While many people think of negotiations as a competition where one side wins and the other loses, in reality, negotiations involve a more complex mixture of winning and losing. The outcome of almost all two-party negotiations can be categorized as win-lose (one party benefits to the detriment of the other), lose-lose (both parties are worse off after the negotiation), or win-win (both parties come out ahead). If the negotiation fails, no agreement has been reached and the parties are forced to seek alternative solutions.
Win-win, win-lose, and lose-lose are game theory terms that refer to the possible outcomes of a game or dispute involving two sides, and more importantly, how each side perceives their outcome relative to their standing before the game. For example, a “win” results when the outcome of a negotiation is better than expected, a “loss” when the outcome is worse than expected. Two people may receive the same outcome in measurable terms, say $10, but for one side that may be a loss, while for the other it is a win. In other words, expectations determine one’s perception of any given result.