Negotiations and Decision Making Midterm

Negotiation

the process through which two or more parties interact to create mutual agreement intended to guide future behavior.

Distributive Negotiation

parties compete over the distribution of a fixed sum. (win-lose)

Integrative Negotiation

parties cooperate to achieve maximum benefits by integrating their interests into an agreement. (win-win)

Multi-party Negotiation

involve more than two parties often resulting in coalitions

what are the keys to success in a distributive negotiation?

anchor on first offer, don’t disclose any significant information, learn as much about the other party’s preferences, and don’t overshoot

what are the keys to success in a integrative negotiation?

provide significant information, focus on interests not positions, team to build creative outcomes

what are the keys to success in a multi-party negotiation?

seek to break or keep coalitions together based on interest.

BATNA

the best alternative to a negotiated agreement

Reservation Price

the least favorable point at which one will accept a deal.

ZOPA

the zone of possible agreement, the set of agreements that satisfy both parties

Value Creation

getting something you want more in return for something you want less.

Die-hards (barrier to agreement)

one party turns negotiation into a test of wills, fights for every inch, and views the interaction as a game.

Lack of trust (barrier to agreement)

an inability to trust the other part often leads to insecure agreements

Negotiator’s dilemma (barrier to agreement)

while both parties would benefit from information sharing, either will suffer if only 1 shares. If no one shares, both will lose.

Structural impediments (barrier to agreement)

the underlying mechanisms in place to negotiate prevent optimal resolution.

Spoilers (barrier to agreement)

one party prefers “no deal” as the outcome

Gender and culture differences (barrier to agreement)

bias predisposes one or both parties to make false assumptions about the other.

Communication difficulties (barrier to agreement)

dialog between parties either makes agreement less palatable or heightens disputes.

Escalation of Commitment (common mental errors)

continuing a previously selected course of action beyond what rational analysis would recommend.

Partisan perception (common mental errors)

causes people to perceive the world with a bias in their own favor or toward their own point of view.

Irrational expectations (common mental errors)

when one or more parties have expectations that are a stark departure from reality.

Overconfidence (common mental errors)

Encourages us to overestimate our own strengths and underestimate those of our rivals.

Unchecked emotions (common mental errors)

allowing anger or personal vitriol to overtake logic and personal self-interest

Access to resources (value creation)

Do you have possession rights or access rights to resources that the other party may find valuable?

Future expectations (value creation)

Is there a difference of opinion regarding some future state? If so can you trade potential future value to the optimist in exchange for current value to the pessimist.

Time preference (value creation)

can you engineer a solution that compensates for ill-times outcomes?

Risk aversion (value creation)

Can you leverage differences in risk tolerance to shift risk to the party better able to bear it?

Critical thinking (avoiding traps of framing)

Be focused on analyzing the underlying data, not the conclusion drawn from that data

Peer review and collaboration (avoiding traps of framing)

Diverse perspectives can identify and correct biases that individuals might overlook

Seek balanced frames (avoiding traps of framing)

Use point/counter point frameworks to ensure that individuals see the full context

Use structured decision models (avoiding traps of framing)

Models that rely on empirical data and standardized methods can reduce the impact bias may have by helping individuals follow a logical path

Create trust (managing relationship value)

Honor what you commit to, and acknowledge and demonstrate respect for the other party’s most meaningful interests

Communicate (managing relationship value)

share interests, capabilities, and concerns promptly.

Acknowledge mistakes (managing relationship value)

Never sweep mistakes under the rug, own up to them, and fix them swiftly

Ask for feedback (managing relationship value)

Be proactive in assessing how the other parties feel and what steps can be taken to make improvements.

Why do multi-party negotiations often involve agents?

Agents typically have greater knowledge and expertise in contract negotiations, and agents can create a welcomed distance between parties.

Information asymmetry (agency issues)

Either the agent, or the principal, has more information that prevents optimal representation

Divided interests (agency issues)

Principals have internal disagreements regarding interests and priorities

Conflicts of interests (agency issues)

Every agent is bound to have a personal agenda, and that agenda may conflict with the principal’s agenda