Win-Win Deals

by Mr. Cheap

“All agreements must be win-win or we don’t do them!”

Some people like to insist on deals being a win-win. That’s awfully nice of them isn’t it? Both sides have to get something out of it. Kind of like… every deal. Right?

There’s certain language that makes me cringe and put a protective hand over my wallet, and “win-win” is one of them. Its a phrase that sways ignorant socialists who believe every capitalist is out to cheat and pillage. “We’re different” claims the get rich quick scheme du jour. They then cheat and pillage the people they sell their system to and teach them to cheat and pillage other ignorant people (ideally family and friends through some sort of pyramid scheme).

ALL deals are win-win. Otherwise people wouldn’t agree to them. And if you’re forced to agree to them, its still a win-win (since you’re avoiding whatever fate they’re threatening you with if you don’t agree). I’m strongly opposed to forcing people into an agreement, but ultimately there has to be some incentive for people to agree or else they’d just say no. For example, I merged blogs with Mike, in part, because he told me he’d break my kneecaps if I didn’t. I’ve been delighted to continue through my life with unbroken kneecaps (walking rules!). I haven’t regretted the decision to merge for a second!

That being said, every agreement has mutually beneficial elements and zero-sum elements. Take the example of an employment contract. One side gets money (which the employee wants) and the other side gets labour (which the employer wants). The amount of money exchanged for a unit of labour becomes a zero sum game. The employee wants to be paid as much as possible, and the employer want to pay as little as possible. There’s no “win win” in this situation, since every dollar the amount shifts benefits one side to the detriment of the other. Of course, if the deal becomes too one sided, it will probably fall through and both sides will “lose”. The way agreements happen is there’s an overlap between what each side is willing to give in order to get what they want. We like to think of this as a fixed point (“this is the lowest I can go!”), but without fail I think its a range.

One of the few ideas that pretty well all economists agree on is that trade is good.

The troubling part of “win-win” deals is usually the person talking about how much they want to do right by you also wants to dictate how you’ll “win” from the deal. After fooling you into what a good guy they are, they’ll then tell you what an incredibly good deal they’re giving you. Often by setting up complicated legal arrangements that prey on people who are trusting the nice man who says he’s helping them out.

Beware the man who says “trust me”.

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{ 4 comments… read them below or add one }

1 Aaron (marroncito)

as far as i understand it, getting a win-win deal is more about understanding rather than getting over on someone else or “pillaging” them. let’s examine the workplace example a little more. it’s true that money for time is a zero sum game. however, neither the employer or the employee comes to this transaction in a vacuum. they have numerous other needs, wants, etc. that can be fulfilled. employees care about other things like work environment, scheduling, and degree of autonomy. employers also care about customer service, loyalty and supervision. these are things that can be negotiated in addition to just the exchange of money for time or labor. if an employer needs X amount of labor every week he can make a situation win-win by letting the employee use flex scheduling to meet the weeks requirements rather than demanding a fixed schedule of clocking in and clocking out. it doesn’t cost the employer any more money to produce the amount of labor he is paying for and yet he is providing an added benefit to the employee by giving them more control over their time.

another one of my favorite examples of getting to win-win through understanding is the story of the 2 women and the orange. two women were to share an orange. one wanted to eat the orange. the other wanted to make meringue from the rind. they argued back and forth and finally cut the orange in half. one woman ate half the orange and threw the rind away. the other woman used half the rind for her pie and threw the fruit away. if both women and understood the needs of the other woman they both could have had all the orange for their purposes. this is win-win.

you’re right that anyone who makes “trust me” as the basis for an agreement is at best dictating how much you win, which is an awful arrangement, and at worst is trying to get over on you.

that’s why the basis for win-win is understanding, not trust. if you understand the other parties needs completely, both parties can align their interests to the optimum – win, win.

win, win also doesn’t mean the best possible result for both parties. sometimes both people want to eat the orange.

2 Mr. Cheap

In your orange example, if they split the orange and each woman uses her half for what she wants (and throws away the rest), they’ve made a win-win deal (they both benefit). Sure, its a more EFFICIENT deal if they each get the part of the whole orange they want, but in both cases both women benefit. Better understanding leads to a better deal, sure but there’s nothing magical about it that makes it a “win win” where the other deal wasn’t.

Equally in the case of the employee/employer, you’re absolutely correct in that the workplace is made up of all sorts of factors that make it a better / worse place to work (which will impact employee attraction & retention). Flex-time is an example of something that would improve the working conditions, and may not cost the employer anything (many companies may disagree with this – otherwise they’d already be offering it). How is this win-win when an employment contract without flex-time isn’t?

It seems like in your examples, you define a win-win as a situation where someone gives something they don’t care about at all (or something that doesn’t cost them anything) to someone who cares about it a great deal. While its great to add “sweetners” to an agreement, and its especially great if there’s little cost to you to add it, this is obviously going to impact the agreement as a whole. A company that offers flextime should be able to offer a lower salary and have the same employee retention (if they can figure out how much the employees’ value flex time). Even if this element of the deal doesn’t cost them anything, its going to impact the zero-sum element of agreement. Alternatively, they may get higher quality employees for the same salary as their non-flexible competitors are offering (which amounts to the same thing).

Thanks for your response!

3 Jerry

I think it is not so much the concept of win-win (as you point out, any mutually-beneficial business deal HAS to be win-win, by definition), but rather the tailoring of the term to fit a skeevy sales pitch. We see that in all sorts of types of sales, and it leads me to raise a skeptical eyebrow. From the insurance salesman who feigns overarching concern for my family’s welfare, to the grocer who abuses a technicality to utilize the term “organic” while selling foods that are less nutritious than their regular counterparts… it’s all out there. I would rather people just be up-front and let me decide for myself without all the background noise.
Jerry

4 Uncle B

Canadian Military in Afghanistan is a lose lose deal typical of western conservative business methods, another example, the Avro arrow fiasco which marked the giveaway of a technically capable Canada and another, the current Alberta oil giveaway to the U.S. which marks the world’s greatest charity donation to American hedonism in history, and reminds us that even graduate economists of western universities don’t have the business abilities of a Toronto real estate agent. We need win wins in Canada like never before. We have to get rid of the farm boys in power, before they put us back on the farm.

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