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PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

PARKER – GIBSON

TEACHER’S PACKAGE

Review Copy Do Not Reproduce

P R O G R A M O N N E G O T I A T I O N A T H A R V A R D L A W S C H O O L AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

This case was written by Michael Wheeler. Copies are available online at www.pon.org, telephone 800-258-4406 or 617-495-7818. This case may not be reproduced, revised or translated in whole or in part by any means without the written permission of the Director of Curriculum Development, Program on Negotiation, 518 Pound Hall, Harvard Law School, Cambridge, MA 02138. Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 1992, 1995, 1997, 1998. 2006, 2007 by the President and Fellows of Harvard College. All rights reserved. (Rev. 07/07)

PARKER-GIBSON Teaching Notes Parker-Gibson is a two-party, single-issue negotiation for the purchase of a vacant lot. It is a refinement of an earlier simulation, Appleton-Baker. Overview The Parkers and Gibsons are neighbors. A vacant parcel of land, now owned by the Parkers, sits between their two house lots. The vacant parcel is smaller than the minimum required by zoning for a building lot, but potentially has value to abutters for "accessory uses" or simply as a buffer. The Parkers bought the land 15 years ago for $20,000 thinking that they might build a tennis court on it, but never went ahead with this project. The Parkers recently sold their house, but the purchasers are not very interested in buying the extra land. As a result, the Parkers have approached the Gibsons to see if they would like to acquire the parcel. As it happens, there is a large bargaining range in this case. The Parkers are moving out of state and will reluctantly sell the land for $15,000 to the purchaser of their home if the Gibsons aren't interested in buying the lot. Unbeknownst to the sellers, the Gibsons are very interested in purchasing the land to expand their house. They recently received an inheritance, and are willing to pay up to $40,000 for the land. The case was written to illustrate the dynamics of single-issue bargaining. To the extent possible, other issues have been suppressed. For example, the parties have a polite but distant relationship; with the Parkers’ departure, there is no realistic prospect of future dealings. Likewise, the relatively small amount of money involved argues against elaborate deal structuring. Mechanics Two Parties One person in each role Materials Confidential Instructions for each party (there are no separate general

instructions)

PARKER GIBSON: Teaching Notes

Copyright © 1992, 1995, 1997, 1998. 2006, 2007 by the President and Fellows of Harvard College. All rights reserved. (Rev. 07/07)

Inventory/Satisfaction Questionnaire for each party

Timing Reading, strategizing, completing Part 1 of Inventory/Satisfaction

Questionnaire: 10-15 minutes

Negotiation: 10-20 minutes Completing Part II of Inventory/Satisfaction Questionnaire, debriefing: 45-75 minutes Optional re-negotiation: 15 minutes

Pre-Negotiation Instructions Before participants begin negotiating, make it clear that the vacant lot between the Parkers’ and Gibsons’ homes is under discussion, not the Parkers' house lot. Emphasize that the parties should not exchange their physical Confidential Instructions during the negotiation. People can reveal as much or as little of their confidential information as they see fit, but must establish their credibility with their words or other actions. Also, you may ask people not to swap sheets even after they have come to agreement, so you can reveal the key information during the debriefing. Emphasize that the negotiation is taking place under a tight deadline: ten to twenty minutes really will suffice. By the same token, people should be encouraged to make good use of the time they have; tell them that they will get more out of the exercise if they do not rush to agreement in the first few minutes. Some instructors might be interested in adding another step in the game: ask participants to record their goals privately before they negotiate. This will make it possible to explore the possible connection between aspirations and success. It will also demonstrate how, for some people, standards of success are relative, not absolute. A seller may be very happy with a $20,000 deal, for example, until he or she learns that the buyer had much more to spend. To pursue this topic, hand out the Inventory/Satisfaction Questionnaire along with the Confidential Instructions and give people an extra minute to complete Part I of the form before the negotiation.

PARKER-GIBSON: Teaching Note


Debriefing Before you record the results, give people a moment to complete Part II of the Inventory/Satisfaction Questionnaire. Then ask whether everyone was able to come to agreement. Perhaps one in 20 pairs will have been stalemated; if there is a stalemate, make sure at the end of the debriefing to find out why the parties got stuck. Next, ask people to raise their hands if they are satisfied with the agreements that they reached; almost everyone will do so. Now it's time to record the results on an overhead or poster. You can have each pair submit a simple agreement (you only need the names of the parties and the agreed price) or you can simply put up a vertical scale (as illustrated in the Results Scale overhead) and ask people to report from the floor. If you use this latter method, make sure that you ask only the sellers to report so that you don't count the same agreement twice. To maintain suspense, you might ask first how many people settled in the $25,000 range (that is $25,000-$25,999), and then move up a bracket ($26,000) and down ($24,000), until you have included all the outcomes. The midway point between the two reservation levels is $28,000, but for reasons that are discussed below, the typical median is several thousand dollars less. If you are working with a small group, you might want to compare the results your group produces with the 100 Results overhead, which shows the distribution for 100 people who negotiated this exercise. As you record the results, you often will get gasps or laughter, particular as you get toward either extreme. When the full distribution is displayed, you might ask whether participants are still satisfied with their agreements. Some people will answer “yes” -- because they sold high or bought low, or they are not relativists -- but some others might admit to remorse. You may choose at this point to explore the so-called "winner's curse." People should consider not only their own standards for satisfaction, but also how the people with whom they are dealing measure success. Negotiations are often stymied when people have unrealistic assumptions about what others can afford. Early in the discussion, you might also step back from the problem and ask whether the wide range of results is realistic. One of the fundamental points of the exercise is that even when people have identical instructions, the differences in how they negotiate may produce very different outcomes. Whether the bargaining range is big or small (or exists at all) will depend on the situation. In a purely competitive market, there will be no range; but for many commodities – cars come to mind – there is some play in the numbers. The more unusual the subject matter and the smaller the number of available substitutes, the less certain the parties can be about the nature of the bargaining range. One of the lessons in this particular exercise is that negotiators should be careful not to impose their assumptions and perceptions on the other side. The Parkers are desperate sellers and the Gibsons cannot walk away from this unique parcel of land as easily as they might leave a car dealer's showroom. If either family focuses exclusively on their own needs, they will miss an opportunity to do much better than their respective BATNAs (Best Alternative to a Negotiated



Agreement). The variation in results invites rich discussion. If you don't mind going out on a limb, you have an 80 percent chance of being right by predicting that in the pair that reached the lowest price, the seller put the first serious number on the table (and conversely). Cover yourself, of course, by noting that your prediction is an educated guess. On occasion you will run into an extreme result that instead is explained by an even more extreme initial demand. In any event, the high and low outcomes should be juxtaposed. If the prediction proves right, it demonstrates the risk of making the first offer, namely that one gives away part of the bargaining range. If, for example, the Gibsons start the conversation with a bid of $23,000, it is highly unlikely the property will be sold for less than that. What had been a range between $23,000 and $27,000 instantly becomes truncated. It is essential that you emphasize another aspect of such a bid: it fundamentally shifts the bargaining power of the parties. Going into the negotiation, each party is in a position of equal ignorance, knowing his or her own BATNA but in the dark as to the other side's. (Indeed, neither can be sure that there is any range at all.) The moment the seller offers $23,000, however, the seller knows that a deal will be made. The only question is at what amount. He or she must determine if the $23,000 is a take-it-or-leave-it number or something the buyer is prepared to improve. The seller must also determine how much he or she can fairly extract (or whether fairness even comes into the question). Many sellers in that situation will report that they rapidly recalculated their standards of success. Initially, a $23,000 deal might have seemed like a straight-A outcome, but now their aspirations are higher. This is a very good time to explore the dynamic nature of success, specifically the connection between substance and process. You can make good reference to Neale and Bazerman's findings that negotiators often devalue concessions of the other side, once they are made. (See Negotiator Cognition and Rationality.) Explore the interpersonal and communication dimensions of these exchanges, as well. Often the sellers will report being startled by the buyer's generous offer. Sometimes they have a too-good-too-be true reaction, which is surely not in the buyer's interest. Many of the buyers will be unaware that their numbers have triggered such thoughts and claim that their sellers had poker faces. Perhaps this is so, but without videotape, you can't be sure: Some buyers may have been so absorbed in their own calculations that they did not look for a response. Ask people to consider how this negotiation would have been different if it had been conducted by phone or fax. People usually will volunteer that they would have missed the nonverbal cues, but if you push hard, you'll probably discover that some people made much more of them than did others. Push hard on how people interpreted language, as well. If the buyer who initially offered $15,000 was eventually "talked up" to a higher figure, find out just how that happened. Did the seller say that number was "totally unacceptable"? If so, you have good fodder for discussing



the ethics of negotiation. (Ethics aside, it is also a risky strategy, as the buyer may be making a good faith offer.) If, as is much more likely, he or she said something less explicit (such as "I really am looking for more"), ask the would-be buyer how he or she interpreted that. The experienced negotiator may well hear such a statement as not being a firm “no”. It is important to stress that this is not a lesson in why you should never make the first offer. If people take that from the exercise, they can be sure of two things: first, they will never get burned; second, they will never make a deal. At some point, silence must be broken and someone has to get serious about a reasonable price. People should be cautioned about throwing out a number before getting an impression of the other person's situation, but as noted below, there can be advantage in talking from your own number. Psychological anchors come into play here. In any case, people who put the first number on the table should be asked how they arrived at their numbers and what assumptions they were making. The Parkers don't know about the Gibsons' recent inheritance; the Gibsons are unaware of the Parkers' imminent move. Negotiators who glean that information before discussing dollars are in a much stronger position. In the course of debriefing particular cases, the instructor should explicitly establish a vocabulary of negotiation analysis. Key concepts include bargaining range, BATNA, offer patterns, winner's curse, and the like. You might note that although the problem is necessarily fictitious and simplified, it does allow us to see what is seldom apparent in real life: namely, the range of outcomes that might have been. In practice, we must negotiate with incomplete information and uncertainty. It behooves us to have a clear sense of our nonagreement alternatives, but we should be modest about what we really know about the other side. In debriefing the problem, we can see both ends of the bargaining range clearly, while in practice, all but our end of it may be obscure. It's also worth noting that persuasion is an important part of negotiation, so the bargaining range may move in the course of conversation. In ordinary sales situations, the seller will try to convince the buyer of the value of what he or she is offering; if this pitch is successful, the range is extended. You can explain the coyness with which many people negotiate single-issue cases in terms of each side's reluctance to make offers that are too generous or to reveal information that betrays the party's true need to make a deal. This reluctance can carry a big cost. At best, it wastes valuable time. At worst, parties who convincingly feign disinterest, each waiting for the other side to pounce, may miss profitable agreements. If you have time, you might invite the buyer who paid the least and the seller who received the most to come forward and participate in a championship playoff. Having explained all the dangers of the “dance of offers and counter-offers,” tell them that you have spared them that problem. Each knows exactly what the other's situation is: Parker can see $40,000 in cash bulging out of Gibson's pocket; Gibson knows that if there is no deal, Parker will turn around and sell the vacant lot for $15,000. You will stand by as a “truth officer” just in case either one



starts bluffing or lying. Give the two parties a couple of minutes to see if they can reach a deal, and have them talk loudly enough so that everyone can hear. Prod them to get past the pleasantries and into the heart of the negotiation quickly. You may have to count down the final seconds. About a third of the time, the parties will split the difference. In another third, one player will stand firm on a favorable number and the other will capitulate. In the other cases, the parties will be unable to come to agreement in spite of the fact that they both can see the large bargaining range. Even when the parties agree, you usually will be able to illustrate the tug-and-pull of single-issue cases. As the problem is written, it is hard to find joint gains. A dollar more for one party necessarily means a dollar less for the other. It is often clear that ego may be more important than dollars. The same people who did well in the first round may be disinclined to bend when up against one another. Splitting the difference is a convenient face-saving device, but there is nothing inherently “fair” about this approach. If a billionaire investor is the seller and a non-profit charitable organization is the buyer, the parties will have very differently uses for the same dollar bill. The result in this demonstration may give you a chance to comment on the distribution of results for the group as a whole. Typically the curve will be asymmetrical, with the median closer to the seller's end. Ask the group to propose explanations. One might be that sellers feel some sort of obligation to put a price on the thing that they are offering, and then will be more likely to give away part of the bargaining range. Some may suggest that the sellers feel more pressure to make a deal, given their undesirable alternative, and if people believe this is true, then it is. However, the buyer shouldn't be cavalier about missing the chance to buy a piece of property that is uniquely valuable to him/her. This last comment suggests a somewhat different way of starting the debriefing. Instead of predicting that the extreme cases are explained by first offers, you might instead ask people to suggest their own theories about the distribution. Possibilities might include the truncated bargaining range, psychological anchors, gleaned information, different aspirations, the interaction of particular pairings, differing notions of fairness, etc. You can then analyze the various transactions to see which of these factors were in place and how they worked against one another. However you proceed, you should point out that the case was designed to be single issue. Relatively few real-life problems have this quality, but it is important to acknowledge their existence. There is a much larger set of multi-issue problems in which one issue dominates; often that issue is cash. The problem nicely sets up a comparison with more complex cases. The Tendley Contract simulation (also available from the Program on Negotiation Clearinghouse) presents a nice contrast, as its notes indicate. The same hard bargaining approach that sometimes prevails in single-issue cases will be disastrous in others. There is, moreover, no firm line between those two kinds of cases. Indeed, an effective negotiator often succeeds by transforming zero-sum,



win-lose transactions into ones in which there is possible joint gain. If you do set up such a comparison, you should later revisit Parker and see if there is any realistic way of finding joint gains. Future dealings are assumed away, as noted earlier, and this really doesn't seem to be a case for seller financing. There might well be advantage, however, in further subdividing the half-lot. The Gibsons' interest lies particularly in that portion of the land that will allow them to expand their house. Not every square foot of that parcel is of equal value to them. Face with the choice of getting the entire property for $20,000 (let us say) or half of it for $15,000, they plausibly might prefer the latter; this would get them all the land they actually need and leave them with $5,000 more to spend on their expansion. The buyers of the Parker house, in turn, might be willing to pay more than half of their earlier offer of $15,000 for the remaining portion. If so, the Parkers will clear more than they could get just from the Gibsons. There are other approaches, as well; perhaps a variance or re-zoning would create more value.


This case was written by Michael Wheeler, Deputy Director of the Program on Negotiation at Harvard Law School. Copies are available online at www.pon.org, telephone 800-258-4406 or 617-495-7818. This case may not be reproduced, revised or translated in whole or in part by any means without the written permission of the Director of Curriculum Development, Program on Negotiation, 518 Pound Hall, Harvard Law School, Cambridge, MA 02138. Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 1992, 1995, 1997, 1998. 2006, 2007 by the President and Fellows of Harvard College. All rights reserved. (Rev. 07/07)

PARKER – GIBSON

TEACHER’S PACKAGE OVERHEADS


PARKER-GIBSON: Overheads


INSTRUCTIONS

1. Read information carefully 2. Plan your strategy 3. Negotiate with other party 4. Do not exchange sheets 5. Straight cash deals only 6. Submit either: Signed Agreement or Last Best Offer

7. Registry of deeds closes




PREPARATION 1. Assess your goals 2. Analyze your BATNA 3. Estimate the other side’s BATNA with utmost Objectivity 4. See what you have to learn 5. Anticipate perceptions 6. Plan your process

7. Be ready to adapt




LESSONS 1. Know your BATNA (Best Alternative To a Negotiated Agreement) 2. Plan your strategy 3. Be modest about how much you know 4. Weigh offers carefully

5. Avoid the winner’s curse




DYNAMICS

Implicit Framework:

Values, Assumptions, Habits & Expectations

Explicit

Planning: Fact-gathering &

Moves away from the table

Strategy: Analyzing, Framing &

Implementing ***************************

Interaction:

Communication, Persuasion, Learning & Reframing

Agreement or Impasse?

US

THEM




ZOPA STRATEGY 1. Identify the range 2. Shape perceptions 3. Commit credibly 4. Apply principles




SINGLE-ISSUE BARGAINING

Buyer’s Maximum $40,000 $27,500 $15,000 Seller’s Minimum 1. Zero-Sum (or Win-Win) 2. Positional (Bluffs) 3. Psychological Anchoring 4. Split the Difference? 5. Risk of Lock-ins

OVERLAP




RESULTS SCALE

$40K $35K $30K $25K $20K $15K 5 10 15 20 25

# of agreements




100 RESULTS

$40K $35K $30K $25K $20K $15K

5 10 15 20 25 # of agreements



This case was written by Michael Wheeler. Copies are available online at www.pon.org, telephone: 800-258-4406, fax: 617-495-7818. This case may not be reproduced, revised or translated in whole or in part by any means without the written permission of the Director of Curriculum Development, Program on Negotiation, 518 Pound Hall, Harvard Law School, Cambridge, MA 02138. Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 1992, 1995, 1997, 1998. 2006, 2007 by the President and Fellows of Harvard College. All rights reserved. (Rev. 07/07)

PARKER GIBSON

Inventory/Satisfaction Questionnaire Instructions Please fill out Part 1 after you have read your Confidential Instructions and formulated your strategy but before you sit down to negotiate. Complete Part 2 after you have finished your negotiation but before you have had any follow-up discussion with your counterpart or in class. Part 1 (pre-negotiation) A. Your name B. Your role (circle one): PARKER/seller or GIBSON/buyer C. Please fill in the settlement amount which would result in the following levels of

satisfaction for you (note: marginally satisfactory must equal the bottom line you've been given in your Confidential Instructions):

MARGINALLY SATISFACTORY $ SATISFACTORY $ VERY SATISFACTORY $

OPTIMAL $


Parker Gibson: Questionnaire


2

D. Is there any amount which, though seemingly even better for you than the

OPTIMAL figure you just listed, you would reject as being unfair to the other side?

Circle One: YES NO E. Now that you have completed the inventory, you may begin to negotiate. Don't

show this sheet to your counterpart.


Parker Gibson: Questionnaire


3

Part 2 (post-negotiation/pre-discussion) A. Did you reach an agreement? (circle one): YES NO B. If YES, for what amount? $ C. How would you now describe the outcome? (circle one): MARGINALLY SATISFACTORY VERY SATISFACTORY SATISFACTORY OPTIMAL D. Did your standards for satisfaction (circle one) …?: GO UP GO DOWN STAY THE SAME


P R O G R A M O N N E G O T I A T I O N A T H A R V A R D L A W S C H O O L AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION


PARKER-GIBSON Confidential Instructions for the Parkers The Parkers own a house at 43 Willow Street. Fifteen years ago, they paid $20,000 for a 10,000-square foot parcel that sits between their home and the home of the Gibsons, who live at 39 Willow Street. That specific parcel is slightly less than half of the one-half acre minimum building lot size required by the local zoning. The Parkers purchased the half-lot thinking that they might someday use it for a tennis court, but they never got around to building one. They have used some of the land for a vegetable garden from time to time. Now the Parkers have decided to move out of state, having elected to take a generous early retirement package. They were lucky enough to find a private buyer for their house at 43 Willow. Because they got a good price and did not have to pay a broker fee, they are netting more than they expected. The only drawback is that the buyer is not interested in purchasing the extra parcel, seeing no real use for it. At the most, the buyer will be willing to pay an additional $15,000 (over and above the negotiated price for the house and house lot) for the half-lot. This is less, of course, than the price the Parkers themselves paid over a decade ago, but lacking other bidders, they would accept this $15,000 offer. It would make no sense to hang on to this land once they live thousands of miles away. Before swallowing this loss, however, the Parkers have tried to see if they could do better by approaching their neighbors whose houses abut the half-lot and who might have some use for it. Neither the people to the north or to the south have any interest, so their last hope is the Gibsons, who live immediately to the west. As it happens, when the Parkers first acquired the parcel, they had asked the Gibsons if they wanted to buy it jointly, but the Gibsons declined. There is no animosity between the families, but they have had little contact over the years. The Gibsons may not be any more interested in the land now than they were fifteen years ago, but the Parkers feel there is no harm in asking. Perhaps they might be persuaded of the value in adding yard space or getting a bit of a buffer between them and their new neighbors.

1. In this negotiation, you are to assume the role of one of the Parkers – or, if you are more comfortable, that of a representative fully authorized to act on their behalf.

2. Your goal is to sell the vacant parcel for as much as possible. Any deal you make with

the Gibsons must be more than the $15,000 offer that you already have. You should regard the $15,000 as an absolute minimum. Try hard to do much better. Remember


Parker Gibson: Confidential Instructions for the Parkers

Copyright © 1992, 1995, 1997, 1998. 2006, 2007 by the President and Fellows of Harvard College. All rights reserved. (Rev. 07/07) 2

that you paid more for it, and have had upkeep and taxes through the years.

3. It is true that real estate values fell generally over the last decade, but have rebounded somewhat in recent years. That fact provides little help here, however, as this is a unique piece of property. There really is no fair market value for it.

4. You are only interested in a straight cash deal. Do not complicate matters by

arranging seller financing, reserving special easements, or introducing other issues or options.

5. A parcel plan, not to scale, is below.

W i l l o w S t r e e t

M a p

T h e M o o r e E s t a t e

H a l f - L o tGibson Parker




PARKER-GIBSON Confidential Instructions for the Gibsons The Gibsons own a house at 39 Willow Street. They have been approached by their neighbors to the east – the Parkers – who have asked the Gibsons if they would be interested in buying the half-lot that sits between their two homes. The parcel consists of 10,000 square feet, a bit less than half of the half-acre minimum building lot size set by local zoning. The Parkers purchased this parcel 15 years ago for around $20,000. At that time, the Parkers had asked the Gibsons if they would be interested in buying the land together and perhaps building a tennis court, but the Gibsons declined. The Parkers never got around to using the land for much. There are no hard feelings between the two families, but they have had little social or professional contact over the years. Now things may change. Although the Gibsons are frugal people – Bob is a teacher/coach at the local high school and Jackie is a part-time bookkeeper – they recently came into a modest inheritance from a favorite aunt. They plan to use some of the money to expand their small house. They have already talked to an architect and contractor about alternative plans. Ideally, they would like to build a new kitchen/solarium to the east, but their house sits as close to the existing property line as the zoning allows. Acquiring the half-lot would completely solve this problem. Without the parcel, the Gibsons will have to expand in another direction. Doing so would be more costly and would not produce as attractive a house. As a result, the Parkers’ inquiry came as a pleasant surprise. (It’s a small town – perhaps the Parkers got wind of the Gibsons’ building plans). In any event, it’s good news that the land may be available. The Gibsons don’t want to be exploited on price, of course. In looking at their bank account and their construction alternatives, the Gibsons have set a firm maximum of $40,000 for the half-lot. If the Parkers insist on more, the Gibsons will pass on the deal. They would naturally prefer to pay much less than the $40,000, if possible, as they have plenty other good uses for the money. A cousin who is a real estate broker advised them that there is really no "fair market value" for this parcel. It is unique and has value only to immediate abutters; therefore, there are no comparable sales. It is true that real estate prices fell generally during the last decade, but have rebounded somewhat in recent years.


Parker Gibson: Confidential Instructions for the Gibsons


3

1. In this negotiation, you are to assume the role of one of the Gibsons – or, if you are more comfortable, that of a representative fully authorized to act on their behalf.

2. Your goal is to buy the half-lot for as little as possible. The $40,000 maximum they have stipulated is an absolute upper limit. Every dollar you can shave from this cap represents an improved result.

3. You are only interested in a straight cash deal. Do not complicate matters by

arranging seller financing, reserving special easements, or introducing other issues or options.

4. A parcel plan, not to scale, is below.

W i l l o w S t r e e t

M a p

T h e M o o r e E s t a t e

H a l f - L o tGibson Parker


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