In “Dividing the Pie”, the American economist, mathematician and professor Barry Nalebuff exposes 45 basic lessons for doing business with the different perspective of an expert who, among other things, negotiated with Coca-Cola.

Logic tells us that, in a negotiation, it is always better to start with an extreme proposal and, from there, give in until you reach an average that suits you. But what seems obvious, for the economist, mathematician and Yale professor Barry Nalebuff It’s just a rookie mistake.

The American, who years ago postulated “a radical way of negotiatinghe found success in an unexpected secret: putting himself in the other person’s shoes. In share the cakeedited by Urano, shares 45 core lessons that operate as business principles based, contrary to what is usually expected, on fairness and justice.

Your success, after all, precedes you. We’re talking about a man who, for example, among many other things, started a small iced tea business and ended up selling it to her, but not before a successful negotiationnothing more and nothing less than Coca Cola.

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From simple examples (like two parties wanting to share a 9-piece cake) to the author’s real-life experiences (like when managed to save almost 15 thousand dollars in a real estate transaction thanks to his strategic cunning), share the cake it destroys the outdated myths of the negotiation world and teaches a new way to reach a favorable agreement. It worked for Barry Nalebuff.

(“share the cakecan be purchased in digital format from Bajalibros by clicking here)

Most people haven’t heard of the pie approach. I focused on situations where you are the small and would get less than half unless you used the cake. What if you were ready to get more than half the cake? Those on the other side, who don’t know the cake, also don’t know that they are getting less than half. They would be more than happy for you to choose the cake and share it with them. But you can also be silent. What would you do?

I have a colleague who, for reasons that will soon become apparent, prefers to remain anonymous. We will call him Arthur. He had signed a contract to buy one of those Brooklyn brownstones and was in the process of get a mortgage. To his surprise, he learns that in New York, anyone who takes out a mortgage pays a registration tax of 1.8% on mortgages under $500,000 and 1.925% on those under $500,000 or more. more. It was a significant number. He planned to take out a $1 million mortgage, so the registration tax would be $19,250.

After the surprise, Arturo discovered on the Internet that the tax code makes it possible to reduce the invoice via a CEMA, which is the acronym in English for Consolidation, Extension and Modification Agreement. With a CEMA, the buyer takes over the seller’s mortgage and deducts the mortgage amount from the sale price. Of course, this only works if the seller already has a mortgage.

The good news was that the seller had a previous mortgage worth $600,000. This meant that Arturo could take over the seller’s mortgage and consolidate it into his own. The registration tax would only apply to the new portion of the mortgage, which is the additional $400,000, not the existing $600,000. The tax would be reduced to $7,200, savings of just over $12,000!

There was other good news. By taking over the seller’s mortgage, the sale price would be offset by this amount. It meant that the seller would also pay less tax. In New York State, the seller pays a transfer tax of 0.4% on the sale price. The seller would save a percentage of 0.4 on $600,000, or $2,400. The CEMA route would save a total of $14,450 in taxes.

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There would also be a slight increase in legal fees. Arturo therefore estimated the total net savings at around $14,000. In our terminology, it was the cake. This led to the moment of truth. To complete a CEMA, Arturo had to get approval from his lender and also get permission from the seller. Both parties had to sign. What would Arturo say to the seller?

There were two options:

1. Ask for your help in facilitating the CEMA, explaining in general terms that it would save you money.

2. Explain the situation in more detail and propose that the two split the savings of $14,000 equally.

At this point you can guess what Arthur did. He kept his mouth shut and opted for option 1. The salesperson was happy to help. Not knowing how a CEMA works, he limited himself to signing the forms he needed. Based on tax defaults, the seller would get $2,400 in savings and Arturo almost five times that: $11,600. You shouldn’t blame Arturo too much. Most people would be happy to accept the default deal based on buyer and seller taxes. They don’t see the world in pie terms, and they don’t recognize their equal power.

The author, after having successfully created an iced tea company, ends up reselling it, not without success, to Coca-Cola.
The author, after having successfully created an iced tea company, ends up reselling it, not without success, to Coca-Cola.

In fact, thousands of buyers who host a CEMA end up with over 80% savings. According to the star New York real estate attorney, Sandor Krauss“When I represent the buyer, we ask for all the CEMA credits and we usually get them, and when I’m on the seller’s side, we always get half of them.”

On the morning of the closing, Arturo’s real estate lawyer called him with more good news. The lawyer explained to the seller that he was about to obtain a tax saving of $2,400. He was delighted, so much so that offered to share the savings with Arturo! The lawyer called him to say he had done very well. The buyer would take the $11,600 plus half of the $2,400.

Even for Arthur, it was too much. He asked the lawyer to return the $2,400 tax savings to the seller. But before he could contact the seller, he received another call. The seller’s curiosity had been piqued. After doing some research, he realized that Arturo was about to save $11,600 and he was furious. wanted half.

There wasn’t really a main counter-argument. If the seller had understood the situation from the start, he would have been willing to do the CEMA if and only if both parties had agreed to share the combined savings equally. Although the seller is unlikely to walk away for $5,000, it could have delayed the closing or caused other problems.

Well, there was a semi-major counter argument. The seller had implicitly agreed to the 5:1 split by not increasing it when it accepted the CEMA. But keeping him in this division wasn’t worth it. Arturo didn’t want to move into a new house and have the seller speak ill of him to his new neighbors. He mumbled something and added a few thousand more. They shook hands and closed the deal. Still, the experience left a bad taste in the seller’s mouth. And Arturo didn’t like it either.

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From here they come out two morals:

The first is that sometimes you can get away with taking more than half the cake with you. But it’s a dangerous strategy and, in the end, you may not be able to look at yourself in the mirror.

The second comes from the perspective of the sell side of the transaction. When someone says something will work for you, make sure you know how much they will earn. Be allocentric. Don’t just focus on your profit. Calculate the cake and get half. This post is part of a larger theme: watch out for default pie slices that come from tradition, regulation, proportionality, or bad equality (dividing the 12 slices, not the 6). There’s nothing stopping you from undoing the rift and offering a fair share of the pie. Arturo’s salesman would have had half the cake if he had asked for it.

Born in the United States in 1958.

He is an economist, mathematician, writer and professor at Yale University, among others.

He is the author of books such as share the cake, think strategically there The art of strategy.

Continue reading:

He created a drink, he sold it to Coca-Cola and now he learns to negotiate backwards than others (and better)
How the modern economy works according to one of the first financial algorithms
Tourism in Argentina: five books to survive in its particular economy

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