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Negotiation Lessons From the Wayback Machine

Ever since the first caveman traded a few spicy pterodactyl wings for a woolly mammoth loincloth, mankind has been negotiating and mediating. Hoping to learn from the past, I asked my friend Mark Rabinowitz, an experienced litigator and history buff, to discuss memorable negotiations in history—and the lessons to be learned from them.

Positional Strength

Like so many litigators, Mark believes in “positional strength”—that the practical reality is that, in virtually every negotiation, might makes right.1 Together we explored that idea.

“We can look at the purchase of Manhattan in 1626 by Peter Minuit from the Native American tribe, the Canarsees,” he said. “Minuit was negotiating on behalf of the New Netherland Colony because, as you know, the Dutch initially settled the New York area. Looking at the negotiation itself, what's quite interesting is, what did each party think they were getting and what did each party actually get?

"The generally accepted story is that Manhattan was primarily controlled by the Weckquaesgeeks, a tribe that was not present at the negotiations. The Canarsees didn't really control Manhattan. Plus, for the Native Americans, who migrated between summer and winter quarters, land, water, and air were not rights that could be traded or even owned. So the Canarsees purported to sell something they didn't believe that they actually owned.

“But what Minuit was getting was of some value to the Colony. It was a no lose-situation for them. Minuit traded goods that were worth 60 Guilders at the time, now worth between $2,600 and $15,600. In 1846 a New York historian valued it at $23." In return, Minuit received the equivalent of a quit claim deed and the prospect of future trade with the Canarsees.

The negotiations often are portrayed as the stronger party getting more of what it wants. But which was the stronger party? Which party got the best of the deal? When the selling party didn't even own the property it was selling, was that even an actual negotiation?

We looked at another example. “Another key negotiation in world history is the Treaty of Paris. There are numerous treaties of Paris from different periods in history, but the one I'm referring to was in 1783, the negotiations to end the American Revolutionary War. Britain recognized the United States as an independent, sovereign state, and renounced its claims to territory and property. The U.S. gained territory east of the Mississippi River, north of Florida, and south of Canada. The parties released prisoners of war and the U.S. gained fishing rights off Canada. 

“By the end of the war, the balance of power had shifted in favor of the colonies. The British lost fairly convincingly at Yorktown. The Colonies were able to extract from the British the concessions they wanted. The British had been so badly bloodied that they were content to withdraw from the New World for the most part. The British got concessions that they probably would have gotten anyway, like the recovery of property that had been seized and the release of prisoners, but they didn't gain anything really substantial. It was a concession. The British lost the war. The stronger party's usually going to come out with the better deal, regardless of its negotiating strategy and tactics. If you've got the power, if you're the 800-pound gorilla, you're going to be able to eat the banana.”

Timing

The more interesting point has to do with timing. Negotiations are all about risk.2 When your opponent’s risk is at its highest level, the likelihood of a favorable outcome increases. As your opponent’s risk decreases, your negotiating leverage also diminishes. If you wait to negotiate until you go to the mat and then you lose, you are not going to have the same negotiating strength that you had before. Once you show your cards, you lose the positional strength that comes from your opponent’s risk.

During the Revolutionary War, negotiations had been ongoing since 1782. Despite the huge financial burden that the war imposed, King George lll simply was not willing to compromise. He believed that his disloyal subjects were a threat to monarchist principles. He won a lot of the early engagements and possibly could have made a deal when Washington was at his weakest at Valley Forge. If the King had been willing to compromise and make peace early, some of the present-day U.S. possibly still could be English territory.

The Gambler's Fallacy

This is the classic gambler's fallacy seen over and over in negotiations.3 When one party feels like it’s “ahead,” the prospect of losing becomes unimaginable. Mark agreed.

"You've got to strike while the iron is hot. As you know, the inclination is to think that if you're on a winning streak, you're going to continue to win. Sometimes you lose that strong position because you think it's going to get stronger. In fact, it gets weaker. Timing is everything in negotiation, as is the case with many things."

Later events

Mark's next example is a true negotiation that now seems to have been a really bad deal for one side. Does that make it a bad negotiation?

In the Louisiana Purchase in 1803, the US acquired 828,000 square miles, doubling the size of the country. “The total consideration, both cash and debt, was the equivalent of $250 million today. It represented the entire territory of six states, Arkansas, Missouri, Iowa, Oklahoma, Kansas, Nebraska, and portions of Minnesota, North Dakota, South Dakota, New Mexico, Texas, Montana, Wyoming, Colorado, and Louisiana. The Southern parts of what are now the Canadian provinces of Saskatchewan and Alberta also were included in the deal and ceded to Britain in 1818. 

"The key here was France, which controlled the Louisiana territory from 1699 to 1772, then ceded it to Spain. In 1800, three years before the purchase, it was returned to France in negotiations. Napoleon had given up on the New World. He was interested in selling. That is what drove the ability of the Americans to pick up this territory. As you know, it was not developed at that time. Really, the primary goal for the Americans was control of New Orleans. They wanted to ensure free transit of the Mississippi River all the way to the sea in New Orleans. That was the key for them. By acquiring the territory along the Mississippi, they were able to consolidate the territory to the east. 

"These were wild, undeveloped territories, with very few settlements. There were no interstate highways and shopping malls, as you know. It did not appear to be as good a deal then as it does now, but it was the bargain of several centuries.

"We acquired it because the French, thousands and thousands of miles away across the Atlantic, weren't interested in the cost, expense, and burden of having to maintain control in a different hemisphere. In particular, there had been a revolt in what is now Haiti, and they were dealing with that as well. France was in the middle of the wars following the French Revolution and it didn't want a side battle."

The Americans had no idea that the arrangement was going to turn into such a phenomenal deal. Jefferson originally sought to buy New Orleans and the surrounding area for up to $10 million, but the French offered a much larger territory for $15 million. Neither party could imagine the potential value of the territory. Price was never the issue, but rather the question was whether Jefferson possessed executive authority to negotiate such a transaction.

How later events work out does not prove the negotiation was flawed. In every negotiation, all you can do is collect the best data you can get and make the best decision you can.

Positional strength is a photograph. Life is a video. In litigation, one deposition, one motion, one seated juror makes an entirely new case. If you chase every jackpot, you're going to get burned some of the time. You have to know “when to hold 'em and when to fold 'em.”

Knowing when to say when

Another example of not knowing when to say when, is the Congress of Vienna in 1815, which ended the wars of the French Revolution and the Napoleonic Wars. “Napoleon had conquered much of Europe, and he just kept expanding further into new territory. Eventually [Napoleon] overextended himself in 1812 in the Russian campaign, and decimated his Grande Armee. He just overplayed his hand.”

Napoleon was sitting on a big stack of chips but made just one bet too many.

“What Napoleon could have done to preserve his power was not go into Russia. He bit off more than he could chew. The vastness of the terrain, thousands and thousands of miles. He was supplying the troops in Moscow and in between from Paris. They ended up in a completely disorganized, chaotic retreat, with the Cossacks attacking them on the retreat, killing thousands and thousands of troops. If he just had had a more realistic view of the limits of his resources and capabilities, didn't go into Russia and overextend himself, he probably would have continued to control much of Europe for a while longer.

“What you found in the Congress of Vienna was a defeated power, France, dictated to by the Austrians and Russians and British. [Napoleon] rolled the dice one last time, and it came up snake eyes. If he had taken his chips and gone home, he would have rolled for a lot longer.”

Pushing your opponent to the wall

Gambling in war is especially risky because war is rarely ever totally over. No one goes away. Even when you've totally and completely won, failing to continue to consider risk can bite you hard.

"The Treaty of Versailles in 1919 is a fascinating and perhaps the most hotly debated negotiation in recent world history. The Central Powers, who were allied with the Germans, eventually were defeated by the Allies. The Germans wanted to continue fighting on, but an ultimatum was given by the Allies.

“It was not called World War I at the time, as you know, because there had been only one such war in the 20th Century. They called it the Great War or, ironically, the War to End All Wars. It went on for years. Millions of people died. It resulted in the end of the Austro-Hungarian Empire. You had countries divided up and redistributed at the end of the war. The Treaty of Versailles also had a war guilt clause, which required Germany to accept responsibility for having caused the war. They made 25,000 square miles of territorial concessions, involving seven million inhabitants. They had to pay reparations that were worth $442 billion in today's dollars. They were required to disarm. There are many historians who criticize the Treaty of Versailles as having been a victor's peace, too harsh.

“It was a slogging war, with stalemates for years. There was poison gas, and millions dead, and trench warfare that went on for years without any territory being gained, and hundreds of thousands of soldiers being killed for no gain on either side. The Allies felt that they had averted even further disaster, and were willing to assume that there would not be a second round of these horrific battles where millions of people were killed. ‘Germany had learned its lesson,’ the world had learned its lesson, they believed. That's why you ended up with the League of Nations being established at that time. War is an evil that is to be avoided at all costs. At the time, the Allies thought they were getting their just deserts. No one knew what would follow, obviously. A far more horrific war, with a huge genocide. I think at the time, they viewed the negotiations and the terms of the treaty as just. They blamed Germany for having caused this horrific war.”

Germany was forced to sign the deal. But they never bought into it. The Germans took the opposite attitude, which was, we're the victims, we're going to get revenge, we're going to avenge this injustice. Historians debate what should have happened. What did happen is that the Allies, secure in their knowledge of their utter victory and unwilling to go through another terrible war, let Germany rearm and the world went back to war.

It was another case of the gambler's fallacy: having already won, the Allies mistakenly assumed that winning again was certain. When a party wins and gets a good deal, driving hard for an even better deal is risky. We see that in mediation when one party entirely blows a perfectly good deal for itself by pushing too hard for an even better deal.

Knowing when to fight

One of the most talked about negotiations of the 20th century, which was related to the Treaty of Versailles at the end of World War I, was the Munich Accords of 1938. It’s another good example of how failing to use positional strength at the right time can be disastrous. 

Germany was threatening to annex the Sudetenland provinces of Czechoslovakia. The British in particular did not believe that Hitler and the Germans had an all-encompassing goal of dominating and controlling Europe.

"Germany and France and Britain and Italy sat down with the Germans in an attempt to persuade the Germans to stand down from their threats. Germany had threatened to attack Czechoslovakia. They accused the Czechs in the Sudetenland provinces, where there were a lot of German ethnic residents, of having attacked the German residents. Many of the reports were false. The Germans’ goal was to take over Czechoslovakia.

"The British goal was to avoid war at all costs. And they paid those costs. There were three million ethnic Germans within Czechoslovakia, in the Sudetenland. What you saw was one party, the Germans, who were committed to using every tactic they could, and actually had planned to attack Czechoslovakia on October 1st of 1938, the day after they ended up signing the accords. They were prepared to go ahead.

"The British were not prepared to fight. The British had announced that, ‘We're going to make peace.’ Chamberlain, on his way to meet Hitler in Cologne, Germany, specifically said, ‘My objective is peace in Europe. I trust this trip is the way to that peace.’ They renounced any intention to fight, which kind of . . . took away all their negotiating power. They communicated weakness. They telegraphed to Hitler that all he had to do was say, ‘Well, I am ready to fight,’ and he was going to get the better end of the deal.

"There was vast opposition to the Munich Accords. Chamberlain and the British had learned the lesson in World War I that you should never fight a war. But, if the other party's willing to fight, you're going to lose the negotiation.”

Hitler employed the common negotiation tactic of playing to your opponent’s ego by flattering and praising Chamberlain. "When Chamberlain arrived in Cologne, Germany, he was given a lavish welcome. They had a brass band playing ‘God Save the King.’ They piled flowers and gifts on him to soften him up. During the negotiations, an aide to Hitler walked into the room where Hitler was meeting with Chamberlain and reported that Czechs had murdered numerous German ethnic residents to elevate the sense of crisis and to strengthen his position, when in fact the reports were completely false. What you had was a really strong, resolute party negotiating against somebody who was not prepared to stand up to him, and was prepared to surrender. And that's what happened."

The Munich deal turned out to be a terrible mistake. The world went back to war, a war that was even worse than World War I. Britain should have called Hitler's bluff or at least recognized the need to play its strong hand. In retrospect, they may have set themselves up for future failure by pushing for too much in 1919, according to many historians.

"I think if the Allies had stood up to him in Munich, he might have backed down. He actually had an attack on Czechoslovakia planned, but that was after years of the Allies saying, ‘World War I was horrible, we're not doing this again.’ He was pretty confident that they weren't going to fight back. It was just a repetition of the mantra that war is bad, we can't ever have war. He was on pretty safe ground thinking that he had the upper hand."

BATNA

In negotiation theory, this is called failing to know your BATNA, "best alternative to a negotiated agreement."4 Churchill and others knew what a terrible deal it was. But the British could not accept that their BATNA, standing up to Hitler, was much much better than the deal and they paid a terrible price for it as he invaded much of Europe and got stronger and stronger.

The recentness of WWII, especially to us Boomers, stands as the classic "High Noon" moment for recognizing and accepting the need to fight when there is no other way.

History 101

In the end, Mark's history lesson shows that negotiations are not simply about strength. More important is knowing how and when to use it. Good poker players can win when they have good or bad hands. Great litigators are great mediators who know when to fight and when to fold.

Unfortunately, too many litigators get seduced by the gambler's fallacy and fail to look for and accept important opportunities to make good deals. And good deals, as history teaches, are usually win-win. 


1. “A party either has bargaining power or it doesn't, an on-off switch that determines in an incredibly sloppy fashion whether the apparently weaker party will gain access to a host of contract doctrines that work to the detriment of the apparently stronger party.” Daniel D. Barnhizer, Propertization Metaphors for Bargaining Power and Control of the Self in the Information Age, 54 Clev. St. L. Rev. 69, 84–85 (2006). “Negotiating against someone who has a clearly dominant position is one of the greatest fears when negotiating. However, just as smaller people can learn to defend themselves against bigger and stronger attackers, we can learn to overcome a weak bargaining position to negotiate more effectively. It is no fun entering a negotiation with a weak position. This is especially true when the opposing negotiator senses your weakness and attacks with tactics aimed at getting you to accept an unreasonable ‘take it or leave it’ offer. Therefore, the projection of power during negotiations can increase how successful you'll be.” Alain Burrese, Negotiation Theory & Practice, Mont. Law., May 2008, at 26 (discussing the importance of focusing on strengths to win a negotiation). 
2. “In poker, if you have a hand that you think might be worth playing, you should usually ‘take a cheap card’ when the circumstances permit it. A ‘cheap card’ refers to the situation where another card (or series of cards) remains to be played and the betting in this particular round is light, so that by making only a small bet, the player will have an opportunity to ‘see another card.’ That next card is referred to as a ‘cheap card’ because the price of seeing it is ‘cheap.’ In litigation, the concept of the cheap card applies to the timing of settlement. A good lawyer will look for opportunities to ‘take a cheap card’ in the form of waiting for an additional development in the case before settling, in the belief that waiting for the new development (which may prove to be very positive) will not cost much in terms of litigation expense or risk of the case becoming materially worse for the lawyer's client. Thus, it is usually wise to defer settlement discussions (absent major incentives from the other side) when you are awaiting the other side's document production and already have made your own, when you are anticipating a ruling that neither side believes will be favorable to your client, but if it were favorable would greatly improve your client's chances of success, or in like situations.” Lawrence D. Rosenberg, Lawyers' Poker: Using the Lessons of Poker to Win Litigation, 54 The Advoc. (Texas) 10, 8 (2011).
3. The gambler's fallacy makes the unwarranted assumption that “the odds for an event with a fixed probability increase or decrease depending on recent occurrences.
4. “A general rule that applies to any negotiation strategy is that counsel know a client's best alternative to a negotiated agreement (BATNA), i.e., the client's walkaway position.” Robert C. Larner and Thomas Smith, Awareness of best alternative to negotiated agreement, 3 Ohio Jur. 3d Alternative Dispute Resolution §25, 2017.

Hon. Michael R. Panter (Ret.) is a highly regarded senior mediator and arbitrator with close to 40 years of legal experience. He previously served as an Associate Judge in the Circuit Court of Cook County having adjudicated cases in the Law and Domestic Relations Divisions. He is an experienced litigator, having tried numerous bench and Jury trials and arbitrations before joining the firm of Panter, Nelson & Bernfield, Ltd. Judge Panter taught and still teaches settlement strategies to Illinois judges at their bi-annual statewide meetings.