BATNA & WATNA: Finding and Using Negotiation Power

What is the power of finding and using a BATNA & WATNA?

The goal of an alternative dispute resolution (ADR) process is to come to a resolution together so that the parties can both agree on and avoid the eventual litigation that could arise in the dispute. However, not every mediation or negotiation ends in a settlement agreement, and the knowledge that the parties may walk away without negotiating an agreement means that they have to know what the alternatives would be in that case. Knowing and understanding what these alternatives will be can be an essential part of the preparation for a negotiation. Additionally, understanding the alternatives that the other party may influence one party’s decisions when negotiating. Even without acknowledging these alternatives, they will influence the decisions that the parties will make.

Some of the alternatives will be better or on par with a negotiated settlement, while other alternatives will be far below what the parties could achieve in the processes. Additionally, the possibilities outside the alternative dispute resolution process will be more available to some parties, while other parties may not be able to proceed forward with the dispute. The ability to rely on alternatives may push a party to only agree with a very favorable settlement. Conversely, the lack of good alternatives for a party may push them to agree to a less favorable settlement for fear of leaving without anything. All of these considerations will play into any negotiations, which makes it vital for each party to be fully aware of their own alternatives and the other party’s alternatives.

In the study and implementation of alternative dispute resolution, these alternatives are often called the BATNA and the WATNA. A BATNA is the best alternative to a negotiated agreement and the worst alternative is WATNA. Analysis and discussion of how to determine what each party’s BATNA and WATNA are and then the best ways to utilize this knowledge will be the focus of this set of articles. This first article will discuss the importance of defining a BATNA and WATNA, and begin to discuss some possible alternatives to a negotiated settlement. The second article will discuss the process of finding the BATNA and WATNA in a dispute and will provide some examples to demonstrate the process. The third article will focus on the ways that BATNA and the worst alternative WATNA may be used in negotiations to help achieve a favorable result.

The Importance of Defining your BATNA and WATNA

These powerful tools in negotiation are such tools because they determine the importance and necessity of a negotiated agreement for a party. Understanding BATNA and WATNA will help the parties to make an informed decision about the best course of action in negotiation. It will also provide something to compare the offers on the bargaining table to once the parties have started to move toward an agreement. It will help determine if an offer is in the party’s best interests or if it would be better to continue negotiating. When a party has a strong BATNA, they are more willing to walk away without a settlement. Additionally, if a party has really poor alternatives, they will be more willing to accept a settlement that is less favorable to ensure that there is an agreement when they leave the room.

Considering the alternative is useful, even when the parties will eventually reject an agreement for two reasons.

1. Other Interests: Analyzing the BATNA and WATNA allows the parties to look at the other interests that are driving the negotiation outside of a specific dollar amount. This allows the parties to know what the other party may need or want in further negotiations or offers outside of a formal process. It also allows a party to clearly see their other interests and to find out what they need out of a settlement.
2. Knowledgeable Choices: Having done a thorough analysis of the settlement alternatives will allow the parties to feel as if they have made informed decisions knowing what may happen without a settlement.

A Note about the Role of Mediators

Often, when the parties are in mediation, a mediator may encourage or require the parties to go through a BATNA/WATNA analysis so that the parties and the mediator are all informed throughout the process. A mediator may even help the parties move through the process in caucuses to help the parties move forward. However, it is important for mediators doing such to not encourage the parties to follow what the mediator believes may be the best option, but should encourage the parties to come up with their own alternatives. Additionally, a party finding a favorable BATNA may be comfortable walking away from a mediation, which may not be the easiest for a mediator to accept because they had hoped to broker a settlement. While the goal of mediation is to find a favorable settlement for both parties, the mediator needs to allow the parties to come to their own agreement, and mediators must be willing to help the parties find that, whether through mediation or other alternatives.

Defining BATNA and WATNA

As stated above, BATNA stands for the best alternative to a negotiated agreement, and WATNA stands for the worst alternative to a negotiated agreement. These are alternatives that a party will have if the negotiations are not successful. These acronyms seem fairly self-explanatory, but finding the best and worst alternatives includes a thorough analysis of all of a party’s interests and desires in addition to a dollar amount. It will also include a study of a party’s ability to achieve a favorable result outside of negotiation, such as in litigation or if the dispute is dismissed. Knowing the strengths and weaknesses of alternatives can be the most powerful negotiation tool for a party.

Some Alternatives to Negotiation

The first step in any BATNA/WATNA analysis is to identify alternatives. There are several possible paths to resolution that a party may see as their alternative to a negotiated settlement. These options may be the best/worst alternative for either party. It is important to look at each alternative that the parties may consider to fully analyze the ways that a party may realistically move forward. These possible alternatives include:

• Litigation: Often one of the first alternative paths many parties will consider, the most common analysis of alternatives will always consider the possibility of litigation and the effectiveness of their argument in litigation. Some parties will have a great case and are confident that they will win in litigation. Other parties will have a much closer case and would prefer the certainty of a negotiation. Still, others will have a poor case in court and would prefer to control the outcome or what they will have to contribute by a negotiation.
• Arbitration: Similar to litigation, a party will need to analyze the strength of their case should it proceed to arbitration. This is a particularly strong alternative when the parties are bound by an agreement to go to arbitration without a settlement.
• Higher Authority: If the dispute is within a company or an organization, it may be an option to seek the counsel of a higher authority in the organization. This could be an ombudsman or someone neutral who can settle the dispute from their position.
• Alternative Party: If the dispute arises during negotiations for a buy or sell or in business operations, one alternative may be that the party can find another party to be the supplier, buyer, or seller that is more willing to meet the requirements. This is a strong option if there are multiple buyers or sellers for a product, or when other parties are readily available. This alternative would not work as well if the item is unique or scarce.
• New Job: In an employment dispute, an alternative may be to seek new employment, This may be a great alternative in certain cases where the dispute has made the workplace unworkable or if the employee’s skills would be utilized more in another spot. It may be a poor decision if there is a long history of employment or finding a new job would be difficult.
• Publication: In a situation where the reputation of one party is a strong consideration, going to the press may be an alternative that could force that party to move or negotiate. Considering this option may help the party without reputation issues leverage this power and may cause the party worried about their reputation to reconsider their position to avoid the press.
• Avoidance: A party may have the ability to ignore the issue. This can be an alternative for a party that is attempting to avoid paying. However, when a party needs to be compensated or needs relief, this will not be an alternative for them.

The bottom line is identifying all possible alternatives to a negotiated agreement will help the party move forward in determining their BATNA and negotiated agreement WATNA. However, this is only the first step in analysis to discover what the best possible alternatives and worst possible alternatives may be. However, working through this list and other possible outcomes will help each party begin to determine how to move forward with the negotiation in an informed way and consider all of their interests. The next article in this series will focus on the rest of this analysis to determine which one of the possible outcomes is the best for a party and which one is the worst-case scenario. Until that article, consider the variety and knowledge that identifying the alternatives will provide for negotiation power in a mediation or negotiation.

Back to discovering and using what the negotiation world calls BATNA and WATNA, this article will continue to move through an analysis to help the parties discover the alternatives that will drive how they negotiate and settle a dispute.  The previous article discussed the importance of moving through a BATNA/WATNA analysis to discover the true interests at the center of a dispute. It also began an analysis by providing a list of possible alternatives that the parties may consider as they begin to evaluate their position.  The next steps will be outlined bellowed, and then this article will discuss an example of an analysis to help demonstrate how this analysis can produce negotiation power.

Two Formats:

Two different analysis approaches may be helpful for parties to use when determining their BATNA and WATNA.  The first analysis is a decision-tree analysis, which is the standard analysis but is more in-depth, especially with complex problems.  The second is a results/costs analysis and was described by Jessica Notini.[1]  These two approaches will essentially produce the same results but use different paths to achieve this result.  The approach a party or a neutral may choose can depend on factors such as the complexity of the negotiation, the ability of the parties to conceptualize alternatives, and the time allowed to complete the analysis.  Some parties will feel more comfortable doing an in-depth analysis to determine their BATNA and WATNA, while others would like to move quickly to help the negotiation move forward. This article will discuss both options for analysis and help parties and mediators to choose the best option for their specific dispute.

Decision-Tree Analysis:  

A common approach to determining a BATNA and a WATNA is called a decision tree analysis.  This analysis will first look at the alternatives that a party could reasonably use, then will look at the reactions that the opposing party may have to that alternative, and finally will evaluate each alternative that they could use to counteract that reaction.  After identifying all of these possibilities, the parties will evaluate each of the final possible actions to determine which one would produce the best results and the worst results.  When the litigation involves a cause of action that is complex and includes many elements that may need to be proved, some people will run a decision tree for every element, so that they are prepared if a party will admit to certain elements. However, not all decision-tree analyses will be as complicated.

A standard decision-tree analysis will move through these steps:

1. A party must list every action that they may take if an agreement is not made between the parties.
2. For every one of these actions, the party will need to anticipate all of the possible reactions that the other party may have to the action.
3. For each of these reactions, the party must decide what actions they could take in response.
4. This back and forth may continue until each branch reaches a reasonable conclusion.
5. Figure out what the party will receive (the payoff) for each of the branches.
6. Rank the possible payoffs from best to worst.
7. Remove the lowest-ranked options that stem from each main strategy.
8. Find the highest of the low options remaining.
9. Follow the branch found in step 8 back to the main strategy. This strategy will be the one with the lowest chance of loss.
10. If the remaining WATNAs are equal and you cannot find a branch to minimize the loss that way, you can divide the total number of points awarded to the options in a branch by the number of options generated by a starting strategy. The highest value will generate a response that will maximize profits and minimize loss.
11. The starting strategy with the highest results will be the BATNA and the starting strategy with the lowest average will be the WATNA.

Running an Example through the Decision-Tree Analysis:

Running an example through the decision-tree analysis will help to demonstrate how a party may find their BATNA and WATNA through this analysis.  Let’s imagine that Carl, a tenant, is living in an apartment that he rents from Amanda.  Amanda is not doing a great job of keeping up with repairs in the apartment and many repairs need to be completed—only one burner on the stove works, the water heater goes out sporadically, there are some cracks in the windows, and the binds only work on half of the windows.  Carl is annoyed by the lack of repairs to the apartment and has asked Amanda to make the repairs as required in the lease.  When Amanda refuses to make the repairs, Carl threatens to withhold rent and sue.  Amanda suggests that they talk about a way to settle this, and Carl agrees but wants to be prepared to go into the discussion.  Using this example and the decision-tree analysis, Carl could make the following table:

In this case, Carl’s BATNA would be to file a rent escrow action, because it produces the most beneficial results without a great risk of loss.  His WATNA would be to make a second demand of Amanda to make the repairs. This would be the case whether Carl found the BATNA through the highest of the WATNAs or through the averages. This table is not fully developed, and there are other options for Carl that I have not explored, but to demonstrate how to build a decision tree, this table demonstrates how to build and evaluate options for a decision-tree analysis.

Results/Cost Analysis:

The other option for determining a BATNA and a WATNA is a results/costs analysis. This formula will take the initial result that would happen from an alternative a party could take, subtract the costs of pursuing that option, and then see the result of this outcome as the final outcome of that alternative.   This is a more streamlined version of the decision tree analysis and would work in most simple disputes without many moving parts.  While this process is a simpler analysis, it requires a party to carefully analyze the outcomes that would result from an alternative solution and to carefully and systematically identify the costs, both monetary and nonmonetary, that would result.  A BATNA will be the alternative that results in the highest final outcome, and the WATNA will be the alternative with the lowest final outcome.

Running an Example through A Results/Costs Analysis:

             Running the earlier example through a results/costs analysis, we would likely end up with a similar conclusion.  Each option would produce a somewhat similar result;

• Demanding she fix or leave. If Carl demanded that she repair the apartment or leave, he could face the costs of finding a new apartment, paying rent at the new apartment, and possibly a penalty for leaving Amanda’s apartment early. While Amanda may fix the apartment, there is not much that he could do to force her. Therefore, this option would be hard to use.
• Make the repairs himself. If Carl made the repairs himself, he would have the costs of repairs and any costs that may arise from any decisions he makes as a result of Amanda’s willingness to pay. While he could wind up even or in a better position, he could also end up at a loss if Amanda refuses to pay him back. This one has a greater risk of loss and would not be the best option.
• File rent escrow. If Carl files a rent escrow action, the court could abate his rent for the time that he had lived in an apartment with disrepair and the court could give him other costs. However, Carl may have to pay for a lawyer and court fees.  However, because the home is obviously in disrepair, Carl’s odds of winning in court would be high.  Therefore, this would likely b the best option.

Benefits of a BATNA/WATNA Analysis:

 Moving through a BATNA/WATNA analysis can be beneficial for a few reasons other than just to determine a BATNA and WATNA.  These benefits include:

• Enhancing a BATNA: By looking closely at a BATNA and the other alternatives, a party may be able to identify ways to remove their WATNA and make their BATNA a sure thing should the negotiations not work.
• Understanding the Possible Routes: By moving through the alternatives and continually asking what should happen at the next branch, a party can see what could be the course of the dispute and could better anticipate what is coming next. This can help the parties prepare for the entire course of action.
• Assessing Risk Tolerance: By moving through the possible outcomes, a party will be able to decide what choices they would feel comfortable making. If a party writes out a possible option and then decides that it is too risky for them to take, they can eliminate the possibility and not consider the risk.

 Both of these analyses will help a party find their BATNA and WATNA and be prepared with this knowledge as they move into a negotiation.  A decision-tree will help a party move through and think of all of the possible outcomes that may result from an alternative.  A results/costs analysis may help a party move through an analysis quickly and evaluate their position.  Now that the parties have identified their alternatives and found their BATNA and WATNA, the final article will focus on using the BATNA and WATNA to their advantage in the negotiation.

The Mediator’s Role:

             As mentioned in an earlier article, in cases that go to mediation, a mediator may have a role to play in encouraging the parties to analyze their BATNA and WATNA analysis. However, a mediator will need to be careful to not push an analysis because they are certain it will bring an agreement, but only when doing so will best serve the parties, whether it encourages the parties to negotiate an agreement or leave the room without one.  A mediator must present the option to analyze and identify a BATNA and WATNA with the benefits and purpose of such an analysis to avoid the parties feeling as though the mediator is trying to pull them into an agreement by highlighting the flaws or weaknesses in the argument outside of the negotiation.  When deciding whether or not to suggest an analysis, the mediator may consider several factors, including:

• Litigation in Progress: If litigation is already in progress, the parties have likely discussed the settlement in the past and will have some idea of the likelihood of success in the litigation. Therefore, the parties would probably be fairly prepared to move through an analysis.  It would be good to suggest that the parties’ lawyers discuss a BATNA and WATNA analysis before the mediation.
• Need for Transparency: When the parties have had a chance to fully develop their interests and understand what they need and how to get there, they may be less likely to share what they believe about an alternative spontaneously during negotiation. If a mediator needs the parties to be fully honest and transparent, they will need to present the analysis in a way that encourages honesty between the parties and the mediator.
• Desire for Leverage: Developing a BATNA/WATNA analysis will ensure that a party has an idea of what leverage they may have to negotiate with. Because of this, the parties need to have an idea of at least one BATNA and one WATNA moving into a negotiation, so a mediator should suggest a small analysis by the parties if they have not completed on in preparation.
• Necessary for the Process: If a mediator senses that a BATNA or WATNA analysis will be necessary to move negotiations forward, it will be beneficial for the mediator to suggest the analysis earlier to make sure that the parties are prepared.
• Close to an Agreement: The parties may be close to reaching an agreement before they come into a mediation. In cases where this is the case, a mediator may decide to not encourage the parties through a BATNA/WATNA analysis to not derail the nearly complete process.
• Far from an Agreement: If the parties are very far from an agreement, suggesting a BATNA/WATNA analysis may help the parties see the dispute more clearly and move the parties closer to an agreement. In this case, a mediator may benefit from suggesting an analysis and moving the parties within a zone of agreement.

While this list is not exhaustive, it does highlight some considerations that a mediator will need to may when deciding if a BATNA/WATNA analysis will be the best course of action for the parties, as well as when to suggest an analysis.  Additionally, the mediator will need to present the analysis at a time when the parties can break out into caucus to move through the process individually.  Separating the parties while they complete an analysis will enable the parties to be more forthcoming in their analysis and come up with more opportunities and suggestions for their BATNA and WATNA.  It will also allow them to be realistic about the alternative, whereas having the parties move through an analysis together would force them to puff up their alternative and posture themselves.  However, whether the mediator suggests an analysis or not, it serves as a tool for the mediator to move the parties toward a settlement or to acknowledge their likely position in the negotiations.

Strategies for the Parties to Use BATNA/WATNA Analysis:

Like the strategies presented to mediators to encourage or discourage the use of a BATNA/WATNA analysis, the parties also have some options to leverage their BATNA and WATNA to their advantage and some considerations or factors that the parties must take notice of when planning for negotiation and when negotiating to ensure that the strategies implemented will produce the best result for the parties. The following strategies are organized by the strength or weakness of a BATNA or WATNA, and then suggest some strategies that a party may use when they are faced with that particular situation.

• Weak BATNA: If a party has a weak BATNA, a negotiated agreement will be more desirable than proceeding with an alternative.
  • Be agreeable and congenial when speaking to and negotiating with the other party to try and keep the negotiations going. This strategy needs to be kept in check if the other party has a Weak WATNA or a strong BATNA, as they make take advantage of a party’s agreeableness.
  • Reconsider the bottom line. If a party has decided on a bottom line but later realizes that their BATNA is poor, it would be beneficial to reconsider their bottom line to give them a larger chance of agreement.
• Undesirable WATNA: If a party is facing a highly undesirable WATNA, they will likely want to avoid proceeding without a negotiated settlement.
  • Similar to a party with a weak BATNA, a party with an undesirable WATNA should be more accommodating to ensure that the other party does not walk away without an agreement taking place. Again, use caution when the other party has a strong BATNA or a weak WATNA.
  • Fight to keep the relationship between the parties strong to encourage further negotiations.
  • Reconsider the bottom line. This strategy works in cases with an undesirable WATNA as well.
• Inconsequential or Eliminated WATNA: When a party has a WATNA that is minor or has been eliminated through negotiations, they may be more willing to walk away from negotiations.
  • Threaten to leave if the other party will not meet demands. A party without a WATNA could threaten to leave the negotiation without a deal if the opposing party does not change their position to be more in line. This strategy would work particularly well when negotiation and settlement are more important to the other party.
  • Push the other party’s bottom line. Because a party feels that they may have little to lose if they do not achieve a negotiated agreement, they may push the other party to continue to renegotiate their bottom line, especially if the other party feels that they need to leave with an agreement.
• Strong BATNA: When a party has a strong BATNA, they are less concerned with reaching a negotiated agreement and more concerned with using their position for their advantage.
  • Leverage the BATNA. A party may be able to leverage its BATNA by telling the other party what its BATNA is and saying that they are free to leave because they have this option. Similar to threatening to walk away, this option carries more weight because the opposing party not only loses the agreement but also may see some of their alternatives fade away with the suggestion of this party’s BATNA.
  • Push for a favorable agreement. Similar to pushing the bottom line, this party is in a solid position to fight for an agreement that favors them.

As discussed briefly in some of the strategies above, having an idea of some of the other party’s alternatives can be beneficial for choosing when to use certain strategies and suggestions to achieve a result that will be favorable. This can be achieved by running through a shortened analysis of the adverse party’s points to develop a rough idea of what the possible BATNA and WATNA are.  Knowing where each party stands allows the parties to negotiate effectively and understand when one party is posturing or when one party is in a good position in the negotiation.  Doing so will allow the parties to make the best decisions and walk away with or without an agreement that fits their needs.

Conclusion:

In every negotiation, the parties can reach a negotiated agreement, or they may leave the negotiation room to pursue an alternative that may produce a more favorable result.  While the concept of a BATNA or WATNA may seem different from normal preparation, moving through a BATNA/WATNA analysis will help the parties to their options clearly and be fully informed in a negotiation.  An analysis may be done through a decision-tree analysis or a results/costs analysis, both of which will produce a workable understanding of a party’s BATNA and WATNA.  Once a party identifies the BATNA and WATNA they can use, they can use this knowledge to achieve a favorable outcome and leave with confidence in the settlement and negotiation process.

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Emily Holland

Contributing Editor at ADR Times

Emily is a recent graduate of Pepperdine Caruso Law.
While in law school, Emily served as an executive editor on the Pepperdine Dispute Resolution Law Journal and had the opportunity to learn about ADR from world-class professors of the Straus Institute for Dispute Resolution.

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