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Single Issue Bargaining 3

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Published on November 24, 2007

Author: GenX

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The Negotiation Dance:  The Negotiation Dance Lee Ching Chyi The Chinese University of Hong Kong Negotiation Outcomes Are Driven By::  Information conditions (probing) Prominent characteristic of the situation itself (focal points) The ability of the parties to ‘dig in’ (commitment) Inferences drawn from non-purposive behavior (signaling) Negotiation Outcomes Are Driven By: Negotiation Dance Includes::  Information conditions (probing) Prominent characteristic of the situation itself (focal points) The ability of the parties to ‘dig in’ (commitment) Inferences drawn from non-purposive behavior (signaling) Negotiation Dance Includes: Topics To Be Discussed:  Topics To Be Discussed Amount of opening offer Reacting to opening offers Moving first or second? Concession patterns Self-negotiation:  Before we start negotiation with our partner we negotiate with ourselves. Ambitious self. Prudent self. Unless we can successfully complete the internal negotiation, we will achieve nothing but mediocre results. Self-negotiation Remember:  Remember In negotiation we can not EXPECT to get what we are not prepared to ask You can’t win if you don’t play A Man Cannot Be Comfortable Without His Own Approval.:  A Man Cannot Be Comfortable Without His Own Approval. Mark Twain American Author and Humorist 1835-1910 Amount of Opening Offer:  Amount of Opening Offer Outrageous Tough Moderate Opening Offer: Seller’s Perspective:  Opening Offer: Seller’s Perspective RPS Moderate Offer:  Moderate Offer A moderate offer is targeted inside the ZOPA Moderate Offer:  Moderate Offer Drawbacks: Give away bargaining zone Winner’s Curse Outrageous Offer:  Outrageous Offer RPS RPb??? An outrageous offer is outside the fuzzy range. A non-credible (outrageous) initial offer is likely to antagonize the other side. Tough Offer:  Tough Offer A tough offer is targeted outside the ZOPA but inside the fuzzy range. A tough offer is designed to be credible, although may not be acceptable. Tough vs. Outrageous Opening Offer:  Tough vs. Outrageous Opening Offer Acceptability vs. Credibility While both “tough” and “outrageous” offers may not be acceptable, a “tough” offer is usually more credible than an “outrageous” offer. Uncertainty drives a wedge between what is acceptable and what is credible. Because of the fuzziness a negotiator can make a credible offer unacceptable. Even if we reach a favorable agreement to us with an “outrageous” offer, there might be spill over for future interactions. Insulting Offer?:  Insulting Offer? Many people worry that they may “insult” the other party if they make an “extreme” offer. As long as your offer is credible, the fear of insulting the other party and souring the negotiations is more apparent than real. When facing with an extreme offer, many people, rather than feeling insulted, are preparing to make concessions. Amount of Opening Offer:  Amount of Opening Offer “If agreement is usually found between the two starting points, there is no point in making moderate offers. Good technique would suggest a point of departure far more extreme than one is willing to accept. The more outrageous the initial proposition the better is the prospect that what one ‘really’ wants will be considered a compromise.” Reacting to opening offers:  Reacting to opening offers Reaction to an Extreme Opening Offer:  Reaction to an Extreme Opening Offer Counter with an equally extreme counter offer? Reaction to an Extreme Opening Offer:  Reaction to an Extreme Opening Offer Counter with an equally extreme counter offer? Be cool, do not revise (yet) the estimate of your opponent’s RP Reaction to an Extreme Opening Offer:  Reaction to an Extreme Opening Offer Counter with an equally extreme counter offer? Be cool, do not revise (yet) the estimate of your opponent’s RP Ignore, silent, laugh Reaction to an Extreme Opening Offer:  Reaction to an Extreme Opening Offer Counter with an equally extreme counter offer? Be cool, do not revise (yet) the estimate of your opponent’s RP Ignore, silence Ask questions. What is the principle behind the offer? Reaction to an Extreme Opening Offer:  Reaction to an Extreme Opening Offer Counter with an equally extreme counter offer? Be cool, do not revise (yet) the estimate of your opponent’s RP Ignore, silent, laugh Ask questions. What is the principle behind the offer? Warning, don’t react in a way that reveals your RP Reaction to an Acceptable Opening Offer:  Reaction to an Acceptable Opening Offer Control yourself! Slide25:  To the extent that women are thought to be, in general, more perceptive about people, more aware of their surroundings, more sensitive to body language, it is a decided advantage to be a woman in negotiations, particularly in Source: Interview, New York Times Magazine, October 1, 2000 watching. The body always speaks well before the mouth ever opens. U.S. Trade representative Charlene Barshefsky has lots of experience negotiating trade deals with many countries. She admits to trying her negotiating skills with her two teenage daughters but adds “they don’t work with my children” Moving First or Second?:  Baekeland, Leo Hendrik 1863-1944 Belgian-born American chemist who developed the first plastic to harden permanently after heating. Leo Baekeland sold the rights to his invention, Velox photographic printing paper, to Eastman Kodak in 1899. It was the first commercially successful photographic paper and he sold it to Eastman Kodak for $1 million. Baekeland had planned to ask $50,000 and to go down to $25,000 if necessary, but fortunately for him, Eastman spoke first. Moving First or Second? Slide27:  Baekeland, Leo Hendrik, 1863 - 1944 Multiplication Exercise:  Multiplication Exercise Moving First:  Moving First Advantage Opportunity to anchor the other side’s beliefs (first impression syndrome). Research shows that first offers correlate at least 85% with final outcomes. Effective when the following two conditions are met: Our opponent is ill-informed or confused We are recognized for having some specific expertise in the matter Moving Second:  Moving Second When we do not have information advantages The other side may mistakenly open inside the ZOPA putting you in the comfort zone Can adjust our counteroffer to create a favorable focal point – the midpoint between the two opening offers Moving First or Second?:  Moving First or Second? The basic reasons why many are reluctant to make the first offer are often of different nature: They do not want to appear eager to close a deal They worry they don’t have enough information to make an appropriate offer Neither of these reasons are compelling Suggestions:  Suggestions Make the First Offer If you have done a good job in pre-negotiation preparation, try to make the first offer. It serves as a powerful anchor point. Counteroffer immediately if you can’t make the first offer It diminishes the prominence of the opponent’s initial offer as an anchor point. It signals your willingness to negotiate. Concession Pattern:  Concession Pattern Concession Pattern Objectives:  Concession Pattern Objectives To signal increasing resistance on our part to make another concession should our current offer be rejected. To find out the other side’s point of indifference (probing). Appleton vs. Baker:  Appleton vs. Baker SellerBATNA = 13,200 BuyerBATNA = 14,000 Concession Pattern:  Concession Pattern Move in increasingly smaller steps Although rule #1 is obvious, it is often violated. Why? Impatience Concession Pattern:  Concession Pattern Move in increasingly smaller steps Move toward greater precision Concession Pattern:  Concession Pattern Move in increasingly smaller steps Move toward greater precision With each concession, think longer.... Concession Pattern:  Concession Pattern Move in increasingly smaller steps Move toward greater precision With each concession, think longer.... Give your counterpart a target to shoot for by telling him what he cannot get. Concession Pattern:  Concession Pattern Move in increasingly smaller steps Move toward greater precision With each concession, think longer.... Give your counterpart a target to shoot for by telling him what he cannot get Unless a concession has explicitly been labeled as “tentative”, it cannot be withdrawn at a later stage Negotiation Outcomes Are Driven By::  Negotiation Outcomes Are Driven By: Information conditions (probing) Prominent characteristic of the situation itself (focal points) The ability of the parties to “dig in” (commitment) Inferences drawn from non-purposive behavior (signaling) The ability of the parties to “dig in” (commitment) Commitment:  Commitment Actual radio conversation released by the Chief of Naval Operations, 10-10-95:  Actual radio conversation released by the Chief of Naval Operations, 10-10-95 #1: Please divert your course 15 degrees to the North to avoid a collision. #2: Recommend you divert YOUR course 15 degrees to South to avoid a collision. #1: This is the Captain of a US Navy ship. I say again, divert YOUR course. #2: No. I say again, you divert YOUR course. #1: This is the aircraft carrier Enterprise, we are a large warship of the us navy. divert your course now! The Game of Chicken:  The Game of Chicken The Game of Chicken:  The Game of Chicken Many teenagers in the 1950s played this game. Two guys took their cars to a lonely country road, usually at night. They often brought cheering sections that included friends and girlfriends. They sat with their cars facing each other, at some distance. Both drivers would start their cars and, on a prearranged signal, they would push the throttle to the floor and drive down the middle of the road directly at each other. Each driver had two basic choices: to keep going straight or to turn and avoid a collision. If one went straight and the other turned off, the driver who kept driving down the middle and didn’t flinch enhanced his reputation as someone who was really cool, really tough. The driver who turned off was called the Chicken. If both drivers turned off and narrowly missed each other, both would win, at least a little: They showed their friends that they had enough courage to play the game and they let things go to the very last second. Preferences:  Preferences Hero Semi-chicken Chicken Dead Least Prefer Most Prefer Commitment Tactics:  Commitment Tactics Voluntary but irreversible scarify of freedom of choice. In bargaining, weakness is often strength, freedom may be freedom to capitulate, and to burn bridges behind one may suffice to undo an opponent. Schelling “An Essay on Bargaining” Sirens:  Sirens In Greek mythology, the Sirens are creatures with the head of a female and the body of a bird. They lived on an island and with the irresistible charm of their song they lured mariners to their destruction on the rocks surrounding their island Odysseus and the Sirens:  Odysseus and the Sirens The three sirens seek to lure Odysseus and his companions to their death with their melodious voices. However Odysseus has had himself securely bound to the mast of his ship while his companions row on with their ears stopped with bees-wax, thus unable to hear the sirens’ song. Difficulties in Establishing Effective Commitments:  Difficulties in Establishing Effective Commitments How to credibly communicate commitment to a skeptical counterpart? Our counterpart may not be as rational as we expect Establishing Effective Commitment:  Establishing Effective Commitment Communicate your commitment with brutal clarity (demonstration of the truth) Establishing Effective Commitment:  Establishing Effective Commitment Communicate your commitment with brutal clarity (demonstration of the truth) Artfully camouflage the tactics, or ensure that it is perceived as legitimate Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Commonly Used Commitment Tactics:  I’ll step down if I can’t raise our wage to … We’ll call for a strike if … Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Slide55:  Israel rejects any concessions on Jerusalem's status 14 Mar 1999 From: C-afp@clari.net (AFP) JERUSALEM, March 14 (AFP) - Israel's government adopted a resolution Sunday vowing never to cede any of annexed east Jerusalem to Palestinian control or allow part of the disputed city to be internationalized. "Israel will not accept under any circumstance the division or internationalization of Jerusalem, which will remain for eternity under the exclusive sovereignty of the state of Israel," read the declaration. The resolution aimed to counter an EU statement earlier this month asserting that under international law Jerusalem remained a "separate entity" from Israel. Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Appeals to Precedent, Principles, Emotions, Fairness, Etc:  Appeals to Precedent, Principles, Emotions, Fairness, Etc “It is our policy to” “It is not only a question of price but of principle” “If I give you a discount I will have to give it to everyone” China Will Never Yield on Principles:  China Will Never Yield on Principles Chinese president Jiang Zemin stated on Friday that China will never yield on issues relating to sovereignty, territorial integrity and national dignity. Meeting with relatives of Wang Wei, the pilot gone missing and presumed dead after his fighter jet was rammed into by US spy plane on April 1 over the South China Sea, Jiang said confrontation is not what China wants, but China will not yield on matters of principles. China daily (04/20/2001) Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Fait Accompli:  Fait Accompli “We were running short of time so I have gone ahead and ordered … ” Slap on the Wrist for Carrefour:  Slap on the Wrist for Carrefour As a punishment for setting up shops in China without state approval, French retail giant Carrefour will escape with a scolding and a slightly slower pace of expansion - but no fine and no closure of its 28 booming outlets in 15 cities That is what company officials and diplomats close to the story say. Just as with the release of the 24 United States air crew, Beijing has realized it has more to lose than gain by antagonizing an important foreign partner SCMP, Tuesday April 17 2001 Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Lying Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Lying Cutting communication channels + deadline Cutting Communication Channel and the Use of Deadline:  Cutting Communication Channel and the Use of Deadline Dear John, I am sending you this email to give you my last offer. Since I will be taking a long vacation on a remote island starting tomorrow, please inform my agent, Mrs. Johnson, regarding your decision on whether or not to accept my offer by Friday. Sincerely yours, C. C. Lee Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Lying Cutting communication channels + deadline Representation by an agent Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Lying Cutting communication channels + deadline Representation by an agent Lack of authority, lack of control Lack of Authority or Control:  Lack of Authority or Control “My boss will never approve this” “My hands are tied” Slide68:  Wednesday, October 14, 1998 PM admits U.S. plan means 13% plus 15% Sharon asks fellow cabinet members to ‘tie our hands and feet’ ………. Both Sharon and Communications Minister Limor Livnat signaled they would vote against the deal. While Sharon is supposed to be one of the key negotiators at Wye, he asked the government yesterday to “tie up our hands and feet” to prevent any concessions at Wye. Commonly Used Commitment Tactics:  Commonly Used Commitment Tactics Find a way to prevent going back by conditional self-imposed penalty Reputation, public statements Appeals to precedent, principles, emotions, fairness, etc. Fait accompli Lying Cutting communication channels + deadline Representation by an agent Lack of authority, lack of control Make it legally binding Commitment Is More Likely to Be Effective When It Is::  Commitment Is More Likely to Be Effective When It Is: Irreversible and undoable Communicated credibly Perceived as legitimate and phrased in non-threatening, non authoritative way Communicated timely Threat:  Threat In negotiation, the threat is a communication of one’s intention to take certain punitive actions if the other party does not do what he is asked to do. Do this otherwise… If you don’t do this, I’ll … Elements of Threat:  Elements of Threat Demands made by the threatening party Punishment Communication of Message @#%$%^*&^$(* Demands Made by Threatener:  Demands Made by Threatener The threatening party should make his demands reasonable. If he demands too much so that there is no way for the other party to meet his demand, the threat can never be successful. Punishment:  Punishment The punishment must be sufficiently severe so that it is better for the threatened party to satisfy the threatener’s demand than not to. In case the punitive action is not incentive compatible, the threatening party must be able to show his commitment to take such an action when demands are not met. Communication of Message:  Communication of Message To ensure the success of a threat, the threatening party must be able to communicate his demands and the punitive acts effectively to the threatened party. Defense Against Threat:  Defense Against Threat Cut communication channels Bind yourself before being threatened so that there is no way for you to take the action that the threatening party asks you to take. Promise:  Promise In negotiation, promise is nothing but trading concessions. Promise is also a type of commitment I promise not to cut the price if you don’t. I promise to do this if you do (or if you don’t do) that. How To Make Promise Credible? :  How To Make Promise Credible? Make it legally binding Build up the reputation Trust:  Trust When no legally binding contract is enforceable, commitment, threat, and promise all involve trust. How do I know that you’ll do this if I don’t do that (or if I do that)? Usually, trust can only be developed when the relationship between bargainers is long term. Trust Game:  Trust Game Negotiation Exercise:  Negotiation Exercise Bentz vs. Smith

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