"From a game theory perspective, the best strategy is to prevent a deadlock before it even arises." - Dr. Sebastian Moritz
The Power of Strategy: How Game Theory and Behavioral Economics Shape High-Stakes Negotiations
To explore this topic, Anna Cajot, Director of the Negotiation Conference at the Schranner Negotiation Institute, sat down with Dr. Sebastian Moritz, Managing Partner at TWS Partners. A renowned expert, Sebastian advises blue-chip organizations and executives across industries on strategic negotiations, leveraging an economic framework rooted in game theory and related disciplines such as behavioral economics. With this strong methodological foundation, he is passionate about developing innovative approaches. His contributions have earned multiple prestigious awards, recognizing both the ingenuity of his work and the successes achieved.
In their conversation, Anna and Sebastian explored how strategic planning, game theory, and behavioral economics can help prevent deadlocks, shape negotiations, and drive better outcomes.
Anna Cajot: Welcome, Sebastian and thank you for joining me. In the context of the Negotiation Conference, we emphasize that "the deadlock" occurs where high demands meet low cooperation. From a game theory perspective, how does proactive planning influence the likelihood of successful agreements?
Sebastian Moritz: Thank you for the invitation, Anna. From a game theory perspective, the best strategy is to prevent a deadlock before it even arises. Strategizing and carefully planning the course of the negotiation are key. A game theorist anticipates the possible actions of both sides and potential deadlocks, aiming to shape a negotiation structure that helps avoid them. A well-structured negotiation creates conditions where the other party naturally moves toward an agreement rather than conflict.
Of course, some level of conflict is inevitable, it signals that you're at the "sweet spot" where both sides are pushing for their best possible outcome. However, the objective should be to avoid stagnation and create an environment where the other party makes concessions that align with your interests.
Traditional negotiation tactics often focus on reacting to conflicts as they arise. A game theorist anticipates them. It’s about shaping the game before the players sit at the table. This forward-looking approach ensures that negotiations don’t spiral into an unproductive deadlock.
Anna Cajot: From your experience, how does game theory help leaders make better decisions in high-stakes negotiations and reduce uncertainty?
Sebastian Moritz: Game theory provides you with a framework to read and analyze situations and the involved players, understanding their objectives, incentives, and their likely moves. If you apply the same level of analysis to yourself, you can identify where interests overlap and where they don’t.
Game theory also allows you to shape the structure of the negotiation, limiting the other parties' options. Ideally, making it more likely for them to make concessions in your favor or accept what you're offering.
For example, take Donald Trump's negotiation tactics. His approach may seem unstructured, but at its core, he often sets up negotiations where the other side has minimal choices. He might say, "I’m imposing tariffs tomorrow, and I’ll only remove them if you agree to X, Y, and Z." Entering a negotiation with such an extreme and aggressive stance, backed by credible threats like he did with Mexico and Canada earlier this year, is likely something you would rarely recommend as a professional negotiator. Yet, he’s doing it.
While this approach is extreme and unconventional, it forces the other party to react quickly and make concessions because they believe he will follow through. That’s a crucial part of the strategy - credibility and commitment.
We’ve seen similar tactics in Brexit negotiations. The European Union was strategic in shaping the negotiation process before actual negotiations started. They agreed with the UK to first negotiate the withdrawal agreement before discussing the future relationship between the UK and the EU. This prevented the UK from leveraging future fishing rights and access to the financial market in London in the negotiations of the ‘divorce bill’. By structuring the game upfront, they positioned themselves favorably from the outset.
For leaders, the lesson is clear: you don't reduce uncertainty by reacting to a crisis, you reduce it by shaping the negotiation before it starts.
Anna Cajot: Emotions are an inevitable part of negotiations. Based on your experience, how do emotions influence high-pressure negotiations? And how can game theory take them into account?
Sebastian Moritz: Emotions play a huge role in negotiations. Even I find myself getting emotional in personal negotiations when I’m not professionally preparing for them.
But when I prepare as a game theorist, I approach negotiations rationally and objectively. The key is strategizing upfront, anticipating extreme scenarios, and planning responses in advance. This eliminates the emotional element because you already know what to do in each situation.
Anna Cajot: Many experts argue that humans aren’t purely rational; emotions inevitably play a role. So what happens if you’re brought into a negotiation midway, when emotions are already running high?
Sebastian Moritz: We handle these situations, but always within a structured framework. Even in high-stakes, critical negotiations, we first conduct a thorough analysis: mapping out interests, behaviors, and objectives before making any offers. If the other party reacts emotionally, rejecting our proposal outright or expressing frustration, we don’t engage in a heated argument.
Instead, we provide full transparency: we walk them through our reasoning, calculations, and justifications, giving them time to process everything. Then, we step back and reconvene later, allowing emotions to settle. Rather than escalating the tension, we say: "We understand your concerns. Let’s take a week to analyze the details, and then we’ll revisit the offer."
This cooling-off period helps the other side detach from their emotions and assess the situation rationally. It also gives them a way to save face when they eventually agree to terms. While there’s no guarantee they’ll return completely convinced, our aim is to ensure they recognize that the offer on the table is an acceptable compromise for both sides..
However, as mentioned, the real work of managing emotions happens well before we ever sit at the table. That’s the key to strategic negotiation.
Anna Cajot: Many of the experts I am working with say that fear, especially fear of loss, is a key driver in negotiations. When working with clients, how do you account for loss aversion in the preparation process? Do you train decision-makers to leverage this concept to their advantage? And how does strategic framing influence negotiation outcomes?
Sebastian Moritz: That’s an excellent question, especially considering the behavioral economics principles of framing and loss aversion. People are far more motivated by the fear of losing something than by the opportunity to gain something of equal value.
We use this principle strategically. For instance, we might tell a partner:
"Because you’re a key strategic partner to us, we’re giving you an exclusive one-week window to negotiate directly with our leadership. If we don’t reach an agreement, this privilege you have compared to other contenders disappears."
This triggers loss aversion, the fear of losing a special privilege. Instead of seeing the negotiation as an opportunity, they now see it as something they risk losing, making them more likely to engage seriously.
Another tactic is to put a signed deal in front of them and say:
"You have a signed offer from our company in your hands. If you reject it, it’s your decision not to shake hands."
This forces them to consider the consequences of walking away. Since most decision-makers are risk-averse, they will hesitate before rejecting an offer that’s already tangible and available, and not only in a metaphorical sense if you even present them the signed paperwork. This is how we strategically leverage the concept of loss aversion in negotiations, which you mentioned.
Anna Cajot: Since a deadlock ultimately comes down to a power struggle, how can game theory and behavioral economics help measure power dynamics? And when preparing for a negotiation, how can they be used to strategically shift the balance of power between the parties?
Sebastian Moritz: From a game theory perspective, power in negotiations comes down to two key factors. The first is the number of alternatives available to you. The second is your ability to commit to a specific course of action. These are the two levers of power in play.
Take Trump, for example. When he announces tariffs, he doesn’t present them as mere suggestions, he fully commits to implementing them. This leaves the other side with very few options: they can either reject it outright, escalating the conflict, or make concessions to de-escalate the situation. His power comes from making it clear that stepping back isn’t an option for you. The other party understands that giving in would mean a loss for him, and he never puts himself in a position where he appears to lose.
The second key factor is alternatives. The concept of BATNA (Best Alternative to a Negotiated Agreement)is well-known in negotiation theory. If you have strong alternatives, your power increases.
Last year, I worked with a client who had to strike a deal with a particular partner no matter what, even if the other side doubled or tripled prices. Since they couldn’t walk away, their position was weak. Conversely, having multiple options strengthens your negotiating power.
The most effective approach combines both levers: having alternatives while also committing to clear conditions for making a deal. If you can publicly commit to certain actions if the other side does not agree and you are also having fallback options, your position is significantly stronger.
At the same time, you can use this framework to weaken the other side. How do you undermine their commitment? How do you reduce their alternatives? Consider Intel’s strategy with the Intel Inside stickers on computers. By branding their processors as the industry standard, they influenced customers to prefer Intel-equipped computers, thereby limiting computer manufacturers’ ability to negotiate with other chip suppliers. In essence, they eliminated the manufacturers' alternatives, making a deal with Intel almost inevitable.
So, power in negotiation isn’t just about strengthening your own position, it’s also about strategically limiting the other side’s options and commitment.
Anna Cajot: You’ve mentioned a few times that it’s much easier to set yourself up for a successful negotiation by strategizing from the very beginning and modeling everything properly. I’d love to hear your perspective on how we can strategically disclose or withhold information without damaging trust, especially when there’s an existing relationship with the other party?
Sebastian Moritz: Information, to a certain extent, is power. If I know something that you don’t, it gives me the power to influence or direct the conversation in a certain way. Reversing that logic, any information I have should only be shared if I receive something in return for it.
For example, if I explain how I assess whether a deal is good, even providing an analytical breakdown, perhaps sharing a spreadsheet that shows how I evaluate your response, it can build trust. It signals that I’m transparent, fair, and objective, and sharing this kind of information works in my favor.
On the other hand, if I know you’ve sold something to a competitor at a certain price, I might not want to reveal that I know. That information helps me decide at what price point to pitch my offer, but disclosing it could be counterproductive. If you realize I have access to intelligence you didn’t intend to share, it could undermine the negotiation.
For us, as game theorists and behavioral strategists, information is critically important. We must consciously decide which pieces of information to reveal and when, always with a clear strategy in mind.
Anna Cajot: Interestingly, even though I lead a negotiation community of highly experienced leaders, many experts admit that they sometimes rely on “gut feeling ”rather than a structured strategy in negotiations. How does game theory challenge this instinctive approach?
Sebastian Moritz: Game theory is fascinating because it often leads to counterintuitive recommendations. These strategies can feel unnatural at first, but once they prove successful in negotiations, people recognize their value. Take the concept of commitment we discussed earlier.
Instead of keeping your options open, you take a bold approach and deliberately limit them to force the other side down a certain path, as seen in my previous examples with Trump and the EU/UK. While reducing flexibility may seem risky, publicly committing to a single option or course of action can create a strategic advantage by narrowing the negotiation path and increasing pressure on the other side.
As game theorists, we conduct the analysis and strategize upfront, ensuring that these recommendations lead to better results. Our success rate speaks for itself - on average, in 98 out of 100 negotiations, we help negotiators achieve better outcomes than they would on their own. While some might question the validity of game theory, the track record proves that considering alternative, counterintuitive approaches is worthwhile.
Anna Cajot: Thank you for your time, Sebastian. It’s been a pleasure learning more about your work, and I appreciate you sharing your strategies and insights.
We’re excited to welcome you to our Negotiation Conference 2025, where you’ll be leading the workshop “Shaping Negotiations with Game Theory: Strategies Before You Enter the Room.” I have no doubt it will be a great success!
Learn more about the Negotiation Conference: https://www.n-conference.com/conference/zurich