Reflection Report on Negotiations

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Negotiations

“The relationships that we seek, whether as individuals or nations, is a process for

dealing with differences”

From Getting Together by Roger Fisher and Scott Brown

The information contained in this document is confidential, privileged and only for the information of the intended recipient. It may not be used, published or redistributed without the prior written consent of Ayelet Fishbach.

A word on practice

• Mozart composed his masterwork at age 21. When did he start composing? – At age 6

• The Beatles became famous in 1964. When did they start performing? – 1957 (Hamburg, Germany )

• Marie Curie won her first Nobel prize (physics) at age 36. By then, how many years did she work on her theory of radioactivity? – 9 years

• Bobby Fischer became a grandmaster at age 15. How many years was he playing chess by then? – 9 years

Prof. Ayelet Fishbach 2

http://images.google.com/imgres?imgurl=http://z.about.com/d/classicalmusic/1/0/8/mozart_portrait.jpg&imgrefurl=http://classicalmusic.about.com/b/2006/11/08/the-mozart-effect.htm&usg=__l8bcIOdlI97T5wBDcWAaUMpQKSM=&h=420&w=336&sz=17&hl=en&start=1&um=1&tbnid=Fn6pUJbBgfapGM:&tbnh=125&tbnw=100&prev=/images?q=mozart&hl=en&rlz=1T4GGLG_enUS318US318&sa=N&um=1

A word on managerial skills

• State of the American Workplace, 2017 (Gallup) A sample of the 100m people in this country who hold full-time jobs:

– 67% disengaged at work: 16% are actively disengaged, miserable and destroy what engaged employees build. 51% are not engaged –they’re just there.

– 33% are engaged at work.

• The main reason for discontent is not wages, benefits or hours, but management. – Only 21% agree their leadership motivates them to do outstanding work.

– Only 22% agree their leadership has clear direction for the organization

– Only 13% agree their leadership communicates effectively.

• 51% of US employees say they are looking for a new job.

• “change from a culture of paycheck to a culture of purpose” Jim Clifton, the C.E.O. and

chairman of Gallup.

• Who are the most discontented workers? The grumpiest, least happy people in the workplace are college graduates.

Prof. Ayelet Fishbach 3

A word on scientific approach

• A scientific approach to entrepreneurial decision making: Evidence from a randomized control trial (Camuffo et al., 2020).

Prof. Ayelet Fishbach 4

Schedule

6Prof. Ayelet Fishbach

Requirements The negotiation grade is based on the following three components:

Class Participation 20%

Negotiation exercises

Negotiation debriefs

Prep notes 20%

Reflection Report 60% Due two weeks after the final class

7Prof. Ayelet Fishbach

Expectations • come to class on time and prepared to negotiate

• be open to feedback (willing to reflect)

• be willing to experiment (corollary, be willing to forgive)

• have fun!

8Prof. Ayelet Fishbach

Usain Bolt

Introduction • Theory

“Unpack” your preconceptions of negotiation: two parties, one issue two parties, many issues many parties, many issues

claiming vs. creating value one-shot vs. repeated interaction face-to-face vs. through agent

• Practice

The classroom setting allows us to evaluate outcomes, compare tactics, assess and revamp out approaches Outside the classroom, feedback in negotiation is rare and limited

“We do not learn from experience… we learn from reflecting on experience.” – John Dewey

9Prof. Ayelet Fishbach

Agenda of each Class

• Introduction

• Negotiation

• Debriefing and Analysis

• Prescription

10Prof. Ayelet Fishbach

What are the characteristics that define an effective negotiator?

11Prof. Ayelet Fishbach

• Preparation and analysis

• Emotion regulation

• Interpersonal skills (bonding, listening)

• Fit the strategy to the situation

Concepts in negotiations

• What motivates us.

• The issues at the table.

• What negotiators say.

– Examples: “I need a raise” because “I believe others got a raise” because “I need job security and appreciation.”

12Prof. Ayelet Fishbach

Concepts in negotiations • Reservation Price (RP) - the price that the negotiating party will not cross • ZOPA (Zone of Possible Agreement) • BATNA (Best Alternative to a Negotiation Agreement)

Buyer’s Reservation PriceBuyer’s Aspiration

Seller’s Reservation Price Seller's Aspiration

ZOPA / Bargaining Zone

13Prof. Ayelet Fishbach

Plural – Sunset

Logistics

• Identify your partner for today’s negotiation

• https://tinyurl.com/y87dt8fy

• Negotiate outside of the classroom. When you’re done, report your results BEFORE taking a break.

Prof. Ayelet Fishbach 15

https://tinyurl.com/y87dt8fy

Plural – Sunset

• Read the case and fill out your preparation notes:

Plural - Buyer Sunset - Seller BATNA (Best Alternative to a Negotiation Agreement) RESERVATION PRICE TARGET/ ASPIRATION

WHAT IS YOUR OPENING MOVE? INITIAL STRATEGYAND CONTINGENCY PLANS:

Prof. Ayelet Fishbach

REPORT FORM – HAND IN

Role: Plural (Buyer)

1. Your Name:

2. Group number:

3. Did you reach an agreement? Yes____ No____

4. If yes, at what price? $ __________

5. Who made the initial numerical offer in the negotiation?

Sunset __________ Simultaneous first offers __________

Plural __________

6. What was the initial offer? $ __________

7. What was the first counteroffer? $ __________

8. Before the negotiation: what was your assessment of Sunset minimum acceptable price? In other

words, what is the lowest price that Sunset is willing to give you? $_____________

9. After the negotiation: what is your assessment of Sunset minimum acceptable price now?

$_____________

10. Briefly describe the single most important lesson from this negotiation:

_____________________________________________________________________________

17Prof. Ayelet Fishbach

REPORT FORM – HAND IN

Role: Sunset (Seller)

1. Your Name:

2. Group number:

3. Did you reach an agreement? Yes____ No____

4. If yes, at what price? $ __________

5. Who made the initial numerical offer in the negotiation?

Sunset __________ Simultaneous first offers __________

Plural __________

6. What was the initial offer? $ __________

7. What was the first counteroffer? $ __________

8. Before the negotiation: what was your assessment of Plural maximum acceptable price? In

other words, what is the highest price that Plural is willing to give you $_____________

9. After the negotiation: what is your assessment of Plural maximum acceptable price now?

$_____________

10. Briefly describe the single most important lesson from this negotiation:

_____________________________________________________________________________

18Prof. Ayelet Fishbach

Plural Wireless-Sunset Telecommunications: Instructions

• Prepare for the negotiation (15 min).

• Negotiate. Deadline for negotiation: 30 Min

• Fill out the report form with your negotiation partner https://tinyurl.com/pluralsunset11

• Start the negotiation at: 3:15pm • Report your results at: 3:45

– Then, take a break.

• Debrief begins at: 4:00

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https://tinyurl.com/pluralsunset11

Plural - Sunset Debriefing

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Plural - Sunset Debriefing • Reservation Price (RP)- the price that the negotiating party will not cross • ZOPA (Zone of Possible Agreement) • BATNA (Best Alternative to a Negotiation Agreement)

Buyer’s Reservation PriceBuyer’s Aspiration

Seller’s Reservation Price Seller's Aspiration

ZOPA / Bargaining Zone

21Prof. Ayelet Fishbach

40Plural’s Aspiration

10 Sunset’s Aspiration

ZOPA / Bargaining Zone

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Anchoring

23Prof. Ayelet Fishbach

• First offer serves an anchor

• Anchoring: a tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.

• Examples:

• How old was Mahatma Gandhi was when he died? – Half of the people: “Did he die before or after the age of 9?” average estimate = 50

– Half of the people: “Did he die before or after the age of 122?” average estimate = 67

• What is the percentage of African countries in the United Nation? – “Is it more or less than 10?” median estimate = 25

– “Is it more or less than 65?” median estimate = 45

• Quickly estimate – Descending sequence: “8 X 7 X 6 X 5 X 4 X 3 X 2 X 1 = ?” average estimate = 2,250

– Ascending sequence: “1 X 2 X 3 X 4 X 5 X 6 X 7 X 8 = ?” average estimate = 512

Anchoring

24Prof. Ayelet Fishbach

A simple recipe:

1. Uncertainty

2. Some number is floating in the air

3. Insufficient adjustment

Anchoring and Negotiation Before negotiating, the seller reads that:

When you raised the issue of price today, you initially thought that the translator — who was extremely difficult to understand — said that the buyer “was willing to pay in the $12 [or $32] range.” When asked to repeat and clarify this remark, the translator said that he had not mentioned a price, but instead had said that the buyer wanted you to propose a price per unit for tomorrow’s meeting. Accepting that the $12 [or $32] figure was a misunderstanding, you agree to the request and are now deciding what price to propose.

25Prof. Ayelet Fishbach

Anchoring and Negotiation

He…

$ 1

$ 2

$ 3

$ 4

fr e

q u

en cy

settlement

Heard $12

Heard $32

26Prof. Ayelet Fishbach

Anchoring and First Offers A $1M more aggressive first offer leads to a $0.30M-$0.50M average improvement in final settlement.

R = 0.56

$10

$15

$20

$25

$30

$35

$10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75

Seller's first offer

F in

a l P

ri c e

Buyer accepts

first offer

27Prof. Ayelet Fishbach

Anchoring and First Offers A $1M more aggressive first offer leads to a $0.30M-$0.50M average improvement in final settlement.

R = 0.45

$10

$15

$20

$25

$30

$35

$0 $5 $10 $15 $20 $25 $30 $35

Buyer's first offer

F in

a l

P ri

c e

Seller accepts

first offer

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Computing the estimated share of the pie

◼ Suppose that we have a deal at $25M, and Sunset (seller) believes that Plural’s (buyer) RP is $30M. What is the share of the pie that Sunset believes it received?

Profit [Deal price(25) – Sunset’s RP(10) ]

Available Profit [Sunset’s RP(10) - Plural’s RP(30)] = 15/20 = 75%

29Prof. Ayelet Fishbach

Computing the estimated share of the pie

◼ Similarly, imagine that we have a deal at $25M and Plural (buyer) thinks Sunset’s (seller) RP is $20M. What is the share of the pie that Plural thinks that it got?

Profit [Deal price(25) – Plural’s RP(40) ]

Available Profit [Plural’s RP(40) - Sunset’s RP (20)] = 15/20 = 75%

30Prof. Ayelet Fishbach

Computing the estimated share of the pie

◼ Suppose that we have a deal at $25M, and Sunset (seller) believes that Plural’s (buyer) RP is $30M. What is the share of the pie that Sunset believes it received? 75%

◼ Similarly, imagine that Plural (buyer) thinks Sunset’s (seller) RP is $20M. What is the share of the pie that Plural thinks that it got? 75%

◼ What’s wrong with this picture?

31Prof. Ayelet Fishbach

Computing the estimated share of the pie

Deal price - Your RP

Your RP - Your percep of other side’s RP =

Your profit Your percep of how much profit is available

= Your percep of what part of the available profit YOU GOT

32Prof. Ayelet Fishbach

Computing the estimated share of the pie

Deal price - Your RP

Your RP - Your percep of other side’s RP =

Your profit Your percep of how much profit is available

= Your percep of what part of the available profit YOU GOT

Bias

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Plural - Sunset Debriefing • Negotiators tend to overestimate their share of the pie.

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Buyer's Estimated Share (Average = 78%)

S e

ll e

r' s

E s

ti m

a te

d S

h a re

( A

v e

ra g

e =

7 5 %

)

34Prof. Ayelet Fishbach

Plural - Sunset Debriefing

• Why are there so few no deals?

Because both sides believe they got a large amount of the pie

• Systematic Bias

People are close to their own RP when estimating the other’s RP

35Prof. Ayelet Fishbach

Background: Cingular acquires AT&T - Last- Minute Bid of $41 Billion

February 2004, WSJ

• For four days, two of the world's largest wireless companies (Cingular and Vodafone) had been vying to acquire AT&T Wireless.

• The surprise assault came in an 11:30 p.m. phone call in which Ackerman and Whitacre, whose companies own Cingular, agreed to persuade their respective boards to approve one last jump in their bid. The condition: that AT&T Wireless sign the deal within 60 seconds of seeing the contract.

• Roughly an hour later, Mr. Rosenblum (AT&T) called back and agreed.

36Prof. Ayelet Fishbach

Background: Cingular acquires AT&T - Last- Minute Bid of $41 Billion

February 2004, WSJ

• Earlier on that day, Mr. Whitacre had been expecting a call from the AT&T Wireless board, updating him on the status of Cingular's bid. The call didn't bring good news: An adviser confirmed earlier reports that Britain's Vodafone was on the verge of winning the auction.

• Mr. Whitacre deadpanned to the crowd that his wife, Linda, was asking him to pick up milk on the way home. By the time he did get home, calls from bankers and lawyers in New York handling Cingular's bid were pouring in. The mood on the Cingular side was glum.

• Cingular had upped its offer for AT&T Wireless twice, first to $35 billion and then to $38 billion.

• Some say that the company is paying too much for its $41 billion acquisition. The carrier was in desperate need of additional spectrum, and analysts say it probably could have had it for well under $10 billion by buying distressed assets from other companies.

37Prof. Ayelet Fishbach

Summary

◼ How well did you do?

◼ Your Z-score let you know how you did compared with the other players.

A higher Z-score indicates better performance independently of the specific negotiation or your role.

38Prof. Ayelet Fishbach

Summary

▪ Should you make the first offer?

▪ What should it be?

1. It should be extreme.

2. The more aggressive your start, the better your finish.

1. In this situation, you should.

39Prof. Ayelet Fishbach

Strategic Advice In general, the party who gives an aggressive first offer does better in this type of distributive negotiation. This is because making the first offer helps to anchor the negotiation in your direction (i.e., anchoring and insufficient adjustment).

PROS:

▪ Make the first offer with a number that is outside the ZOPA (i.e., anchor on your aspiration not your RP) allows you with plenty of room to make concessions and appear generous

▪ Make larger concession early and smaller ones later to signal that you are getting close to your RP ▪ Make bilateral (not unilateral) concessions: Do not negotiate with yourself. This is what happens

when one party makes two concessions in a row, without an intervening concession by the other party

CONS:

▪ Offer too much (i.e., Winner’s Curse) if you are unprepared or if the other party knows more than you do.

▪ Offend the other party and engender hostility with an extreme offer that is not supported by logic However, this fear might be more apparent than real

DO: ▪ Determine your first offer and RP prior to sitting down ▪ Make your first offer extreme ▪ At the table, be sure to make the first offer ▪ Prepare “rationales” for concessions and end-moves ▪ Be sure that these rationales “show pain” ▪ Be sure not give away any information

40Prof. Ayelet Fishbach

Prep Notes (hand in before class starts) Plural Sunset

PRIORITIZED

INTERESTS &

POSITIONS

Buy Sunset for lowest possible price.

Sell Sunset to Plural for highest possible price.

BATNA Obtain similar increases in spectrum for $12M through the acquisition of distressed assets.

Look for other buyers; talk to Villafone, Zenith, etc.

RESERVATION

PRICE 40m 10m

TARGET/

ASPIRATION (e.g., 20m) (e.g., 30m)

What is your

opening move? (e.g., Will propose 8m) (e.g., Will propose 42m)

41Prof. Ayelet Fishbach

For session #2

Prepare and submit prep notes: • Leckenby

• Three way organization

Note: your roles will be assigned in class

42Prof. Ayelet Fishbach

Class 2: Leckenby & Three-Way Organization

Negotiation Basics • BATNA (Best Alternative To a Negotiation Agreement)

– A course of actions (NOT a number).

• Reservation Price • ZOPA (Zone of Possible Agreement)

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Buyer’s Reservation PriceBuyer’s Aspiration

Seller’s Reservation Price Seller's Aspiration

ZOPA / Bargaining Zone

A word on time in negotiation

• Negotiations fill the time available (Parkinson’s Law).

• Deadlines lead to softened demands, less bluffing, more concessions.

• Under time pressure, concessions are less likely to be perceived as weakness.

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Using Deadlines Effectively • As a deadline approaches, expect frequent concessions.

• Create deadlines for subgoals to spur movement.

• Re-negotiate deadlines (deadlines are usually arbitrary).

• Your deadline can be a weakness: The party who does not face an external deadline has more power (e.g., the Paris peace talks on Vietnam).

• Your deadline can be a strength: Your deadline is their deadline.

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Leckenby Negotiation • You’ve recently been appointed President of Leckenby Co. / President of

Leckenby’s union, a small steel fabricating firm.

• You have resolved all issues except the hourly wage.

• You start the wage negotiations two days before the union’s official strike deadline. Should you reach agreement on either of the first 2 days prior to the deadline, a strike would be avoided. If not, a strike would automatically begin the 3rd day of negotiations, along with costs for both sides. The union has funds to strike for 20 days.

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Leckenby Negotiation

• You agreed on the following rules: • The hourly wage would be between $10 and $11.

– Management’s first offer could not be less than $10 – The union’s first offer could not be more than $11

• Reverse concessions: – Parties cannot take back an offer (e.g., management

cannot offer $10.25 on one round and $10.21 the next)

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Procedure • A silent negotiation - No talking! The only communication allowed is a

bid submitted on a note.

• Daily exchange of bids: On each day (round), both sides print on folded notes their proposed hourly wage rate. The bid for a given round must be written down before the exchange of notes for that round.

• The daily bids are to be disclosed simultaneously. If union’s bid is higher than management’s bid, negotiations continue the next day. If union’s bid is lower than management's, an agreement is reached at the midpoint between the two bids.

• After 20 days the strike fund runs out and the union must accept the management’s last offer.

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Leckenby: Cumulative Results

10%

15%

20%

25%

30%

35%

40%

0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

Wage Rate

Fr eq

ue nc

Average: 0.55 Std Dev: 0.15

Prof. Ayelet Fishbach 8

Leckenby: Hypothetical Results

The Effect of Wages When there is no strike

-$12

-$10

-$8

-$6

-$4

-$2

10 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 11

Wage

Union's benefit (million) President's benefit (million)

The Effect of Strikes when Wage = $10.50

-$12

-$10

-$8

-$6

-$4

-$2

0 2 4 6 8 10 12 14 16 18 20

Number of Strikes

Union's benefit (million) President's benefit (million)

Prof. Ayelet Fishbach 9

Leckenby: Cumulative Results

-3

-2

-1

-13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

Kunzler

A rn ol d

d=20 18

16 14

12 10

8 6 4 2

x=1

x=.8

x=.6

x=.4

x=.2

x=0

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Leckenby: Cumulative Results

-3

-2

-1

-13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

Kunzler

A rn ol d

d=20 d=18

d=16 d=14

d=12 d=10

d=8 d=6 d=4d=2

x=1

x=.8

x=.6

x=.4

x=.2

x=0

d=0

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Leckenby: Cumulative Results

-3

-2

-1

-13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

Kunzler

A rn ol d

d=20 d=18

d=16 d=14

d=12 d=10

d=8 d=6 d=4

d=2

x=1

x=.8

x=.6

x=.4

x=.2

x=0

d=0

Prof. Ayelet Fishbach 12

Leckenby: Cumulative Results

Prof. Ayelet Fishbach 13

Observed Correlations in Leckenby

Union Profit Management Profit

Management Profit 0.64

Final Wage 0.75 0.00

Strike Days -0.83 -0.94

• Win-Lose situation: In Plural-Sunset, negative (r = -1) correlation between payoffs for buyers and sellers.

• Win-win situation: In Leckenby, positive correlation between payoffs for management and union.

• Plural-sunset: determine your first move. • Leckenby: determine your last move.

Escalation (e.g., strikes) occurs because of

1. Sunk cost traps 2. Power to impose costs (tendency to look at

asymmetrically) 3. Partial optimization: The parties negotiation

wages; not length of strike 4. Fairness: different notions of fairness 5. Mis-signals: difficulty in signaling when

communication is limited.

Prof. Ayelet Fishbach 14

Difficulty in signaling – Tapping exercise • “tappers” versus “guessers” • Guessers: Eyes closed! • Tappers: with your finger, tap the tune of a song.

Guessers will guess what it is

• Tap: “Happy birthday to you, Happy birthday to you, Happy birthday, dear someone, Happy birthday to you.”

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Exchange roles • “tappers” versus “guessers” • Guessers: Eyes closed! • Tappers: with your finger, tap the tune of a song.

Guessers will guess what it is

• Tap yellow submarine (Beatles): “We all live in yellow submarine, yellow submarine, yellow submarine, We all live in yellow submarine, yellow submarine, yellow submarine.”

Prof. Ayelet Fishbach 16

How to avoid (manage) escalation?

• assess the escalation potential – personalities – public nature of conflict – sunk costs (psychological and monetary) – asymmetries in perceived power

• don’t contribute • establish a cutoff and act with conviction until you

reach that cutoff • understand benefits and risks of commitments • understand benefits and risks of signals • watch for emotion

Prof. Ayelet Fishbach 17

Strategic Advice Prepare • Assess the escalation potential: read the personalities and any public

commitments • Set a cutoff point before you get to the table. know when to pull the

breaks. You can end this negotiation at any point my matching the last request.

At the table • Act with great conviction until you reach the cutoff. Then, don’t be

afraid to back down. • Don’t get emotional; remind yourself of what’s important. • Watch for adverse emotion on the other side. • Make sure that sunk costs don’t influence your decision-making. • Be aware of how signals are often missed or misread.

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Building Coalitions

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B C

1820

P V

The Game

Simple Coalitions: Basics

B C

100 0

20 2018 18

12 12

Prof. Ayelet Fishbach 21

Cumulative results

10%

15%

20%

25%

30%

35%

40%

45%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Neptune: 9.94 Pluto: 7.40 Venus: 5.63

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Three Way Organization

• What does it mean to be rational here?

• What does it mean to be fair here?

• First offer: To whom? What should it be?

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Three sources of power in coalitions

1. Resource investment.

2. Relationships (trust vs. trustworthy)

3. Credibility of commitments

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Simple Coalitions: Process

• Commitments can be critical (role of irrationality?) – How do you halt the “musical chairs”? – How do you make a pact credible?

• Standards of fairness determine distribution of value among players, but ... – there may be many “reasonable” standards – players may not agree on standards (may or may not be merely

acting self-interestedly) – standards of fairness are tricky (subject to framing, role bias,

etc.) – Preparation: Anticipate what standards might be proposed and

how these standards might be justified.

Prof. Ayelet Fishbach 25

B C

1820

P V

Shapley Value

Order: Neptune Pluto Venus NPV 0 20 4 NVP 0 6 18 PNV 20 0 4 PVN VNP 18 6 0 VPN

Prof. Ayelet Fishbach 26

Shapley Value Neptune Pluto Venus

NPV 0 20 4

NVP 0 6 18

PNV 20 0 4

PVN 12 0 12

VNP 18 6 0

VPN 12 12 0

Sum 62 44 38

Average 10.33 7.33 6.33 Prof. Ayelet Fishbach 27

Trust and Strategy • 1. When trust is likely

– Assume trustworthiness – Get to know your counterpart personally – Keep agreements tentative until the end

• 2. When trust is possible – Emphasize overarching goals – Look to the future and find a shared vision (including common enemy) – Take a break, suggest another approach, or call in a mediator

• 3. When trust is not possible – Make offers on several issues at the same time – Look for hidden patterns and cues in your counterpart’s offers and responses – Make reciprocal concessions – Introduce data, logic, and objective standards that might help break logjams

Prof. Ayelet Fishbach 28

https://hbr.org/2012/12/in-global-negotiations-its-all-about-trust

Coalitional Lessons

Prof. Ayelet Fishbach 29

• Know whether there will be cycling.

• If not, the situation is essentially value-claiming. Thus, your first offer should -- as in all value-claiming situations -- aim high.

• If there will be cycling, then coalitions, commitments, and trust are at the heart of the issue.

• Thus, you must consider not only what your first offer will be, but to whom it will be made. Generous first offers to weaker parties promote a commitment-driven strategy. Aggressive first offers to stronger parties promote a log-rolling strategy.* There are also in-betweens.

*Log-rolling: a negotiation strategy that involves many concessions and the ‘trading-off’ of issues

Commitments and threats

• Commitments are resolutions to “bind” oneself to a position (politically, economically, psychologically)

• Threats are pledges to punish someone who fails to “cooperate” with you

Prof. Ayelet Fishbach 30

Strategy of commitments and threats

• No incentive to carry out the threat (before making the threat or if the threat is ineffective).

• No incentive to maintain a commitment once the commitment fails.

• Therefore, a threat or commitment is only effective if it is credible (you are expected to carry out the threat).

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Strategy of commitments and threats Credible commitments or threats may involve • reputation • irrationality • contracts (with external parties/constituencies) • burn bridges • using negotiation agents

A commitment or threat fails if • opponent does not consider commitment or threat

credible • other side is irrational (too?) • other side is already committed to a position

Prof. Ayelet Fishbach 32

Strategic Advice: Coalitions • Realize that a (first) offer made to one party influences the thinking

of the other parties. Unapproached parties ask “why was an offer made to someone else and not to me?”

• Thus, your approach to one party can influence the type of strategy – commitment-driven or log-rolling – taken up by another party.

• As always, think through who has better information about the strength of various commitments and coalitions.

Essentials • One very good way to elicit trustworthy behavior is to be trusting.

• If there will be cycling, much energy should be devoted to finish the negotiation.

Prof. Ayelet Fishbach 33

Session 3: Integrative Negotiation

Schedule

• Moms.com negotiation

• Break

• Moms.com debrief

• Negotiation styles

2Prof. Ayelet Fishbach

Negotiation Basics

• Moving to a multiple issues negotiation

• BATNA (Best Alternative To a Negotiation Agreement)

– An alternative deal

• Reservation Price (the price that the negotiating party will not cross)

– For the entire deal

3Prof. Ayelet Fishbach

Instructions for Reflection Reports • Parameters

– Word limit: 2,000 word. – based on the negotiation simulations – due Saturday, December 19th by midnight.

– Submit on Canvas.

• Purpose – vehicle for you to synthesize the lessons you want to retain from your experience

and reflections – students in the past have regarded the report as one of the most important

pieces of the learning process

• Better reports… – more specific, deeper, and more prescriptive – reflect analytical and psychological sophistication – build on or extend the lessons and concepts covered in class and in the readings

4Prof. Ayelet Fishbach

Reflection Reports: What? • Material

– aspects of your preparation or negotiating behavior with which you were pleased or disappointed

– any unexpected approaches or actions by others

– Integrate the readings and lectures

• Common Approaches

– Discuss how you might better anticipate and deal with various behaviors in the future

– Analyze in what situations or against what sorts of counterparts might a particular strategy be more or less successful

– Discuss specific barriers to reaching a good agreement and how you might overcome them

– Discuss a common or dangerous negotiation trap and how to avoid it and/or take advantage of it

5Prof. Ayelet Fishbach

Reflection Reports: What? • Common Mistakes

– Not prescriptive enough

– Not well-defended

– Too many ideas

– Story, without analysis (you need to provide the most minimal details about any experience)

– Laundry list of lessons

– Regurgitate class lessons

• How to assess your own report

– Ask yourself: after reading my report, would a fellow student say that they had picked up useful ideas that might make them a more effective negotiator?

– Ask: When? Why? How?

– Check your report for (1) quality of insights, (2) clarity of writing, (3) relevance to course materials, (4) originality and (5) prescriptiveness (implications for changing behavior).

6Prof. Ayelet Fishbach

moms.com

• Most teams have 2 sellers and 2 buyers.

Prof. Ayelet Fishbach 7

https://tinyurl.com/423y4ebt

Integrative Negotiation

“It is difference of opinion that makes horse races ” Mark Twain

Pareto Efficiency

 An allocation is Pareto efficient if there is no other allocation in which some other individual is better off and no individual is worse off.

 Pareto efficiency is an absolute notion: an allocation is either Pareto efficient or it is not. If in the allocation x someone is better off and no one is worse off than in the allocation y then we say that x Pareto dominates y. The allocation x in this case may of course not be Pareto efficient: there may be some other allocation that Pareto dominates it.

 There is no connection between Pareto efficiency and equity. The outcome in which one person has all the goods in the world is Pareto efficient.

9Prof. Ayelet Fishbach

Claiming vs. creating value

Creating Value – Maximize total value Claiming Value – Maximize your share

10Prof. Ayelet Fishbach

moms.com: cumulative results

 Value in thousands $

11Prof. Ayelet Fishbach

moms.com: cumulative results

 Value in thousands $

12Prof. Ayelet Fishbach

moms.com: cumulative results

 Value in thousands $

13Prof. Ayelet Fishbach

moms.com: Two Questions

• Analytical: How do you structure deals to create maximum value?

• Process: What at-the-table dynamic enables maximum value creation?

14Prof. Ayelet Fishbach

Process

What was the dynamic at the table?

• Isolate an issue and split the difference

• Questions & answers

• Whole packages

15Prof. Ayelet Fishbach

Analytic

Price – purely distributive issue

Critical points: Buyer (Taylor): Target price (t) is $30,000 Seller (Schiller): Target price (t) is $70,000

Buyer (Taylor): Reservation price (rp) is $60,000 Seller (Schiller): Reservation price (rp) is $35,000

16Prof. Ayelet Fishbach

$30,000

Taylor

(T)

$35,000

Schiller

(RP)

$40,000 $45,000 $50,000 $55,000 $60,000

Taylor

(RP)

$65,000 $70,000

Schiller

(T)

Analytic

Runs per episode

Runs/Episode Schiller (seller) Taylor (buyer)

4 $500K -$1,600K

5 $250K -$800K

6 $0 $0

7 -$250K $800K

8 -$500K $1,600K

What are the Pareto efficient deals?

What happens when we add another issue (e.g. purchase price)?

What outcome creates the most total value?

17Prof. Ayelet Fishbach

Analytic

Runs per episode

How much should Taylor pay Schiller in order to get 7 rather than 6 Runs/Episode?

To Maximize value: The buyer should pay the seller to get 8 runs/episode

between $250 to $800; assume $525

Schiller: -250 + 525 = + 275; Taylor: + 800 - 525 = + 275

How much should Taylor pay Schiller in order to get 8 rather than 6 Runs/Title? between $500 to $1,600; assume $1,050

Schiller: - 500 + 1,050 = + 550; Taylor: +1,600 – 1,050 = + 550

Runs/Episode Schiller (seller) Taylor (buyer) Total

4 $500k -$1,600k -1,100k

5 $250k -$800k -550k

6 $0 $0 0

7 -$250k $800k 550k

8 -$500k $1,600k 1,100k

18Prof. Ayelet Fishbach

moms.com: Two Questions • Analytical:

How do you structure deals to create maximum value?

1. Find the differences 2. Trade the differences 3. You claim money by creating well: Create in order to claim

• Process: What at-the-table dynamic enables maximum value creation?

1. Don’t isolate issues/split differences

19Prof. Ayelet Fishbach

Process

What should be the dynamic at the table?

◼ Isolate an issue and split the difference

◼ Questions + answers

◼ Whole packages

20Prof. Ayelet Fishbach

Analytic

Payment Terms

Schiller (seller) Taylor (buyer)

Upfront + 1 - 1

Year 1 (1 / 1.20) = + .83 (-1 / 1.10) = - .91

How typical are differences in discount factors?

What are the Pareto efficient deals?

Schiller’s discount factor is 20%; Taylor’s discount factor is 10%

What happens when we add another issue (e.g. purchase price)?

21 Prof. Ayelet Fishbach

Schiller (seller) Taylor (buyer) Total

Upfront + 1 - 1 0

Year 1 + .83 - .91 -.08

Schiller’s discount factor is 20%; Taylor’s discount factor is 10%

Combined net from paying upfront: +$1 (Schiller) -$1 (Taylor) = $0 Combined net from paying in YR1: +$0.83 (Schiller) -$0.91(Taylor) = -$0.8 Moving $1 into the future by one year destroys 8 cents of value!

Maximum value is created at with all $$ upfront, where Schillers “fully” get their way – this helps the seller a lot and hurts the buyer a little

To Maximize value: The seller should pay the buyer to get all upfront

Analytic

Payment Terms

22 Prof. Ayelet Fishbach

Process

What should be the dynamic at the table?

◼ Isolate an issue and split the difference

◼ Questions & Answers

◼ Whole packages

23Prof. Ayelet Fishbach

Process

Questions and Answers

Schiller (seller) Taylor (buyer) Total

Upfront + 1 - 1 0

Year 1 + .83 - .91 -.08+ .90 - .84 + .06

Exaggerating can give rise to a reversal, leading the negotiators to delay payments and burn money!

Hearing Schiller’s discount rate, Taylor has an incentive to indicate what about her discount rate?

Hearing Taylor's discount rate, Schiller has an incentive to indicate what about her discount rate?

24 Prof. Ayelet Fishbach

Process

What should be the dynamic at the table?

• The other side is afraid to cooperate • You cannot trust the information provided by the

other side • You often hurt yourself with your own

exaggerations • The other side does not know the answer (it

depends on what is important for you)

◼ Isolate an issue and split the difference

◼ Questions & Answers

◼ Whole packages

Why not rely on questions & answers?

25Prof. Ayelet Fishbach

Runs/Episode Schiller (seller) Taylor (buyer)

4 $0 -$1,600k

5 $0 -$800k

6 $0 $0

7 $0 $800k

8 $0 $1,600k

Process

What should be the dynamic at the table?

Example

If Schiller is indifferent regarding runs/episode, should she tell this to Taylor? Does that mean runs/episode is “not important” to Schiller?

No. This issue has high trading value for Schiller.

You often hurt yourself by giving away information!

26Prof. Ayelet Fishbach

Process

MWP Multiple Whole Packages

◼ Isolate an issue and split the difference

◼ Questions + Answers

◼ Multiple Whole packages

27Prof. Ayelet Fishbach

Process

MWP: Multiple Whole Packages

1. Slowly learn about the other side’s preferences

2. Remember: When the other side doesn't know how to deceive, you can rely on their answers

28Prof. Ayelet Fishbach

Analytic

Adding issues: Juniors • Adding Juniors expands the resources by $1MM.

Schiller (seller) sees anything over $10k a title as profit and Taylor (buyer) sees anything under $20K as profit. There are 100 titles.

• How this surplus is divided is up to you

Buyer’s profit (in Millions of Dollars)

Se lle

r’ s

p ro

fi t

Buyer/

Seller

29Prof. Ayelet Fishbach

Analytic

Adding issues: Juniors

• Adding issues can help to

– Close a deal that would have not been possible

– Build trust in the relationship

30Prof. Ayelet Fishbach

Analytic

Beliefs about Ratings

How can value be created using beliefs?

By trading on differences about beliefs:

• Create “contingent contracts” to bet on different expectations

• Put your money where your mouth is

31 Prof. Ayelet Fishbach

Analytic

Contingent Contract Ratings Schiller (seller) prob. Taylor (buyer) prob.

2-3 0.10 0.20

3-4 0.10 0.50

4-5 0.10 0.10

5-6 0.50 0.10

6-7 0.20 0.10

Example for ratings contingency: If ratings are < 4, Taylor receives a $1MM rebate from Schiller If ratings are > 5, Taylor pays a $1MM rebate surcharge

Schiller: 0.2($-1MM) + 0.l($0) + 0.7($1MM) = $500,000 Taylor: 0.7($1MM) + 0.l($0) + 0.2(-$1MM) = $500,000

Betting on different expectations increased PERCEIVED value by $1MM

32Prof. Ayelet Fishbach

Adding a contingency • Increases the perceived value of the

deal by $1MM

Buyer’s profit (in Millions of Dollars)

Se lle

r’ s

p ro

fi t

Buyer/

Seller

33Prof. Ayelet Fishbach

The Case of Dennis Rodman ◼ The Problem: During the 1996-1997 season, star

rebounder Dennis Rodman only played in 55 of the 82

games, was often late to games, and often got ejected

from games

❑ The Bulls wanted to retain Rodman for the 1998

season, but felt justified in reducing his salary

❑ Rodman insisted he would be more responsible

◼ The Solution: A contingent contract

❑ $4MM base salary, plus up to $6.5MM in incentives

❑ Bonus for every game he’s on time and eligible to play at end

❑ $1MM bonus for playing in all playoff games

◼ The Result: Rodman collected $10.16MM (of possible $10.5MM)

❑ Bulls won their 6th national championship

34Prof. Ayelet Fishbach

Integrative Negotiation: Summary • Basic Principle: Joint gains are created by differences: Exchanging what is

“cheap” for what is “dear”

• Potential gains may or may not be realized. We negotiate in a fog (i.e., ZOPA, if it exists, is not typically known to either party).

• Do

– Negotiate packages

– Trade the differences

– Create in order to claim

– Find the differences in order to extract value

• Don’t

– Negotiate one issue at a time

– Split the difference to avoid conflict

– Focus on relationship when it leads to splitting the differencess

35Prof. Ayelet Fishbach

Integrative Negotiation : Summary

Post-Negotiation • When you think you’re done use current agreement

as new BATNA (“Post-settlement settlement”): – (i) come to a “final agreement”

– (ii) designate it as the BATNA

– (iii) open the books and explore further possibilities

– (iv) any adjustment to the “final agreement” must be by mutual agreement

36Prof. Ayelet Fishbach

Strategic Advice

• Joint gains are possible

• Joint gains are exploited when the parties capitalize on (rather than split) their differences

• To maximize profits, you need to reach Pareto efficient agreements – Identify the issues at stake: Always include beliefs, time preferences,

risk preferences, and tax consequences

– Identify information you might want to give away

• At the table, probe your assumptions about the other side by simultaneously offering multiple whole packages

Prof. Ayelet Fishbach 37

Negotiation Styles

Motives in social dilemmas

Martyrdom

Masochism

Sadomasochism

Sadism

Competition

Self-interest

Cooperation

Altruism

Self

Other

Prof. Ayelet Fishbach 39

Five Approaches to Negotiation C

o n

ce rn

f o

r th

e s

e lf

(I m

p o

rt an

o f

St ak

es )

Concern for the other

(Investment in Relationship Building)

Competing

Avoiding

Compromising

Accommodating

Collaborating

40Prof. Ayelet Fishbach

Negotiation style questionnaire

1. You get 5 scores (for each negotiation style)

2. Which ones are the highest?

41Prof. Ayelet Fishbach

Competing – high concern for the self's

goals and associated desire to limit the other’s goals

Strengths of competing • Like to negotiate. Negotiating presents an opportunity to win what they see as a game

or sport based on a set of practiced skills.

• Most in their element when the stakes are high, time is limited, and

bluffing is possible.

• Have excellent instincts about such matters as leverage, deadlines, openings, final

offers, ultimate, and similar aspects of tough, traditional bargaining.

Weaknesses of competing • Can be hard on relationships.

• May overlook nonquantitative issues. Focus on matters such as money.

se lf

other

Competing

Avoiding

Compromising

Accommodating

Collaborating

42Prof. Ayelet Fishbach

Accommodating - a dominant, high concern

for the other’s goals without much concern for the self

Strengths of accommodating • Solving other peoples’ problems.

• Have good relationship-building skills. Sensitive to others’ emotional states, body

language and verbal signals.

• Great for negotiating problems within teams.

Weaknesses of accommodating • Place more weight on the relationship aspect of negotiations than the

situation may warrant.

• Vulnerable to more competitively-oriented people.

• May then experience resentment, further impeding their effectiveness.

se lf

other

Competing

Avoiding

Compromising

Accommodating

Collaborating

43Prof. Ayelet Fishbach

Compromising - A balanced,

moderated level of concern for both self and other

Strengths of compromising • Eager to reach an agreement based on fair standards or formulas.

• A virtue when time is short, or when the stakes are small.

• Seems relationship-friendly and reasonable.

Weaknesses of compromising • Rush the negotiation process unnecessarily. may make concessions too readily.

• Costly when a lot is riding on a negotiation outcome.

• Do not discriminate among various fair criteria, some of which may be more advantageous to their position than others. Tend to be satisfied with an outcome as long as it is supported by any face-saving reason.

se lf

other

Competing

Avoiding

Compromising

Accommodating

Collaborating

44Prof. Ayelet Fishbach

Avoiding – a disinclination toward placing

the self in conflict with others

Strengths of avoiding • Can be experienced by others as tact and diplomacy, permitting groups

to function in the face of dysfunctional, hard-to-resolve interpersonal

differences. (Professional diplomats are avoiders).

• People who enjoy working in hierarchies are avoiders (e.g., police officials).

Weaknesses of avoiding • High avoiders often pass up many perfectly legitimate opportunities to

negotiate.

se lf

other

Competing

Avoiding

Compromising

Accommodating

Collaborating

45Prof. Ayelet Fishbach

Collaborating – a balanced, high

level of concern for both self and other

Strengths of collaborating • Enjoy negotiations because they enjoy solving problems.

• Probe beneath the surface of conflicts to discover basic interests and perceptions.

• Enjoy the continuous flow of the negotiation and encourage everyone to be involved.

Weaknesses of collaborating • May needlessly transform relatively simple situations into more complex

(and interesting) occasions to practice their skills. This can irritate other people who want closure, who lack time to invest in a matter, or who do not wish to trigger conflict.

• Can be at risk against a competitive counterpart, who will happily let the collaborator “work the problem” and devise an elegant answer before capturing the large share of the gains.

se lf

other

Competing

Avoiding

Compromising

Accommodating

Collaborating

46Prof. Ayelet Fishbach

Negotiation style by organization level

47Prof. Ayelet Fishbach

Gender and organization level

48Prof. Ayelet Fishbach

Thought experiment • Imagine that you are one of ten people, all of whom are strangers, sitting

at a big round table in a conference room. Someone comes into the room and makes the following offer:

“I will give a prize of one thousand dollars to each of the first two people who can persuade the person sitting opposite to get up, come around the table and stand behind his or her chair”

• The first two people who can persuade the person sitting opposite to get up, get $1000. Everyone else gets $0.

• How will you respond to this offer?

49Prof. Ayelet Fishbach

Thought experiment (cont.)

• “I don’t want to play” (avoider)

• “I’ll give you $500. You can either get behind my chair or I will get behind your chair” (compromiser)

• Race around the table and stand behind your opposite’s chair. You act while everyone is still negotiating. You trust your opposite to share the money. (accommodator)

• “Quick, get behind my chair! I’ll share the money with you!” (competitor)

• “Let’s both get behind each other’s chairs! We can each make a thousand dollar!” (collaborator)

50Prof. Ayelet Fishbach

For session #4

Prepare and hand in prep notes:

• Edgewood Electric

51Prof. Ayelet Fishbach

Session 4: Edgewood Electric

Schedule

• Culture and gender

• Edgewood Electric negotiation

2Prof. Ayelet Fishbach

Cross-Cultural Negotiations

- Cultures vary by: 1. Tight – loose (e.g., rule following, physical and social

distance, strict norms, dress codes)

2. Individualism versus collectivism (e.g., seeking

social approval, individual vs. team negotiations)

- These are orthogonal dimensions

(e.g., Japan: tight and collectivistic; Germany: tight and

individualistic; USA: loose and individualistic)

3Prof. Ayelet Fishbach

Loose vs. Tight Societies

Prof. Ayelet Fishbach 4

• colors corresponding to region-culture.

Loose-Tight

Cross-Cultural Negotiations: Behavior

Per 30 minutes of negotiation

Japan U.S. Brazil

Silent periods (> 10 sec.) 5.5 3.5 0

Conversational overlaps 37.5 31.0 85.8

Facial gazing 3.9 9.9 15.6

Touching 0 0 5.2

5Prof. Ayelet Fishbach

Cross-Cultural Negotiations: Tactics

Per 30 minutes of negotiation

Japan U.S. Brazil

Fairness Appeal 4 2 1

Self-disclosure 34 36 39

Number of concessions 6.5 7.1 9.4

No’s 5.7 9.0 83.4

6Prof. Ayelet Fishbach

Distance: Using indirect language

Communication in Asia: • Saying yes:

– A ‘yes’ answer shows respect, it may not be an actual fact

– A real ‘yes’ answer comes with some sort of document of understanding and is backed up with details on what is planned (“Yes, I would love to come to your dinner. What time shall I arrive?”)

– ‘Maybe’ often means ‘yes’

• Saying no:

– An ‘it is difficult’ or ‘not convenient’

– A ‘yes, but there may be problems’

– Any ‘yes-but’

– A sucking in of air through the teeth

– Ignoring the question or request, or talk around it.

7Prof. Ayelet Fishbach

Distance: Using indirect language • In China:

• Yes means No

– Saving face is important. You may “accept” an invitation for an event which you don’t plan to attend, in order to not offend the host.

• No means Yes

– Modesty is an art. In order not to appear bragging, a person may deny any large amount of skill or insight (underselling).

• Pay attention to context.

• What appears confusing or insincere, is often the result of cross-cultural miscommunication.

8Prof. Ayelet Fishbach

Social distance: Examples

• President Bush and Crown Prince Abdullah of Saudi Arabia.

9Prof. Ayelet Fishbach

• Indian Prime Minister Narendra Modi hugging in greeting.

Distribution of Individualism (yellow) vs. Collectivism (red)

Prof. Ayelet Fishbach 10

Prof. Ayelet Fishbach 11

Correlation with passion

Correlation with parental support

Passion vs. social support

• Passion and efficacy are the main predictors of school achievement in individualistic societies.

• Parental support is a better predictor of school achievement in collectivistic societies.

• “If admission officers, recruiters, and managers rely on only one model of motivation, a Western independent one, they may risk passing over and mismanaging talent.” (Lee at al., 2021)

12Prof. Ayelet Fishbach

• The chairman of Sony, Mr. Morita, explained how he conceived the idea of the Walkman: he loves classical music and wanted to have a way of listening to it on his way to work without bothering any fellow commuters. The same device was marketed to Westerners as allowing them to listen to music without being disturbed by other people.

• People in Tokyo wear face masks to prevent “polluting” or infecting other people. In the west, people wear face masks to protect themselves from others.

Prof. Ayelet Fishbach 13

Individualism vs. collectivism: Example

• Group buying:

– Tuángòu (group buying) is a shopping strategy originating in China. The entire group needs to agreed to the purchase.

– Groupon applied this shopping strategy in the USA. However, Groupon markets itself as a coupon provider. There’s no mentioning for group or team purchase in its mission statement or homepage.

Prof. Ayelet Fishbach 14

Culture

• What can go wrong?

– Miscommunication, impasse

– Low sense of belonging

https://tinyurl.com/BelongXP

Prof. Ayelet Fishbach 15

https://tinyurl.com/BelongXP

Sense of belonging in our class Prof. Ayelet Fishbach 16

Gender in Negotiation

• Are there gender differences?

• How large are the observed differences?

Prof. Ayelet Fishbach 17

• 51 studies, 123 effects, over 10k participants: students, MBAs, businesspeople (Mazei et al., 2015).

• Men achieved better economic outcomes than women on average, but gender differences strongly depended on the context:

– Smaller effects when negotiators are experienced

– Smaller effects when negotiators received information about the bargaining range

– Smaller effects when negotiating on behalf of another individual.

– Gender differences were reversed when the issue was stereotypically “feminine.”

Prof. Ayelet Fishbach 18

Reactions towards women

• Negotiators are 4x as likely to deceive female counterparts than male counterparts

• Men interrupt women more in cross-gender interactions.

• Men are more likely to ritually oppose.

Prof. Ayelet Fishbach 19

Women’s reactions

• Little evidence that women are less skilled negotiators.

• Women feel more uncertainty about the appropriateness of negotiation

• Women are more concerned about seeming selfish or unfair

• Women are less comfortable claiming value for self

• Women face more backlash in masculine contexts

Prof. Ayelet Fishbach 20

Regardless of gender, when you fear negotiating

• Solution #1: Frame asks in terms of relationships

• Example: I hope it’s OK to ask you about this. I’d feel terrible if I offended you in doing so. My relationships with people here are very important to me. [Simple negotiation script inserted here.] I just thought this seemed like a situation in which I could get your advice about this. Would you be open to talking with me about this question of higher compensation?”

Prof. Ayelet Fishbach 21

Regardless of gender, when you fear negotiating

• Solution #2: Ask for them to take your perspective

• Margaret Neale: “When I interviewed at Stanford, I obviously knew this research*, so I did a lot of research to frame how my package of resources could allow me to fulfill the needs that Stanford has. The whole theme was, “What can I do for Stanford and what can I do to help the Dean solve the problems that he has?” This communal orientation—it’s not about me, but it’s about what I can do for you—mitigates the negative reputational affects for women.”

* Research on gender

Prof. Ayelet Fishbach 22

Schedule for Edgewood Negotiation

Event Time Limit

Initial meeting of Edgewood team 10 minutes

Two-way Edgewood meetings during initial meeting 2 minutes

Initial Diamond-Dmitri meeting 8 minutes

Edgewood team meeting 8 minutes

Diamond-Dmitri meetings (if without Olsen & Evans) 5 minutes

Meetings of Dmitri and any Edgewood subgroup 5 minutes

Any four-way meetings no time limit

Subsequent three-way Edgewood meetings 5 minutes

23Prof. Ayelet Fishbach

Cumulative Results

100

110

120

20 30 40 50 60 70 80 90 100 Days

P ri c e

8% No deals

Average Points Dmitri: 36.33 Diamond: 36.66 Evans: 40.50 Olsen: 33.27

24Prof. Ayelet Fishbach

Interests

Evans: Obviously, you care more about delivery time than price. Why quibble over a few dollars… when such a large contract, with the goodwill and public relations that go along with it, is at stake?”

Olsen: “you obviously care more about price than about speed of delivery… Although Evans thinks that delivering the DX4s early will create goodwill… you can’t bank goodwill”

Diamond: “Evans, of course, is primarily concerned with increasing sales while Olsen is primarily concerned with controlling costs. You sympathize with both, since each is important. “

Dmitri (seller): “your breakeven price goes up by $1,000 for every two days you reduce the delivery period”

25Prof. Ayelet Fishbach

Interests $1000 > 1 Day $1000 < 1 Day $1000 = 1 Day

Evans

120 - P/4 - D x Olsen

120 - P - D/4 x

Edgewood (as represented

by Diamond)

240-5/4 P-5/4 D

Dmitri (seller)

P + D/2 – 70 x 26Prof. Ayelet Fishbach

Initial interaction within Edgewood

• Nothing (Evans & Olsen provide no info about their payoffs)

• Open (Evans & Olsen share info about payoffs w/ Diamond)

• Enforcement (Evans & Olsen give Diamond a set of possible acceptable agreements)

27Prof. Ayelet Fishbach

First Dmitri – Diamond meeting

Initial interaction

Of Evans-Olsen-Diamond

Dynamic b/w Dmitri and

Diamond

Nothing No reciprocation.

Dmitri wants to speak with

Olsen and Evans.

Open

Enforcement Diamond serves as the

messenger

Why do we need Diamond?

28Prof. Ayelet Fishbach

Without Edgewood / Diamond

Price Days

• Evans x

• Olsen x

• Dmitri x

Possible coalitions:

• Dmitri + Evans → High price, low days

• Evans + Olsen →Medium price, medium days

29Prof. Ayelet Fishbach

With Edgewood / Diamond • Edgewood: Price = Days; Dmitri: Price > Days

How can value be created?

• Minimizing number of days and increasing price.

• Helps Edgewood more than hurts Dmitri.

• Edgewood is willing to pay for “days” more than “days” cost Dmitri.

• Within Edgewood: Olsen “hurt”, Evans “helped”.

• Evans has to pay Olsen using the budget mechanism.

30Prof. Ayelet Fishbach

How value can be created?

• The side payment mechanism

From Evans’ confidential info: “Your division has a budget of $5 million. If you need to make a concession to Olsen to do well in the negotiation, you could accept a budget as low as $4.5 million... For every $20,000 less than $5 million, subtract one point from your score.”

31Prof. Ayelet Fishbach

How value can be created?

• The side payment mechanism can “bind” two otherwise-opposing parties in a way that allows them to create value with a third party.

• The party “helped” by the agreement with Dmitri can compensate the party “hurt” by that agreement, via an appropriate adjustment of the internal budget.

32Prof. Ayelet Fishbach

Coalitions

No need for Diamond

Possible coalitions:

• Dmitri + Evans (high price, low days)

• Evans + Olsen (medium price, medium days)

Consider which route to use

Creating Value Edgewood: Price = Days

Dmitri: Price > Days

Possible deal:

• Minimizing number of days (high price, low days)

• Evans has to pay Olsen using the budget mechanism

33Prof. Ayelet Fishbach

Edgewood initial interaction

Initial interaction

of Evans-Olsen

Diamond

Dynamic b/w Dmitri

and Diamond

Results

Nothing No reciprocation.

Dmitri talks to Olsen

and Evans.

Coalitions

(Dmitri and Evans)

Open Diamond has enough

information to create

Value

Value creation

Enforcement Diamond serves as

the messenger

Coalitions

(Evans and Olsen split

the difference)

34Prof. Ayelet Fishbach

Edgewood initial interaction

A. Nothing: too miserly with information

B. Enforcement: too much too soon

An invitation for Dmitiri to come knocking on Evans’ and/or Olsen’s door

Splitting the difference

35Prof. Ayelet Fishbach

Cumulative Results

100

110

120

20 30 40 50 60 70 80 90 100

Days

P ri

c e

w/o budget

with budget

Min Days

Evans (1D=4P) Olsen (4D=1P) Dmitri (2D=1P)

36Prof. Ayelet Fishbach

Initial interaction – Final result

• Nothing Coalitions: Evans-Dmitri or Evans-Olsen

• Open Exploring Differences - Creating Value

• Enforcement Coalition Evans-Olsen. Splitting the difference: Days = Payment

37Prof. Ayelet Fishbach

Exaggeration

• Olsen and Evans have no interest in exaggerating to Diamond

• Without knowledge of Dmitri’s payoffs, exaggeration is just as likely to hurt oneself as to help oneself

38Prof. Ayelet Fishbach

Exaggeration

Evans Olsen Dmitri

Price Days Price Days Price Days

1 4 4 1

Edgewood

Price Days

2.5 2.5 2 1

10 x

5.5x Dmitri decreases days, Edgewood increases price.

Dmitri increases days, Edgewood decreases price.

Exaggeration can give rise to a reversal, leading the negotiators to delay days and burn money!

39Prof. Ayelet Fishbach

Value Creation

• One should not be afraid of revealing information; instead, one should be afraid of revealing correct information when the other side doesn't do so.

• Diamond allows the parties to effectively reveal information.

• Diamond enables value creation; rather than splitting the difference, Evans and Olsen can build on that difference in a settlement with Dmitri.

40Prof. Ayelet Fishbach

Strategic Advice Prepare • Side payments allow joint gains to be “fully” exploited. Be on the lookout

for side payments that can be used to facilitate value creation. • On the basis of a difference inventory, outline what you think will be the

natural partnerships. • Set the instructions you will give any agent. Take into consideration what

the agent is likely to know that you don’t know and what you know that they are unlikely to know.

• As an agent, prepare “instructions” you will give the principals. • Realize that the internal dynamics you faced prior to coming to the table

will affect the other side’s behavior at the table. Essentials • Don’t let internal conflicts impede your search for joint gains. • Never finalize agreements internally before knowing or attempting to find

out what outsiders want. • Don’t let naïve equity rules determine your strategy.

41Prof. Ayelet Fishbach

For Session #5

Prepare and hand in prep notes:

• Deeport

42Prof. Ayelet Fishbach

Session 5: Deeport What have we learned?

A word on uncertainty

• Decisions under risk and uncertainty can be a source of stress

• Corporate executives are consistently included in “the most stressful jobs” (with enlisted military personnel, firefighters, etc.)

• Negotiations require decision under risk and uncertainty

Prof. Ayelet Fishbach 2

A word on emotions

• What emotions negotiators experience most frequently?

• “Can Nervous Nelly negotiate?” (Wood, Brooks & Schweitzer, 2011)

• Anxiety caused negotiators to make low first offers, exit early, and earn less profit.

Prof. Ayelet Fishbach 3

A word on relationship • In purely distributive negotiations

– Be willing to pay today in order to improve / maintain long-term relationship with a valuable counterpart.

• When building coalitions

– Your relationships are your source of power. Focus on relationships.

• In integrative negotiations

– The relationship matters less than because it’s harder to offend your counterpart.

Prof. Ayelet Fishbach 4

Negotiation is a dance; not a battle

• You move together (Grant’s Think Again)

Prof. Ayelet Fishbach 5

A word on scoring systems

• Very helpful for important negotiations / decisions.

• Get into the habit of thinking of all the issues together; the relative importance for you (tradeoffs); the relative importance for them.

Prof. Ayelet Fishbach 6

Deeport Negotiation – Details • Procedure

– Informal votes can occur whenever desired – Deeport will run the three formal votes – Formal votes occur at 15, 35 and 65 minutes – An agreement is official once approved during a formal vote

• Caucuses – Parties are encouraged to hold private caucuses during the negotiation

• Revisions to Agreement – A proposal passes if, on a formal vote, it receives a “Yes” from Deeport and

from at least 4 of the 5 remaining parties – After being passed, terms may be changed if unanimously approved by the

parties who voted for the original agreement

7Prof. Ayelet Fishbach

Debrief Deeport

• Analytics: Structures of coalitions

• Processes: Dynamics at the table

8Prof. Ayelet Fishbach

Deeport Scoring

9Prof. Ayelet Fishbach

Prof. Ayelet Fishbach 10

Deeport Environment Union OP Fed Governor RP 45 50/75 50 45/60 65 45

Average 57.65 76.46 75.37 54.48 74.90 57.48

Std Dev 6.76 6.59 9.82 11.50 5.62 5.62

Minimum 37 25 50 18 58 45

Maximum 73 100 90 84 95 69

Best Possible 75 100 90 84 95 72

25% 57 77 71 49 72 54

75% 62 77 81 65 79 60

No Deals: 7.8% Groups: 230

Env No: 4.3%

Not Unanimous 24.8%: Gov No: 0.9%

OP No: 16.5%

Union No: 0.9%

Mix Impact Employ Loan Comp

Heavy: 0.5% Comply: 0.0% Unlimited: 12.7% $3: 1.9% $600: 3.3%

Medium: 97.2% Maintain: 2.8% 2:1: 58.5% $2: 93.4% $450: 37.7%

Light: 2.4% Improve: 97.2% 1:1: 28.8% $1: 4.7% $300: 44.8%

None: 0.0% None: 0.0% $150: 12.7%

None: 1.4%

Deeport

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

11Prof. Ayelet Fishbach

Fed DCR

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

12Prof. Ayelet Fishbach

Governor

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

13Prof. Ayelet Fishbach

Union

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

14Prof. Ayelet Fishbach

Environmental League

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

15Prof. Ayelet Fishbach

Other Ports

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

16Prof. Ayelet Fishbach

Sharing similar interests

• Deeport and Fed?

• Gov and Union?

• Environmentalists and Other Ports?

17Prof. Ayelet Fishbach

Governor - Union

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

18Prof. Ayelet Fishbach

Environmental League – Other Ports

D ir ty

C le

a n /D

ir ty

A ll

C le

a n

H a rm

M a in

ta in

Im p ro

v e

U n io

n P

re f

Q u o ta

o f

2 :1

Q u o ta

o f

1 :1

N o P

re f

$ 3 b

ill io

$ 2 b

ill io

$ 1 b

ill io

n o l o a n

$ 6 0 0 m

ill io

$ 4 5 0 m

ill io

$ 3 0 0 m

ill io

$ 1 5 0 m

ill io

n o c

o m

Environment

Other Ports

Industry mix Ecological Impact Employment Rules Fed Loan Other Ports

19Prof. Ayelet Fishbach

Deeport Initial Approach

Consensus driven approach

• Keep everyone part of the negotiations

Splintering

• Add parties one at a time (sequencing)

20Prof. Ayelet Fishbach

Splintering

• What happened to the other parties?

– Gov & Union

– Environmentalists & Other Ports

Deeport approaches FED DCR

21Prof. Ayelet Fishbach

Splintering

• What happened to the other parties?

– Gov & Union

– Other Ports & Fed

Deeport approaches Environmentalists

22Prof. Ayelet Fishbach

Splintering

• The Union and the Gov make a veto

• The Other Ports and the Environmentalists form a blocking coalition

• The Other Ports mess up the deal

Reasons for no deal?

23Prof. Ayelet Fishbach

Deeport Initial Approach

Consensus driven approach

• Keep everyone part of the negotiations

Splintering

• Add parties one at a time (sequencing) X

24Prof. Ayelet Fishbach

Coalitions vs. Value Creation

• Creating value Building on differences

• Coalitions Building on similarities

25Prof. Ayelet Fishbach

Processes

What is the dynamic that enables sharing information?

5:1 1:1 Neutral agent

26Prof. Ayelet Fishbach

History lesson: how things used to get done

“This is the last call on the matter of the runway layout at the new Airport.

Thursday, Feb 3rd, 1944, at my office, City Mall, at 2:30 pm o-clock, come prepared to make any suggestions or forever hold your peace. I have heard some grousing about the present layout which I know is not justified. If you have any cockeyed ideas on tangent runways that have not been tried out, keep them for some other time.

I’m willing to hear constructive criticism and to receive helpful suggestions. I cannot compete against white tablecloths and soft pencils. Everyone who gets two drinks under his belt is now designing runway layouts on restaurant tables.

We will have a map here, our consulting engineer will be here, and I expect to have the matter finally, completely and definitely, settles.

You may bring anyone you desire from your engineering, technical and piloting staff. Lawyers cannot contribute anything. This is not a legal matter.

Very truly yours,

F. M. LaGuardia

Mayor” Prof. Ayelet Fishbach 27

Strategic Advice Preparation • Before getting to the table, identify the issues at stake, assess how important each issue is to

you, and estimate how important each issue is to other parties.

• On this basis, identify your natural partners. Your natural partners are the ones with whom you share many positions and interests, not those from whom you are different.

• Realize that when two parties with very different interests are in a coalition, it is easy to tempt one or the other to break the coalition.

• Realize that when two parties with very similar interests are in a coalition, it is by definition difficult to get one to sell-out the other.

• Identify any natural partners for each other party.

• Envision possible agreements, but as always, ask yourself how you might be wrong.

• Decide if you will build a winning or blocking coalition.

• If building a winning coalition, prepare tactics emphasizing a tone and mood of cooperation and joint-problem solving.

• If building a blocking coalition, prepare tactics of disruption.

28Prof. Ayelet Fishbach

Deeport: Strategic Advice At the table

• Realize that by approaching one set of parties, you also influence other parties. Approaching one set of parties increases the likelihood that other parties will get together.

• To build a (large) winning coalition make offers that go at once to most or all of the other parties. Note that this is also a simple way to set a tone and mood of cooperation and joint-problem solving.

• To build a (smaller) blocking coalition make offers to small sets of parties that, via “sequencing,” also promote later splintering.

• When building a winning coalition you may want to allow weak blocking coalitions to form. Parties in weak blocking coalitions can be ignored in determining the deal and then presented with an ultimatum: join the winning coalition and receive X, or otherwise be left out and get nothing.

• Always remember that when building a winning coalition the best way to deal with strong blocking coalitions is to make sure they do not form. Approach members of potential strong blocking coalitions early on.

29Prof. Ayelet Fishbach

Going home…

Make two lists:

• Easy goals – lessons you should be able to implement immediately.

• Ambitious goals – Lessons that are more difficult to implement

because they require further personal development and/or help from others.

• Set reminders on your calendar and check progress.

Prof. Ayelet Fishbach 30

Negotiation course summary

Plural-Sunset Situation: Pure value claiming with a precisely known Reservation Price Common Trap: Anchored perceptions Prescription: Aggressive first offer

Leckenby Situation: Pure value claiming with a dwindling pie Common Trap: Partial optimization and escalation of conflict Prescription: Make sure you’re driven by your personal interests, at all times; know your bottom line; don’t escalate conflict

31Prof. Ayelet Fishbach

3-way organization

Situation: Generic coalitional dynamics

Common Traps: Getting caught up in cycling when you wanted consensus

Prescription: Use your first offer to move the negotiation in one or another direction

Prof. Ayelet Fishbach 32

Moms.com

Situation: Many items to negotiate – value creating

Common Traps: Splitting the differences rather than capitalizing on them

Prescription: Offers consisting of multiple whole packages

Edgewood

Situation: Internal/external dichotomy, with side payments Common Traps: Getting caught up in the internal negotiation and not understanding your external party Prescription: Use side payments to bind otherwise opposing parties; use agents to reveal interests and facilitate creating value

Prof. Ayelet Fishbach 34

Deeport

Situation: Coalitional dynamics, with natural partnerships and opposition to a deal

Common Traps: Trying to build a blocking coalition when one is really interested in a winning coalition

Prescription: Build coalitions on the basis of similarities, asses who is your natural partnerProf. Ayelet Fishbach 35

And more…

– Always keep your interests in mind. Negotiate with nothing else as a concern.

– Reputation matters. Be tough and honest.

– Realize that negotiators who enjoy the process are the ones who do best.

36Prof. Ayelet Fishbach