Negotiations

Game Theory · Axiom Academy

From salary talks to business deals: the strategic dance of sequential bargaining You're sitting across from your future employer. They've made an offer: 75,000 per year. You know the position is budgeted for up to 85,000. Do you accept? Counter-offer? What's your strategy? Welcome to the world of sequential game theory , where negotiations unfold as a series of strategic moves. Unlike simultaneous games (like Rock-Paper-Scissors), negotiations happen in turns—each player observes the previous move before making their own decision. Think about it: Why do most negotiations involve back-and-forth offers rather than everyone revealing their "best price" at once? The answer lies in information revelation and commitment . Each offer communicates information about your preferences, constraints, and willingness to walk away. Let's explore how game theory models this strategic dance. In 1982, economist Ariel Rubinstein developed the alternating offers bargaining model , which describes how two parties negotiate over splitting a resource (like a 100,000 pie). The catch? Each round of delay costs something—time, money, opportunity cost, or diminishing returns. The key insight: patience is power . If you're less impatient than your counterpart (your "discount factor" is higher), you can credibly hold out for a better deal. They know you're willing to wait, so they concede more upfront.

This is the written version of the interactive lesson above. See the full Game Theory course.