Judgment in Managerial Decision
Making 8e
Chapter 10
Making Rational Decisions in
Negotiations
Copyright 2013 John Wiley & Sons
Game Theoretic Approaches
• Provides precise prescriptive advice
• Relies on describing all outcomes
• Assumes all parties are rational
A Decision-Analytic Approach to
Negotiation
• Describes the behavior of counterparts
• Prescribes advice from counterpart behavior
• Analytical framework
– Alternatives to negotiated agreement
– Each party’s set of interests
– Relative important of interests
Alternative to a Negotiated Agreement
• Best Alternative to Negotiated Agreement
• Reservation point
• Many accept offers below BATNA
The Interests of the Parties
• Identifying counterpart interests is key
• Focusing on deeper interests
• Understanding the importance of issues
Claiming Value in Negotiation
A new MBA is being recruited for a highly
specialized position. The organization and the
employee have agreed on all issues except salary.
The organization has offered $90,000, and the
employee has counteroffered $100,000. Both sides
believe they have made fair offers, but they both
would very much like to reach an agreement. The
student, while not verbalizing this information,
would be willing to take any offer over $93,000
rather than lose the offer. The organization, while
not verbalizing this information, would be willing to
pay up to $97,000 rather than lose the candidate.
Creating Value in Negotiation
• Many negotiations involve multiple issues
• Value creation
– 1978 Camp David Accords
– Trading on issues to create value
– Creating value through bets
•
•
•
•
Build on differences
Mange biases
Diagnose disingenuous parties
Establish performance incentives
The Tools of Value Creation
•
•
•
•
•
•
Build trust and share information
Ask questions
Strategically disclose information
Negotiate multiple issues simultaneously
Make multiple offers simultaneously
Search for post-settlement settlements
Key Preparation Questions
•
•
•
•
•
•
•
What is your BATNA?
What are the issues?
How important is each issue?
What is your counterpart’s BATNA?
Are there value creation opportunities?
Is there disagreement about predictions?
How will you obtain information?