Psych 253 Judgments and Decisions

Negotiations

Barbara Mellers

Negotiations and Conflict Resolution

An independent service station in the Port of Los Angeles is for sale by owners (married couple)

Texoil, a large petroleum refining company, is a potential buyer (Texoil representative)

Parties have 5 minutes to prepare and 30 minutes to negotiate and discuss Texoil’s possible purchase of the service station

When you prepare, think about your BATNA, your reservation price, and your underlying INTERESTS!

Texoil

Texoil Rep. Station Owner

BATNA

Reservation Price

Interests

Each Side’s Information

Texoil Rep. Station Owner

BATNA

Reservation Price

Interests

$675,000(Build one)

$400,000 (BP offer)

Each Side’s Information

Texoil Rep. Station Owner

BATNA

Reservation Price

Interests

$675,000(Build one)

$400,000 (BP offer)

$500,000 Why not $675K? Minimart = $100K Upgrades = $??

$553,000 ($488,000 after taxes) Boat loan: $230,000 Boat ready: $68,000 Food, health, clothing: $75,000 Boat repairs: $40,000 Savings after return: $75,000

Each Side’s Information

Texoil Rep. Station Owner

BATNA

Reservation Price

Interests

$675,000(Build one)

$400,000 (BP offer)

$500,000 Why not $675K? Minimart = $100K Upgrades = $??

$553,000 ($488,000 after taxes) Boat loan: $230,000 Boat ready: $68,000 Food, health, clothing: $75,000 Boat repairs: $40,000 Savings after return: $75,000

Good price Good managers Station Ownership

Time off (2 years) Spouse’s health Sail around the world Savings / future income Health insurance, food, etc.

Each Side’s Information

Who reached an agreement?

What kind of information did you share?

What was the key to an agreement?

Initial Texoil Situation

Station Owner’s Reservation Price

($553,000)

Texoil Rep’s Reservation Price

($500,000)

500 550 600 650 700450

BATNAFor Texoil Rep

Sale Price (in thousands)

400

BATNA For Station Owner (or, stay put)

700

Station Owner’s Reservation Price

($467,000)

Texoil Rep’s Reservation Price

($500,000)

Revised Texoil Situation:If Texoil Representative includes Job Offer Upon Return

480 490 500 510 520470

Sale Price (in thousands)

460 530

Multiple issues Differing preferences, expectations, risk attitudes Differing interests Future relationship Multiple alternatives

Characteristics of Integrative Bargaining

Distributive IntegrativeBargaining Bargaining

One issue Many issues

Win-Lose Win-Win

Outcome Process and outcome

Max share of pie Max size and share of pie

One time Repeated times

One position Many options

Keep interests hidden Share interests

Keep information hidden Share information

Competitive Cooperative/Competitive

Position-based Interest-based

Analyze own & other’s interests

Analyze own & other’s priorities

Prepare multi-issue proposals

Think creatively about shared interests

Distributive IntegrativeBargaining Bargaining

Define your BATNA

Define your reservation price

Define your target level

Prepare objective rationales

TACTICS

Cooperate

Build trust

Make package deals

Make multiple offers simultaneously

Ask for and share info about interests & priorities

Open high

Anchor with first offer

Discuss single issue

Make bi-lateral, not unilateral concessions

Persuade through objective rationale

Negotiators may have:

Escalated commitment to positionsTried to win over all elseBelieved that the pie was fixed (other party’s interests

are opposite yours)Had positive illusions and unrealistic aspirations Had negative views of opponent

Why did impasses occur?

Separate people from problem Should you be a hard or soft negotiator? Focus on interests, not positions

Generate multiple possibilities Base results on objective standards

Integrative Negotiation

Improve outcomes

Create more stable agreements

Improve implementation

Strengthen the relationship

Advantages of Integrative Agreements

The non-separability of integrative and distributive negotiations “Value that has been created must be claimed”

Tactics that claim value can impede its creation Persuading, withholding information

Approaches to creating value are vulnerable to claiming tactics Disclosing interests, priorities

But..

The Prisoner’s Dilemma

Your Partner

Not confess Confess

    2 yrs     0 yrs

Not confess        

You2 yrs   10 yrs    

    10 yrs     5 yrs

Confess        

0 yrs   5 yrs    

The Negotiator's Dilemma

Your Counterpart

Create Claim

    Good     Great

Create        

YouGood   Terrible    

    Terrible     Mediocre

Claim        

Great   Mediocre    

Prepare for integrative and distributive opportunities Analyze own & other’s interests; avoid fixed-pie perception Know your BATNA, Res Price, objective arguments

Balance cooperation and competition Build trust: don’t jump in trusting immediately, but be open to a trusting

interaction Ask for and share info about interests & priorities, but watch out for unilateral

information exchange

Resolving the Dilemma