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Turn Short-Term Games Into Long-Term Games.html
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<html>
<head>
<link rel="stylesheet" href="styles2.css" />
</head>
<body>
<p>![[Naval-Ep46.mp3]]</p>
<p>
Improve your leverage by turning short-term relationships into long-term
ones
</p>
<p>
<strong>Nivi:</strong> Do you want to talk about
<a href="https://en.wikipedia.org/wiki/Pareto_efficiency"
>Pareto optimal</a
>?
</p>
<p>
<strong>Naval:</strong> Pareto optimal is another concept from game
theory, along with Pareto superior.
</p>
<p>
Pareto superior means something is better in some ways while being equal
or better in other ways. It’s not worse in any way. This is an important
concept when you’re negotiating. If you can make a solution Pareto
superior to where it was before, you will always do that.
</p>
<p>
<strong
>Pareto optimal solutions require a trade-off to improve any
criterion</strong
>
</p>
<p>
Pareto optimal is when the solution is the best it can possibly be and you
can’t change it without making it worse in at least one dimension. There
is a hard trade-off from this point forward.
</p>
<p>
These are important concepts to understand when you’re involved in a big
negotiation.
</p>
<p><strong>Negotiations are won by whoever cares less</strong></p>
<p>
I generally say, though: “<a
href="https://twitter.com/naval/status/818630258916139008?lang=en"
>Negotiations are won by whoever cares less</a
>.” Negotiation is about not wanting it too badly. If you want something
too badly, the other person can extract more value from you.
</p>
<p>
If someone is taking advantage of you in a negotiation, your best option
is to turn it from a short-term game into a long-term game. Try to make it
a repeat game. Try to bring reputation into the negotiation. Try to
include other people who may want to play games with this person in the
future.
</p>
<p>
An example of a high-cost, low-information single-move game is having your
house renovated.
</p>
<p>
Contractors are notorious for overbooking, ripping people off, and being
unaccountable. I’m sure contractors have their own side to it: “The
homeowner has unreasonable demands.” “We found problems.” “The homeowner
doesn’t want to pay for it.” “They don’t understand; they’re
low-information buyers.”
</p>
<p>
It’s an expensive transaction. Historically it’s been very hard to find
good contractors; and the contractor has little information on the
homeowner.
</p>
<p><strong>Convert single-move games to multi-move games</strong></p>
<p>
So you try to go through friends. You try to find people with good
reputations. You’re converting an expensive single-move game with a high
probability of cheating on both sides into a multi-move game.
</p>
<p>
One way to do that is to say: “Actually, I need two different projects
done. The first project we’ll do together, and based on that I’ll decide
if we do the second project.”
</p>
<p>
Another way is to say: “I’m going to do this project with you, and I have
three friends who want projects done who are waiting to see the outcome of
this project.”
</p>
<p>
Another way is to write a Yelp or Thumbtack review—especially if the
contractor operates within a community and wants to protect their
reputation in that community.
</p>
<p>
These are all ways to turn a single-move game into a longer term game and
get past a position of poor negotiating leverage and poor information.
</p>
</body>
</html>