Sunday, May 01, 2011

Differences Key to Negotiations: Ask Bill Belichick!

The 2011 NFL Draft has just ended, and all of us can learn a valuable lesson from Coach Bill Belichick of the New England Patriots (even if you are a slightly misguided fan of the dreaded New York Jets).  Belichick has become known for "trading down" in the draft.  Put simply, he often gives up a high draft pick for a high draft pick the following year, providing the other team also gives him an additional lower draft pick as part of the trade.  Take this year's trade with the New Orleans Saints for instance.  He gave up the Patriots' pick at the bottom of the first round for the Saints' pick in next year's first round (expected to be about in the same exact spot).  However, the Saints also had to give the Patriots a second-round pick this year.   These moves frustrate Patriots' fans, as they tend to not like when Belichick gives up the chance to take a flashy, well-known first round player in the current year.  However, he explains that these moves provide the Patriots "good value" - after all, the Patriots got that additional pick from the Saints.

Interestingly, academic researchers Cade Massey and Richard Thaler have examined the NFL draft and shown that, in the past, general managers tended to overvalue first-round picks.  In other words, teams gave up too much to move up and get another first round pick in the draft.  The brainy Belichick has examined this research, and he takes advantage of the fact that teams are often willing to pay too much to move up in the draft.  So, he gladly makes the trade and moves down.

However, there's more to this story.  By now, most general managers have become aware of this tendency to overpay for first round picks.  Yet, people still make trades like this one between the Saints and Patriots. Why?  The answer lies in the fact that Belichick may have a lower "discount rate" than other general managers. In other words, he may not discount the value of picks in future years as much as others do.  He has a more long term view. Other general managers may have a much more short term orientation, valuing the pick today MUCH more than the pick next year or thereafter.  Naturally, with three Super Bowl championships and a supportive owner, Belichick can afford to adopt a long term view. Some may argue that the Saints gave up too much here, but to them, this made good sense.  The same holds true for the Pats, because they have a longer term orientation. 

The lesson here though is that DIFFERENCES in interests and perspectives provide the MEANS FOR A NEGOTIATED AGREEMENT.   Negotiation scholars tell us this all the time.  Two parties often will find a resolution not by focusing on common ground, but by understanding their differences and using those to reach an agreement. In this case, the Saints and Patriots have a difference in discount rates. From that, they are able to find a mutually beneficially trade arrangement.  We should all take a page from these two teams.  Discovering our differences with other parties can pave the way to an agreement that makes both parties quite content.

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