a quick bestseller and within five years, was adopted into several U.S. school district curriculums to help students grasp the concept of non-adversarial bargaining. By 1998, Getting to Yes had been sitting on the Business Week Bestseller List for three years, and it was still appearing on Longest Running Bestseller book lists as late as 2007. In 2011, a third edition of the book was published, after a second in 1991.
“The more easily and happily you can walk away from a negotiation, the greater your capacity to affect its outcome.”
—William Ury and Roger Fisher, Getting to Yes: Negotiating Agreement Without Giving In
William Ury is a negotiation expert. Educated at Yale and Harvard University, Ury studied social anthropology and co-founded Harvard’s Program on Negotiation. He has worked as a negotiation adviser during conflicts all over the world, and is the recipient of the 2012 Peacemakers Award from Mediators Beyond Borders. Ury is the author of seven books, one of which is Getting to Yes, written with Roger Fisher.
Roger Fisher was a professor at Harvard Law School and Ury’s co-founder of Harvard’s Program on Negotiation. Fisher was also an international mediator and made significant contributions to peace efforts in the Middle East. He was interested in how people manage their differences, and started asking skilled negotiators what advice they typically give to either side of a debate. This work inspired his draft, “International Mediation: A Working Guide,” which eventually led to the bestselling book he co-authored with Ury, Getting to Yes. Fisher died in 2012.
Knowing your own BATNA
Let’s go back to the example of your potential job offer. Imagine you’ve negotiated a little bit, and the company has come back with $80, 000, stating that this is their highest offer. You, unsatisfied, begin to look for job opportunities that may pay $95, 000 and upwards.
In this example, failing to notify your potential employers of other possible opportunities has pigeon-holed you to a salary with which you are unsatisfied. You may, however, accept this salary, tired of job searching and worried that this is the best offer you can get.
For this reason, doing as much research as you can prior to your negotiations would help you out. Say you’d like to work at the original company—Company A—but you’ve also interviewed at Company B, which is offering you over $100,000. In this case, telling Company A about your potential other opportunities may encourage them to raise your prospective salary. They may now see you as greater value to their company, as a result of your increased confidence throughout the hiring process as well as your coveted offers from other suitors.
Furthermore, in this scenario, you can be more flexible with your choices and not have to leave negotiations feeling defeated. Even if you do choose to accept the lower salary for better job satisfaction, you can know that you did so while having your best other options in mind—rather than walking away, eyes closed, from a world full of opportunities you may know nothing about.
On the other hand, of course, if you do some research and find out that you likely could not make more than $75, 000 at this stage of your career, that is also helpful information—it would help you to accept Company A with gratitude and be satisfied that you’ve accepted your best option.
“With one offer in hand, you are much better equipped to assess the merit of a new offer.”
—William Ury and Roger Fisher, Getting to Yes: Negotiating Agreement Without Giving In
Knowing their BATNA
Knowing the other party’s BATNA is also helpful as a starting point for a negotiation. If you know that the other side’s best alternative to your offer is $40,000, you can offer only $42,000 or $45,000 as opposed to your potential $50,000 offer. In this way, you may be able to get more out of the negotiation by asking your partner to upfront when you begin negotiating about their other potential opportunities.
If you go really far, you may even take steps to weaken the other side’s BATNA. When real estate agents ask their clients to commit to working exclusively with them, for example, they weaken their clients’ best other alternatives by not allowing them to bring in other agents who may offer more viewers or better sale prices. Delaying or moving up a negotiator’s date of decision may also work to weaken the other team’s BATNA, depending on the circumstances.
Despite the gripping nature of BATNA, it has been used mostly among academics and mediators rather than business professionals. While the theory of principled negotiation teaches good negotiation strategies to novices, it has been criticized by business people who find most of the people they work with to already be skilled negotiators. As a result, BATNA is largely cast aside for its idealism and lack of practicality in the business world.
Related TDL resources
Reactive devaluation occurs when we disregard offers that may be beneficial to us as a result of visceral reactions. These may be elicited by the people who offer them up, or the way in which they are framed. As Ury and Fisher’s principles preach, it is best to negotiate with positive future relationships in mind, and therefore to work from a place of peacekeeping, rather than hostility.
Read this article to learn more about how interactions with other motivated economic agents can influence our behavior and decisions, particularly in the context of negotiations.
Best alternative to a negotiated agreement. (2003, January 24). Wikipedia, the free encyclopedia. Retrieved February 22, 2021, from https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiated_agreement
Corporate Finance Institute. (2019, November 30). BATNA – Definition, importance and practical examples. Corporate Finance Institute. (2019, November 30). BATNA – Definition, importance and practical examples. https://corporatefinanceinstitute.com/resources/knowledge/deals/what-is-batna/#:~:text=BATNA%20is%20an%20acronym%20that,negotiations%20fail%20and%20an%20agreement
Fisher, R., Ury, W., & Patton, B. (1991). Getting to Yes: Negotiating agreement without giving in. Houghton Mifflin Harcourt.
Getting to Yes. (2021, February 6). Wikipedia, the free encyclopedia. Retrieved February 22, 2021, from https://en.wikipedia.org/wiki/Getting_to_Yes
Principled negotiation. (2020, December 14). Negotiation Skills Workshops | Negotiation Experts. https://www.negotiations.com/definition/principled-negotiation/#:~:text=Principled%20negotiation%20is%20an%20interest,finding%20a%20mutually%20shared%20outcome
Roger Fisher (academic). (2003, June 25). Wikipedia, the free encyclopedia. Retrieved February 22, 2021, from https://en.wikipedia.org/wiki/Roger_Fisher_(academic)
William Ury. (2014, December 23). Wikipedia, the free encyclopedia. Retrieved February 22, 2021, from https://en.wikipedia.org/wiki/William_Ury
Wira Ari. (2019, February 27). Understanding BATNA. YouTube. https://www.youtube.com/watch?v=Fsotyf1TUrA&ab_channel=wiraari