(Based on the article, “The Art of Negotiations: Trump’s Game Theory”, published in I by IMD)

The Schranner Negotiation Institute champions a disciplined, proactive approach to complex negotiations--one that avoids improvisation and emotional reactivity. An earlier article from IMD’s business intelligence magazine, I by IMD, highlights how game theory, particularly in Donald Trump’s tariff tactics, aligns with key Schranner Concept principles.

Shaping the Game Before it Begins

“Successful negotiators don’t play by their counterpart’s rules. They shape the rules of the game.” -- Sebastian Moritz

Sebastian Moritz, a game theory expert at Munich based TWS Partners, a Schranner Negotiation Institute partner and a leading economic strategy consultancy specializing in applying game theory to solve complex business challenges, underscores a core Schranner Concept tenet: don’t enter a negotiation on your counterpart’s terms. Instead, design the structure in advance. Trump’s strategy--announcing tariffs before talks--limited the other side’s options and forced rapid concessions. While extreme, it illustrates the power of pre-negotiation framing. There is however a risk in this—Trump's tactics did alienate allies.

Commitment and Credibility

The Schranner Concept methodology stresses credible commitment. Trump’s unwavering stance on tariffs made his threats believable, compelling the other party to act. This mirrors the Schranner Concept view: never make threats you won’t execute, and always project a clear, immovable position.

Loss Aversion as Leverage

Moritz explains how fear of loss can be weaponized. Schranner Concept trained negotiators use this psychological insight to create urgency. For example, offer exclusive time-limited deals, or present signed offers that shift the burden of rejection. These tactics reframe negotiations from opportunity to an effort to avoid loss, increasing engagement and pressure. It is important that these tactics be used ethically, otherwise they can backfire by damaging trust.  

Power Trough Alternatives

Many Harvard negotiation style negotiators never enter a room without a BATNA (Best Alternative to a Negotiated Agreement). The Schranner Concept is based on entering the room to play to win. Moritz shares a case where 90% of preparation time was spent building a fallback supplier--not because it was preferred, but to strengthen leverage from the game theory perspective. The Schranner Concept’s approach echoes this: invest time in your alternatives when preparing your prioritized demands list, to negotiate from a position of strength.

Deadlock

Deadlock can be seen by many as the enemy of progress, unless it becomes part of your well-prepared and clearly defined strategy. Schranner-style negotiation does not automatically always push for a deadlock but it is not afraid of it and uses it strategically by structuring the process to guide the other party toward agreement or by anticipating conflict and designing alternative pathways. Game theory supports this by encouraging negotiators to shape incentives and constraints before talks begin.

Game Theory Basics

Game theory offers a powerful lens for navigating difficult or high-stakes negotiations, especially when multiple parties have conflicting interests, limited trust, or asymmetric information. At its core, game theory is the study of strategic decision-making among interdependent actors. For businesses, organizations, and public entities, applying game theory means thinking several moves ahead, anticipating reactions, and structuring choices to influence outcomes.

Here are 7 game theory moves you can actively use in practice.

1.  Model the players, strategies, and payoffs

Start by defining the players. Who are the stakeholders? What are their interests? Then move to map strategies. What options does each party have? What are the likely responses? Quantify payoffs. What does each party gain or lose from each outcome? For example, in a labor negotiation, a company might model union demands, potential strikes, and public perception as part of a payoff matrix.

2. Use the Prisoner’s Dilemma to understand trust dynamics

The Prisoner's Dilemma model was born in the early 1950s at the RAND Corporation, a think tank deeply involved in Cold War strategy and game theory research. It was invented by Merrill Flood and Melvin Dresher in 1950 at RAND and was initially designed to explore strategic behavior and cooperation in military and economic contexts. It was formalized by Albert W. Tucker, a mathematician at Princeton, who gave the model its now-famous framing involving two prisoners and coined the term “Prisoner’s Dilemma”. Consequently, it became a cornerstone of game theory, influencing economics (price wars, cartels), politics (arms races, diplomacy), biology (evolution of cooperation), and psychology and sociology (trust and betrayal).

This classic model reveals how mutual mistrust can lead to suboptimal outcomes. If both parties mistrust each other, they may choose suboptimal outcomes. Game theory encourages designing incentives for cooperation, such as transparency or third-party enforcement. One real world case could be when two competing firms might agree to share market data to avoid price wars—especially if the game is repeated and trust can be built over time.

3. Apply the Nash Equilibrium

A Nash Equilibrium occurs when no party can improve their outcome by changing strategy alone. The concept of Nash Equilibrium originates from the groundbreaking work of John Forbes Nash Jr., an American mathematician who introduced it in a brief, but revolutionary paper published in 1950 in the Proceedings of the National Academy of Sciences. In game theory, Nash Equilibrium is a situation where everyone’s strategy is optimal given the strategies of others—so no one has an incentive to deviate. In negotiations, this helps identify stable agreements where all sides feel they’ve maximized their position. For instance, in international trade talks, countries may settle on tariffs that neither side wants to change unilaterally.

4. Leverage BATNA and strategic commitment

Game theory supports building a strong Best Alternative to a Negotiated Agreement (BATNA). Public entities can also use credible commitments--like legislation or budget allocations--to signal firmness. For instance, a city government negotiating with developers might pre-approve zoning alternatives to strengthen its position. Beware of overcommitting. Inflexible stances can sometimes hinder negotiations.  

5. Simulate sequential and simultaneous games

Sequential games are those where one party moves first, the other responds. These are useful for staged negotiations. Simultaneous games are when all parties act at once. And these are helpful in auctions or competitive bids. As an illustration in procurement, public agencies often use sealed bids (simultaneous), while merger talks may unfold in stages (sequential).

6. Design the game itself

Game theory doesn’t only involve playing—it can include designing the game itself to favor your position. This includes setting deadlines, controlling information flow, and choosing negotiation formats. Think about a business that might offer tiered pricing, or limited time offers to create urgency and shift the payoff structure. Keep in mind the balance dynamics between control of the structure and control of the outcomes. Which is more powerful?

7. Invest the time

To apply game theory effectively in your organization, whether in the private or public sector, you should invest in scenario modelling, using for example, decision trees or payoff matrices to simulate outcomes. You can also gather intelligence to understand counterpart motivations, constraints, and likely moves. Additionally, build strategic alternatives, such as strengthening fallback options to avoid desperation. Control timing and framing, i.e. shape the negotiation environment to favor desired outcomes. And do not be afraid to turn to experts. Game theorists or strategic consultants can help formalize models and test assumptions.

Final Takeaway

Management consultants have been heard saying “culture eats strategy for breakfast”. Perhaps we could propose, "game theory eats guesswork for breakfast." Clearly, game theory can bring rigor to negotiation. It can add strategic depth and objectivity. Game theory informs the game, but negotiation plays it. This is why truly mastering negotiation--before, during and after-- can change your power and performance.

The Schranner Negotiation Institute’s way is not based on aggression—it promotes strategic control. By shaping the game, projecting credible power, and leveraging psychological drivers like loss aversion, negotiators can navigate even the most difficult conversations with clarity and authority. Use game theory for the pre-negotiation phase and then apply your sharpest negotiation skills to the process itself.