![Alpert-Raiffa Experiment
• Individuals specify 50-50 probability
intervals [inter-quartile ranges] for a large
number of uncertain quantities
• Much narrower ranges than 50-50 appear
– Such interval estimates reflect more certainty
than is warranted by available knowledge
– 36% is a pseudo semi-constant!
24](https://image.slidesharecdn.com/mitnegotiationslecturepowerpoint-12538770724502-phpapp02/85/MIT-Negotiations-Lecture-Powerpoint-24-320.jpg)
MIT Negotiations Lecture Powerpoint
- 1. Teaching Negotiation 1
- 2. How We Will Learn • Practice: in a variety of settings • Feedback: Share experiences • Analysis: Mathematical and Descriptive • Outcome Based Evaluation: Your grade depends on your performance! 2
- 3. • Our focus is on skill building and learning by doing • We all can benefit from practice by doing negotiations in different substantive contexts • Practice sharpens our ability to recognize untested assumptions, alternative explanations • It increases our sensitivity to what works, what doesn’t work and why. 3
- 4. (# in class = 100) Scoring (# in class = 100) Games vs. All Others Games vs. Specific Player (Two roles - A & B) (Labor vs. Management - 50 Pairs) 1) Write down your A-strategy 1) You = Labor, “Henry” = Mgmt. 2) Your A-strategy pitted against 2) You score 710 points, 50 B-role strategies “Henry” score 36 points. B Player Your Score 3) Compare your score with 49 1 63 other Labor scores: 2 61 Other Labor Player Score 50 81 1 670 Your average score = 67 2 745 A Player overall mean = 73 A Player overall std. dev. = 4 49 640 Other Labor Player mean = 680 3) Your Z-score as an A-player: Other Labor Player std. dev. = 40 67 - 73 710 - 680 = = - 1.5 4) Your Z-score = = .75 4 40 4
- 5. Why Negotiation is Difficult Leigh Thompson Chapter 1 • Cognitive Hard Wiring: – We are programmed to simplify information – Our need for closure blinds us to consideration of alternatives – We make faulty, simplifying assumptions • Need for confirmatory feedback – inhibits learning optimally from experience • Intuition – Doesn’t lead to a general framework for effective negotiation 5
- 6. Myths • Good Negotiators are born: – Wrong! They are self-made – Buying a car is NOT a broad negotiation experience builder • Experience is a great teacher: – While confidence improves with experience, unaided experience doesn’t provide good feedback – We remember successes, forget failures 6
- 7. • Good negotiators take risks: (translation) – Good negotiators make threats in a disciplined and organized fashion – Good negotiators know how to evaluate a decision situation and choose a best course of action • Good negotiators rely on intuition: – Many do use ‘gut feeling’ – In reality, behavior is often influenced by arbitrary and irrelevant aspects of a setting – Good negotiators are self-aware – They can articulate the rules that guide them and police against being fleeced 7
- 8. “Distinguishing Best and Strategic Practices” Keith Allred (2000) • Moves to claim value tend to block moves aimed at creating value • Claiming is competitive and assertive • The downside of pursuing a cooperative strategy aimed creating value is that it often exposes you to exploitation 8
- 9. Best versus Strategic Practices • BEST PRACTICES: – Those that work well irrespective of what your negotiating counterparts do • STRATEGIC PRACTICES: – Practices that work well in particular situations with some counterpart responses and poorly in other situations with other responses 9
- 10. • Within a formal game-theoretic framework, equilibrium strategies are often, but not always “Best Practice” – Stud Poker bluffing strategies • Prisoners’ Dilemma games are an example of cases where equilibrium strategy choice may not be a “Best Practice” – Dominance leads to poor outcomes for both parties – Holdup! 10
- 11. Understand the interests of your negotiating counterpart(s) • Interests are self-evident in formal zero-sum and non-zero sum games • Interests of your negotiating counterparts are NOT self-evident in multiple issue negotiations where each party possesses private information – In particular, information about your counterparts’ BATNA’s are often revealed only through the dynamics of negotiation 11
- 12. Distributive Bargaining Principles and Key Ideas 12
- 13. Distributive Bargaining Principles • Target Point – Your preferred settlement, taking into account limits imposed by the interests of your counterpart – Your target is likely to change as negotiations unfold • BATNA or Reservation Point – Walk away point at which you are indifferent between settlement and walking away 13
- 14. • Reason backward to determine BATNA: – Brainstorm alternatives to determine what your best alternative to no agreement really is – Base it on facts not wishes – Do NOT change your BATNA unless the facts change – Do NOT allow others to talk you into change • Bargaining Zone--the region between parties’ reservation points – Positive when parties’ reservation points overlap and doesn’t exist when there is no overlap 14
- 15. • Agreement is possible when bargaining zones are positive and not possible when there is no reservation point overlap • Bargaining Surplus – The amount of overlap produced by reservation points – A measure of the size of the bargaining zone 15
- 16. Buyer’s Bargaining Range Settlement Buyer’s Seller’s Surplus Surplus Seller’s Bargaining Zone Target Buyer’s Seller Buyer Target Reservation Reservation Price Price Seller’s Bargaining Range Bargaining Zone = Zone of Possible Agreement or ZOPA 16
- 17. Prepare,Prepare,Prepare! • 1) Determine your BATNA. – It is your most important source of POWER! • 2) Improve your BATNA. – It is never as good as we would like – A really good BATNA ensures a good chance of a large share of the surplus – Search out possible alternatives that may enhance your ‘walk away’ point 17
- 18. • (3) Determine your opening offer before you begin negotiations • (4) Do the best you can to determine your negotiating counterpart’s BATNA: – Craft a dialogue that engenders much information exchange – In mixed motive negotiations work on creating value before claiming it 18
- 19. THE Big QUESTIONS 19
- 20. • Reveal your reservation price? – No! Unless it is very,very good. Seldom the case • Lie about your reservation price? – No! You can back yourself into a corner and fail to reach agreement • Try to convince your counterpart that her BATNA is no good? – Probably Not. Only if you have supportable evidence that it is really no good – Beware of a Boomerang effect: people often do the opposite of what you want them to do 20
- 21. • Tough or Soft? • You should be neither: – Too tough may blow the deal – Too soft, you give away your bargaining surplus • Ideal: – Try to make an offer in the bargaining zone, not outside – IF you are certain of your counterpart’s BATNA, offer just slightly better 21
- 22. ANCHORING •People make estimates by starting from an initial value and adjusting to provide a final answer. •Adjustments are typically insufficient 22
- 23. • The initial value is a psychological anchor – Too high, the estimate tends to be too high – Too low, the estimate tends to be too low • Fact: adjustment is almost always insufficient • Large and systematic departures from accuracy can occur 23
- 24. Alpert-Raiffa Experiment • Individuals specify 50-50 probability intervals [inter-quartile ranges] for a large number of uncertain quantities • Much narrower ranges than 50-50 appear – Such interval estimates reflect more certainty than is warranted by available knowledge – 36% is a pseudo semi-constant! 24
- 25. • Irrelevant numbers can serve as anchors and influence perception of the bargaining zone: – Real estate agents are given a ten page packet of information including a “list price” along with the actual appraised price. – 81% of agents said they did not use list price to estimate sales price – Nevertheless, manipulating the “list price” by 12% resulted in a significant difference in agents’ estimates of the property’s sales price – The average price with a low list price was 15% lower than that for the high list price anchor 25
- 26. First Offers as Anchors • Does making the first offer lead to a better outcome for you? – Yes, if you are certain of your counterpart’s BATNA – Not necessarily if you are uncertain 26
- 27. • 1st offers and 1st counter-offers together are often good predictors of a settlement – Suppose A makes a 1st offer and B responds – If B focuses on information inconsistent with implications of A’s first offer, a first offer effect is diminished – IF B focuses on information consistent with implications of A 1st offer, a first offer effect persists Galinsky,A. and T. Mussweiler,“First Offers as Anchors: The Role of Perspective-Taking and Negotiator Focus”, Kellogg School Working Paper #231 27
- 28. • If B shapes a response focused on: – A’s BATNA or – A’s Reservation Price or – B’s target price A’s first offer advantage is reduced. • If B shapes a response focused on: – B’s BATNA or – A’s target price A’s first offer effect persists. 28