Week 5

Question 1

Signalling

Answer 1

Acting a way that is inconsistent with lying
- open their minds with message (I know you don’t believe me)
- send signal and verify it has been received

Question 2

Signalling traits

Answer 2

1. costly for you to take
2. others side can see you take it
3. more costly if lying

Question 3

Key Issue of Threats (Credibility)

Answer 3

Credibility
- able to inflict damage (bluff?)
- incentive/commitment to carry out
- promise to not inflict damage if other side complies

Question 4

How to react to threat

Answer 4

• don’t hear it
• cut communication line
• question other side, explore lack of incentives

Question 5

How to protect potential threats

Answer 5

play stupid, create doubts

Question 6

How to negotiate when posing a threat

Answer 6

1. establish credibility through words (cheap but useful)
2. signalling
3. verify proposal/threat has been received (stand firm)
4. don’t argue, tell them what they want to hear

Question 7

How to deal with information asymmetries in a negotiation

Answer 7

1. third party (credible)
2. warranties and earnouts
3. trust in future relationships
4. joint venture
   -> credibility based on evident sincereity is most important asset