PassFail NegotiationSec 31

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Pass/Fail Negotiation--Sec 31
GLIBs interests 1) maximize received for sale
of business 2) keep control of GLIB name for
future use 3) stop working so hard 4) keep
independence, personal pride 5) wants to keep
other projects (training manual, Cont. Ed) 6)
personal reputation
MEGAs interests 1) Control or exit exam prep
business 2) Max profits (min price paid) 3) use
of GLIB name Sayles name 4) Sayles help
through transition 5) no competition in future
from Sayles 6) maintain quality management 7)
information on competitor
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Pass/Fail Negotiation--Sec 31
Key Issues 1) sale price 2) payment terms 3) use
of GLIB name 4) use of Sales name 5)
consulting/nature of that arrangement 6) (non)
competition 7) 8)
GLIBs BATNA walk away, seek a loan if needed,
work on new projects (weak) MEGAs BATNA sell
business, walk away (medium strong)
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Pass/Fail Negotiation--Sec 31
Potential for creating value 1) noncompetition
-- raise prices 2) appearance of competion --
discourages entry 3) synergies overhead,
printing, management 4) practice manual as
feeder, test as feeder for cont ed 5) Differences
in talents (Sayles trainer/writer MEGAs ability
to run business efficiently) 6) difference in
belief w/ contingent contracts
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Pass/Fail Negotiation--Sec 31
GLIBs interests 1) maintain autonomy 2) quality
of personal reputation 3) enjoy work, novelty,
work shorter hours 4) maximize profit, avoid
bankruptcy 5) avoid giving away sensitive
information 6) flexibility to enter new market
(training manual, cont education)
MEGAs interests 1) Maximize value of own
business 2) Gather info concerning competitor 3)
Use of GLIB name, 4) Sayles consulting
services 5) discourage entry of new
competitors 6) Keep quality management
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Pass/Fail Negotiation--Sec 31
Key Issues 1) sale price 2) terms of payment 3)
use of GLIB name 4) use of Sayles name 5)
consulting by Sayles 6) (non) competition 7) new
markets? 8)
GLIBs BATNA Sayles keeps working hard, may go
broke, may need to find loan MEGAs BATNA sell
out to NY concern without buying GLIB (strong)
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Pass/Fail Negotiation--Sec 31
Potential for creating value 1) noncompetition
-- raise price 2) economies of scale by
merging 3) feeder programs (intern manual test
prep -- cont education) 4) differences in
capabilities (MEGA has lower overhead Sayles has
more talent developing materials, training) 5)
differences in time preferences for (MEGA is
more patient) 6) differences in belief -- can be
exploited with contingent payoffs
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Fair Price Norms (from Thaler, 1982)
You are lying on the beach on a hot day. All you
have to drink is ice water. For the past hour
you have been thinking about how much you would
enjoy a nice cold bottle of your favorite brand
of beer. A companion gets up to go make a phone
call and offers to bring you back a beer from the
only nearby place where beer is sold, a fancy
resort hotel (a run-down grocery store). He
says that the beer might be expensive and so he
asks how much you would be willing to pay for the
beer. He says that he will buy the beer if it
costs as much or less than the price you state,
but if it costs more than the price you state he
will not buy it. You trust your friend, and
there is no chance of bargaining with the
bartender (store owner). What price do you
state?
fancy hotel 2.65 run-down store 1.50
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What determines a negotiators willingness to say
yes?
Economist how well the objective terms satisfy
your interests Psychologist subjective
response to both outcome process 1)
satisfaction with the outcome social
influence tactics (e.g., scarcity, soc proof,
auth, cc) cognitive biases (e.g.,
perspective, anchoring, framing)
perceived fairness 2) satisfaction with
the process (feelings toward counterpart)
conformity to norms (e.g., monotonicity,
reciprocity) social influence (e.g.,
liking, reciprocity) emotions elicited
during negotiation
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Standards of Fairness
Q How should a rich poor person split
100? A Different norms of fairness can
justify any division! A few generalizations
people tend to be self-interested in
their choice of which norm is most
appropriate. people are less
self-interested if they have a more positive
relationship with their counterpart. Most
standards are comparative I dont like to feel
like I am losing compared to (1) what
others have received from my counterpart (2)
what my counterpart has received compared to me
(3) what I received in the past.
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Fairness 1 Comparisons with what others have
received (Source Loewenstein et al., 1992)
Will you participate in a 40-minute
experiment? Well pay you 7. 72 of 7
people said yes Will you participate in a
40-minute experiment? If you have an odd Soc
Sec , well pay you 8 If you have an even Soc
Sec , well pay you 10 55 of 8
people said yes
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Fairness 1 Comparisons with what others have
received (Source Loewenstein, Thompson
Bazerman, 1989)
JOB A The offer is from Company 4 for 75,000 a
year. It is widely known that this firm pays all
starting MBAs from top schools 75,000....other
descriptive information about the firm JOB B
The offer is from Company 9 for 85,000 a year.
It is widely known that this firm is paying some
other graduating Kellogg students 95,000 a
year...other descriptive information about the
firm
of 32 people accepting 1 job in one-at-a-time
condition, 69 accepted job A of 30
people in the simultaneous condition, 83
accepted job B
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Fairness 2 Comparisons with what my counterpart
is receiving
The Ultimatum Game
Imagine that an eccentric professor has decided
to give you 100 to split in some way between you
and another randomly selected classmate. Player
A (the allocator) will first choose how to
divide the money between him or herself and
Player B. Player B (the chooser) will then
have a choice between accepting that division of
the 100, or rejecting the division, in which
case both players will receive nothing. Pairings
will be made at random and neither player will
ever know the identity of their partner.
PLAYER A How would you allocate the money?
PLAYER B What is the minimum amount that you
would accept?
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Fairness 2 Comparisons with what my counterpart
is receiving
Results of Ultimatum Games (source Guth et al.,
1982)
Economic theory predicts allocator takes
99.99 chooser will never reject a positive
amount of money. In reality, allocators
demand less than 70 of prize choosers
reject a positive amount 20 of the time.
Multiple-round ultimatum game (source Ochs
Roth, 1989)
In one study, if a chooser rejected the
allocators offer, the pie would shrink
approx. in half, and roles were reversed.
81 of rejected offers were followed by
counteroffers that gave less in absolute
terms to the rejector
Moral people are willing to punish others, even
at some cost to themselves.
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Fairness 2 Comparisons with what my counterpart
is receiving
Dictator Game
Imagine that an eccentric professor has decided
to give you 100 to split in some way between you
and a randomly chosen classmate. You can split
the money any way that you like, and pairings
will be done at random so that your classmates
will never know how you decided to allocate the
money. How would you allocate the money?
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Fairness 3 Comparisons with what I have received
in the past
Principle of Dual Entitlement
Firms are entitled to maintain their reference
level of profit, and transactors are entitled to
the terms of the reference transaction.
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986)
QUESTION 1 A hardware store has been selling
snow shovels for 15. The morning after a large
snowstorm, the store raises the price to 20.
82 rated as unfair or very unfair 18 rated
as acceptable or completely fair (N107)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 2A A small photocopying
shop has one employee who has worked in the shop
for six months and earns 9 per hour. Business
continues to be satisfactory, but a factory in
the area has closed and unemployment has
increased. Other small shops have now hired
reliable workers at 7 per hour to perform jobs
similar to those done by the photocopy shop
employee. The owner of the photocopying shop
reduces the employees wage to 7.
83 rate as unfair 17 rate as
acceptable (N98)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 2B A small
photocopying shop has one employee...as before.
The current employee leaves, and the owner
decides to pay the replacement 7 per hour.
73 rate as acceptable 17 rate as
unfair (N125)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 2C A house painter
employs two assistants and pays them 9 per hour.
The painter decides to quit house painting and
go into the business of providing landscaping
services, where the going wage is lower. He
reduces the workers wages to 7 per hour for the
landscaping work.
63 rate as acceptable 37 rate as
unfair (N94)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 3A A company is making
a small profit. It is located in a community
experiencing a recession with substantial
unemployment but no inflation. There are many
workers anxious to work at the company. The
company decides to decrease salaries 7 per cent
this year.
62 rate as unfair 38 rate as
acceptable (N125)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 3B A company is making
a small profit. It is located in a community
experiencing a recession with substantial
unemployment and inflation of 12 per cent. There
are many workers anxious to work at the company.
The company decides to increase salaries only 5
per cent this year.
78 rate as acceptable 22 rate as
unfair (N129)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 4A A shortage has
developed for a popular model of automobile, and
customers must now wait two months for delivery.
A dealer has been selling these cars at list
price. Now the dealer prices this model at 200
above list price.
71 rate as unfair 29 rate as
acceptable (N130
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 4B A shortage has
developed for a popular model of automobile, and
customers must now wait two months for delivery.
A dealer has been selling these cars at a
discount of 200 below list price. Now the
dealer sells this model only at list price.
58 rate as acceptable 42 rate as
unfair (N123)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 5 Suppose that, due to a
transportation mix-up, there is a local shortage
of lettuce and the wholesale price has increased.
A local grocer has bought the usual quantity of
lettuce at a price that is 30 cents per head
higher than normal. The grocer raises the price
of lettuce to customers by 30 cents per head.
79 rate as acceptable 21 rate as
unfair (N101)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 6A A small company
employs several workers and has been paying them
average wages. There is severe unemployment in
the area and the company could easily replace its
current employees with good workers at a lower
wage. The company has been making money. The
owners reduce the current workers wages by 5 per
cent.
77 rate as unfair 23 rate as
acceptable (N195)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 6B ...the company has
been losing money. The owners reduce the current
workers wages by 5 per cent.
68 rate as acceptable 23 rate as
unfair (N195)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 7A A small factory
produces tables and sells all that it can make at
200 each. Because of changes in the price of
materials, the cost of making each table has
recently decreased by 40. The factory reduces
prices for the tables by 20.
79 rate as acceptable 21 rate as
unfair (N102)
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Fairness Entitlements (from Kahneman, Knetsch
Thaler, 1986) QUESTION 7B ...the cost of
making each table has recently decreased by 20.
The factory does not change its price for the
tables.
53 rate as acceptable 47 rate as
unfair (N100)
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Loss Aversion Jurisprudence
Oliver Wendell Holmes (1897) It is in the
nature of a mans mind. A thing which you
enjoyed and used as your own for a long time,
whether property or opinion, takes root in your
being and cannot be torn away without you
resenting the act and trying to defend yourself,
however you came by it. The law can ask for no
better justification than the deepest instincts
of man.
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Emotions in Negotiation
Q Why do we tip in restaurants to which we will
never return? A Because we will feel
badly if we dont! Isnt this
silly? Maybe not
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The Strategic Role of Emotions
Emotions help us solve the commitment problem
(Frank, 1988) How can I get someone to
engage in an insecure deal with me? How can I
protect myself from being taken advantage of? A
emotions can precommit us to act honestly when
treated fairly or with indignation when
wronged. The trick is to communicate this
disposition to others. Schellings Chicken
story
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Benefits of Positive Emotions Cooperation
We are more willing to say yes to someone we
know like (Cialdini). A good mood
leads to more creativity, more PE outcomes
(Isen). A positive relationship leads
to less self-interested notions of fairness,
buffers reactive devaluation. A positive
reputation pays dividends. Reciprocal
cooperation is the best solution to the
negotiators dilemma (Axelrod)
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Tips for Overcoming Negative Emotions
1) Manage your own emotions step to the
balcony a) know your own hot
buttons b) take your time (dont be afraid
to use silence) c) recognize tactics used by
the other side
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Tips for Overcoming Negative Emotions
2) Manage your counterparts emotions a)
make them feel understood b) express your
own views without provoking c) help them save
face
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Tips for Overcoming Negative Emotions
3) Build a positive, cooperative working
relationship a) frame it as a joint
problem-solving task b) accumulate common
ground c) build incentives for future
cooperation
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Fairness, emotions, and relationships in
negotiation
1. Remember that your counterparts willingness
to say yes is not only a function of how well
the objective terms satisfy his or her interests
it is also influenced by his or her emotional
reaction to the outcome and the process of
negotiating. 2. In most situations there are
many potential standards of fairness that could
be brought to bear, and people tend to be
self-interested in choosing which one is most
appropriate. 3. The nature of your relationship
with your counterpart will affect their attitude
toward fairness. They will be more concerned
with your welfare if your have a positive
relationship and they will be more willing to
exploit you if you have a negative
relationship. 4. Most standards of fairness
involve a comparison between the offer at hand
and what others have received, what your
counterpart is receiving, or what you received in
the past.
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Fairness, emotions, and relationships in
negotiation
5. People strongly resist deals that make them
feel like they are losing compared to one of
these standards. They are often willing to hurt
themselves in order to punish others who they
feel have treated them unfairly.
5a.It is important to know what others are
receiving for similar transactions so that you
can anticipate your counterparts reaction. You
can use these comparisons to your advantage by
singling out examples of other deals that others
have received which are more favorable to you
than what your counterpart is offering.
5b.It is important not to give your counterpart
the impression that you are getting a better
deal than they are. 5c.People will
vigorously resist having a loss imposed on them
compared to what they have received in the past
for a similar transaction or compared to profits
they have earned in the past. However, they are
less offended when a perk that has been framed as
a gain is taken away.
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Fairness, emotions, and relationships in
negotiation
6. Nice guys finish first! You will be better
off in the long run if you are likeable,
cooperative, and friendly in the course of
negotiating. But you should also try to
communicate a willingness to defend yourself if
exploited by the other side. 7. You will
generally be more successful in negotiation if
you take care to manage your own emotions, manage
your counterparts emotions, and make efforts to
build a positive working relationship.
7a. You can manage your own emotions by
reflecting on your own tendencies and pet peeves,
taking your time in negotiating, and not allowing
yourself to be provoked by your
counterpart. 7b. You can manage your
counterparts emotions by making them feel
understood, expressing your own views without
provoking, and helping them to look good to their
colleagues, superiors and constituents.
7c. You can build a positive, cooperative working
relationship by framing the negotiation as a
joint problem-solving task, working to accumulate
as much agreement and common ground as possible,
and by building incentives for future cooperation.
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BULLARD Assignments-sec 31
BLUE GREEN
1 13 23 25 28 19 5 15 8 16 24 10 37
6 18 17 7 20 34 21 11 31 9 14 26 32 40
2 29 27 30 38 33 22 12 3 4 39 36 35
40
BULLARD Assignments-sec 32
BLUE GREEN
1 13 23 4 2 19/10 5 15 8 16 22 6 18 17
7 20 11 21 9 14 12 3