negotiation
= process in which two or more parties need to reach a joint decision
theories
- game theory
- people act 100% rationally in negotiations
x which is not true
theories
- decision-analytic approach
- give best advice to focal negotiators involved in real conflict with real people
- prescriptive from the focal negotiators point of view
- descriptive from the competing party’s point of view
- structure based on assessment of three key sets of info –> should assess three components before entering any negotiation
1. each party’s best alternative to a negotiated agreement (BATNA) + best estimate of others BATNA
2. each party’s set of interests - positions = what parties demand from the other side
- interest = motive behind those positions
3. relative importance of each party’s interests
primary tasks of negotiation
- claiming value
= slicing the pie, individual gain
- bargaining zone framework: each party has some reservation point (BATNA) below/above which one prefers impasse
- -> positive bargaining zone: reservation points overlap –> give a set of resolutions both parties would prefer over impasse = settlement
- -> negative bargaining zone: reservation points don’t overlap –> no agreement possible
- key skill: determine the other party’s reservation point + aim for a resolution that is barely BUT STILL acceptable to the other party
primary tasks of negotiation
- creating value
= increases size of pie, joint gain
- identifying + adding issues (assessing each parties interests) –> find trade-offs
1) trade something they want more than you for something you care more about in return - -> whenever one party weighs issues differently than the other
- more payoff then just claiming for both
2) contingent/conditional contract
creating value
- cotingent contracts
= conditional; making claim to repay the advance of money you pay at the beginning if you are successful –> if confident about idea enter contract
- if-then agreements = which actions under certain conditions will result in specific outcomes
√ help manage biases
√ diagnose dishonest parties
√ motivation for performance
tools of value creation
- trust relationships
1. BUILD TRUST AND SHARE INFORMATION
= share information with each other about preferences (values they place on different issues)
- -> maximise joint benefit
- easiest way
- building trust useful when cooperative behaviour cannot be interpreted as self-serving
- relationship building increases likelihood of trustworthy/trusting opponent next time
- build trust = be trustworthy
tools of value creation
- trust relationships
2. ASK QUESTIONS
= asking questions (necessary to collect information), not only reacting but listening for new information
- -> understand other party’s interests
- probability of answer is higher if you ask than if you not (no guarantee)
tools of value creation
- competitive relationships
3. STRATEGICALLY DISCLOSE INFORMATION
= give away some information of your own; reveal rather unimportant information
- -> share information incrementally, back and forth
- behaviours are reciprocated: information sharing to reach mutually beneficial agreements
- both parties benefit as parties learn about levels of value; expand outcomes
- minimise own risk: if other party does not share, decide to hold back as well
tools of value creation
- competitive relationships
4. NEGOTIATE MULTIPLE ISSUES SIMULTANEOUSLY
= negotiate multiple issues at once; nothing is settled until everything is settled
- package-offers = deals that cover all the issues and communicate your preferred outcome across all issues
- find out relative importance of each issue to each party –> find favourable, value-creating trades
tools of value creation
- competitive relationships
5. MAKE MULTIPLE OFFERS SIMULTANEOUSLY
= presenting several package-offers; avoid putting an offer on the table before actively collecting information
- -> gain insights/valuable hints where to find trades based on other party’s preferences for one offer or parts
- flexible negotiator: willing to be accommodating, interested in understanding other party’s preferences
tools of value creation
- competitive relationships
6. SEARCH FOR POST-SETTLEMENT SETTLEMENTS
= asking whether other party would be willing to take another look at agreement + see if it can be improved
- -> reach pareto-superior agreement (= agreement potentially even better for both parties)
- third party involvement: negotiator have right to veto, return to original agreement
- both parties can benefit from enlarged outcomes
perspective taking
= understand others cognition - essential management skill √ reduces stereotyping √ more creativity x preferential treatment x project low self-esteem onto other x heighten prejudice x difficult in competitive relationship: 'fight fire with fire' response
power
= probability that negotiator will influence a negotiation outcome in direction of his/her ideal outcome
- HIGH power = higher likelihood of achieving goals
- direct: BATNA, information
- indirect: status, social capital
- -> reinforce each other
- -> fluctuations between contexts, cultures
power
- BATNA
= Best Alternative to a Negotiating Agreement
- strong BATNA: less dependent on opposing party; put pressure on opponent
√ better outcome in markets with higher demands
x anchoring –> satisficing on inferior outcomes
x affect motivation, persistence in striving for ideal targets
- most important
–> in Asia: status and social capital more valuable
power
- information
= market info, knowledge of culture, insight into counterparty’s anxieties, reservation price, general expertise in negotiations
- strategic advantage: leverage that info
- -> ‘doing ones homework’
- -> questions
- -> perspective taking
- -> educated guessing
power
- status
= respect by other side
- LOW status: tend to defer to higher-status counterparts
- HIGH status: more trust, higher payoffs, more interactions
power
- social capital
= who you know + who knows you; vitamin B
- bigger network: improved alternatives, acquire more valuable info, high status people as allies
- -> facilitator of other types of power
bargaining techniques
- distributive bargaining
= negotiations about fixed resources
- competition
- claiming
bargaining techniques
- integrative bargaining
= collecting information about opponent
- cooperation
- creating
biases
- fixed-pie assumption
= thinks that there is fixed proportion one can gain, and one can’t create value
- value claiming too salient
- inhibits search for mutually beneficial outcomes
- incompatibility bias = their interest conflicts directly with those of the other side
- -> win-lose: anything good for them must be bad for me
biases
- framing effects
= context effects; if you see everything as a loss (negative frame) than you will lose either way (mentally)
- negative frames: less likely to make concessions, reach mutually beneficial outcomes
- depends on perceptual anchor –> create anchors that lead the opposition toward a positive frame
biases
- escalation of conflict
= when negotiations become too emotionally loaded
- avoid statements on rigid positions
- sunk-cost effect = if you (emotionally) invested too much earlier, unlikely to go into a lower settlement
biases
- overestimation of own value
= overestimation of chance that the other side will give you what you want (wrongly set BATNA)
- think you can get really good offers
- no positive bargaining zone
- most likely when knowledge is limited
- -> seek objective value assumption from neutral party
