Chapter 5: Negotiation Flashcards
Why are negotiations important?
When salary is being negotiated, compound effect necessitates need to start compounding early
see that if you negotiate regularly can earn up to 1.5million over 40 years
What is negotiation
Negotiation is a joint decision-making process in
which two or more parties with different interests
decide on allocating resources.
based on science: evidenced based strategies that work
based on art: adapting to situation (strategies that dont always work) need to adapt accordingly
What are the two fundamental types of negotiations
Distributive negotiations:
-typically single issue (price)
- Goal is to maximise one’s individual utility gain
- Dividing the pie
Integrative Negotiations
- Involve multiple issues (salary vacation)
- Goal: Maximising individual and Joint gain
- Increasing the pie
How to prepare for negotiation? (3 steps )
- Best Alternative to a Negotiated Agreement (BATNA)
- whats your alternative if you don’t get a deal done - reservation price
- What is the worst deal that you are willing to accept before walking away? - Aspiration price
What is the best possible deal you aspire to
What is the difference between your BATNA and reservation price?
BATNA:
- best outside option
- may not have an alternative (can be something like an opportunity cost)
Reservation price
- Least favourable point for you to accept deal
- Can be same as BATNA but doesn’t have to be
Why do reservation price matter
They do because we are able to see whether a ZOPA can be formed
►Zone of potential agreement (ZOPA), or bargaining zone, is the
intellectual zone between two parties where an agreement is possible
Small ZOPA: Buyer and seller RP overlap and are close
Large ZOPA: Buyer and seller RP are overlapped but far apart, a lot of room to negotiate
Negative ZOPA: Buyer and seller RP do not overlap hence no point negotiating
What is the aspiration price
Aspiration price is an “ambitious yet plausible” desired end point you
would like to achieve in the negotiation
Negotiators who focused on their target reach better outcome than those who only focused on their reservation price
What strategies are there to use in distributive negotiations? (APCE)
- Make ambitious first offer
- Make precise offers and justify them
- Decreasing concessions
- Exploit selective accessibility
Why making an ambitious first offer is good?
- Sets the tone
- frame logic in terms of issues - Anchors opponent
- People insufficiently adjust away from anchors - Correlates with outcomes
- Explain up to 50% of outcome variance
Evident by first movers seem to do better
- where first movers claimed 25% more value
Evaluating the robustness of first-mover effect
when not to move first
- When you have not gotten enough information about bargaining zone
- might result in you asking for too little
- or reveal preferences early - If its inappropriate
- Grocery store - In auctions
- low offers raise interest
Why making precise offers work (must justify)
Precision increases anchor potency
- Negotiators who made precise
offers did better than those who
made round offers (comparing between 20, 21 ,19) where 19 and 21 are more precise offers - It doesn’t always work since too precise may backfire with experts
- Unless rationale is provided
What about decreasing concessions
when comparing decreasing vs constant concessions, we see that decreasing concessions allow you to get into the later rounds (round 4) of negotiating as compared to constant concessions end at round 3
In practice
- we see that the nature and pattern of concessions give signal
- can use 25-10-5 model
- start with an ambitious offer provide room for concessions
How does exploiting selective accessibility work
►People selectively consider information that is consistent
with an anchor
►Anchor can also be qualities (e.g., product defects)
What kind of issue types can integrative negotiations consist of?
- Distributive
- my $10 gain is your $10 loss - Integrative
- Different importance to each party - Compatible
- both want the same things
What is logrolling
- Trade-off process taking
advantage of the fact that
different issues have different
values to each party - Loss in some issues traded for gain in others, result in larger overall gain
What is Post settlement settlement. Can you name some examples of post settlement settlement (SEM)
Uses the principle of pareto efficiency
- deals where there is no other agreement that would make any party better off without making another party worse off
Examples of post settlement settlement
- solidify achieved deal
- Explore other deals that would make at least one party better without making other worse
- Consider modify settlement if it could be improved
What are MESOS? Why make MESOS (CSPA)
Multiple Equivalent Simultaneous Offers: Make multiple offers that are of similar value to you
Why make MESOs
- Claim value by anchoring opponent
- Signals flexibility
- Provide information about counterparts preferences
- Allow you to make cheap concessions
Negotiators who used MESOs in a similar exercise of New hire were perceived as more flexibile in achieving better outcomes
Note that MESOs may need to require certain form of planning
In four horsemen of power what are some of the important benefits about power?
Power transform people into bold negotiators
- Those who have more power able to set higher prices more ambitious offers and claim value
Power shields negotiators from tactics of other side
- people with power make negotiators less susceptible to the strategic influence tactics of the other side (facing angry counterpart for example, for prey to deliberate sympathy appeals)
What are the four horseman of power
AISS
- Alternatives
- Information
- Status
- Social capital
Important points on alternatives
When negotiators have attractive offer on outside, less dependent on other party to reach objective as compared to when there are no alternatives
strong alternative allow you to have more ambitious reference point to ask for more
REsearch suggest that negotiators that have unattractive offer end up asking for less than compared to when no alternative
Important points on information
Having information on counterpart (like max willingness to pay) are important points to find out about opponent
Information can include knowledge of cultural practices which can be offensive to counterpart
Gain information by doing research prior and asking questions. Trying to do perspective taking also helps since putting yourself into shoes of other party to help them make educated guess
Important points on status
Low status individuals tend to defer to those with higher status, higher status negotiators are also seen to be more competent
Negotiators should try to build status as competent trustworthy player in LR
Important points on social capital
The more professional connections negotiator has, seen as more influential
social capital facilitates the other 3 horseman of power
when you have higher social network, negotiator increase chance of improving alternatives
weak ties –> social relationships classified by infrequent interaction can be activated when needed
Alternatives strongest still
Having four horseman optimal but not necessary
