MGT 459 Negotiation

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MGT 459 - Negotiation

• Session 1.1

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Two Major Types of Negotiation Situations
Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Two Major Types of Negotiation Situations
Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Factors Increasing Non-cooperative Negotiation in
Business

• Decentralization within Company
• Conflicts of interest
• Sub-optimization
• Strategic Alliances, Mergers, Acquisitions
• 55 of alliances and 78 of MAs fail
• Only 23 recover costs

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Non-cooperative Negotiation in Business

• Specialization
• Dependence on other firms for inputs
• Competition
• Can also create opportunities for cooperation
  (e.g., generic advertising)

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Myths about Interdependent Decision Making

• Myth 1 Its a game of wits
• I can outsmart them
• Other party is just as smart
• Myth 2 Its a game of strength
• Show em youre tough!
• Escalates conflict
• Myth 3 Its a game of chance
• Hope for the best
• Many outcomes are predictable

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Forms of Social Dilemmas

• A two-party dilemma is called a prisoners
  dilemma
• A multi-party dilemma is called a social
  dilemma
• Also known as Mixed-Motive Situations
• Simultaneous incentives to cooperate and compete
• Mutual cooperation is best for both parties,
  combined
• Competition is best for each party, individually

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Prisoners Dilemma
Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Types of Prisoners Dilemmas

• Type 1 One-shot decision
• Dominance detection Party As outcome is better
  by defecting regardless of Party Bs decision
• Equilibrium outcome results, neither party can
  unilaterally improve his or her outcome by making
  a different choice

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Types of Prisoners Dilemmas

• Type 2 Repeated interaction over a fixed number
  of trials
• Purpose of cooperation is to influence the
  behavior of other party
• Backward induction Start by predicting outcomes
  in final trial
• Final trial is essentially a one-shot decision

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Types of Prisoners Dilemmas

• Type 3 Repeated interaction for an infinite or
  indefinite amount of time
• Final trial not expected, or point in time not
  predictable
• Cooperation may influence other persons behavior

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Examples of Mixed Motive Situations

• Airlines
• Auto manufacturers dealers
• Arms race

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Winning (i.e. losing) Strategy for Prisoners
Dilemmas

• Tit-for tat strategy
• Always cooperate on first trial
• On subsequent trials, do what opponent did on the
  previous trial
• Tit-for-tat can never do better than its
  opponents
• Tit-for-tat has the potential to induce
  cooperation

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Illustration of Tit-for-tat
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Why is Tit-for-tat Effective?

• Its nice
• Competition elicits competition
• Its tough
• Solid cooperation would be exploited
• Its forgiving
• Commensurate response
• Its not too clever
• Other party can figure it out

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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How to make TIT-FOR-TAT work

• Dont be envious
• Dont be the first to defect
• Reciprocate both cooperation and defection
• Dont be too clever

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Recovering from Defection

• Try to see the other partys response as rational
  (i.e., one we would make)
• Dont expect trust to be rebuilt immediately
• Consider letting the other party catch up
• Make your decisions at the same time

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005