It's a tough question, no simple answer. It would be hasty to say that no negotiation is necessarily the one best answer, but it has it's pros and cons, and at some point you have to decide on a strategy. In reality, you probably have to just try out strategies and do what works best. Now, negotiating sets a bad precedence. After all, what if the person says, "I want $100 more." Or what if one person asks for 100, gets it, and the next asks for 200, the next terrorist asks for 500, 1000, 1 million, etc. Also, someone might want to look at the pros and cons of terrorism, i.e. the pros are that you might get the ransom, the cons are that you might get killed/caught. A no-negotation policy eliminates any chance that the terrorist will have any pros in choosing terrorism.
However, a terrorist might want to call your bluff. He might say that I have a man hostage, I just want $100. He thinks that you won't really stick to your ideals. Would you be better off having sent the message to terrorists that you won't negotiate with terrorists, and will have lost, say 10 lives, or are you better off with 10 lives, having lost $100 and lost credibility when you say that there are no pros for terrorists? It's hard to just say that the human lives are worth maintaining credibility, but in the long run, credibility might be what saves more humans. Again, on the other hand, despite this policy there is still terrorism. What if every idiot tries to call your bluff? Then, in the name of maintaining credibility, you will just keep losing lives (because some terrorists will not think you're credible no matter what).
So basically:
no-negotiation: maintains credibility which may save later lives, but only works if future terrorists really take your credibility into account.
negotiation: saves lives, this is a key bonus, but loses plenty of money and of course maybe even some lives, allows terrorists to disrupt life and gives them no reason to avoid terrorism.
If terrorists are expected to be reasonable enough (and take credibility into account), then we shouldn't negotiate, if they are not reasonable at all, then we may as well negotiate if the losses are less than the gains. Determining how reasonable terrorists will be is very tough, very subjective, and very complicated, and this is why there is really no clear-cut answer as to what the best approach is.