Negotiations.part1

Negotiations.part1 - Judgments and Decisions Psych 253...

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Unformatted text preview: Judgments and Decisions Psych 253 Negotiations Negotiations Negotiation: A process by which two or more people come to agreement on how to allocate scarce resources. Parties are interdependent; neither has complete power to choose The process is a decision, not a contest of wills Common Problems in Negotiation Leaving money on the table (lose­lose negotiation) Settling for too little (winner’s curse) Walking away from the table (hubris) Settling for terms that are worse than your current situation (agreement bias) Why Are People Ineffective Negotiators? Absence of relevant and diagnostic feedback Satisficing Search for confirming information Egocentrism Versus Optimizing Self­reinforcement Fear of change and experimentation Myths Good negotiators are born, not made Experience is a great teacher Good negotiators are risk­takers Good negotiators rely on intuition Today’s Negotiation: Synertech­Dosagen Today’s Negotiation: Synertech­Dosagen Assign Roles Read ONLY your materials (do not look at your partner’s materials) You have 5 minutes to read, think, and prepare You have 15 minutes to negotiate and you can do this outside of the classroom. But come BACK in 20 minutes with the results of your negotiation on the handout. Relevant Facts Dosagen bought the plant 3 years ago for $15 M Dosagen bought the plant 3 years ago for $15 M (but sellers was distressed) Plant appraised 2 years ago at $19 M with 5% real estate decline since then Similar but newer plant sold for $26 M nine months ago Key Negotiation Principles Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Key Negotiation Principles Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level BATNA Tips Know your BATNA Improve your BATNA before you negotiate Do not think of your BATNA in aggregate terms “Fall in love with three” rule You want your counterpart to think you have a good BATNA Key Negotiation Principles Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Reservation Price Reservation Price is your bottom line The point at which you are indifferent to whether you achieve a negotiated agreement or walk away. Beyond the reservation price, you prefer no agreement. Reservation Price is equal to your BATNA +/­ other issues that make you want to do the deal e.g., opportunity costs, switching costs, ego, miscellaneous preferences Define your reservation price before negotiating Learn your opponents’ reservation price, if possible Should You Reveal your BATNA and Reservation Price? Do not reveal your reservation price!!! One of the critical pieces of information in a negotiation is the other party’s reservation point. If it becomes known to one party, the negotiator can push for a resolution that is only marginally acceptable to the other party. Do not state ranges Reveal your BATNA only when: You are nearing an impasse You have a strong BATNA You want to make an agreement in the current negotiation Key Negotiation Principles Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level The Negotiation Bargaining Zone Buyer’s Target Price Buyer’s Reservation Price (BR) (e.g., $25M) Seller’s Reservation Price (SR) (e.g., $17M) Seller’s Target • The bargaining zone is the space between the buyer’s reservation price (BR) and the seller’s reservation price (SR) – that is, the zone of possible agreement. • If BR > SR, then a Positive Bargaining Zone exists. The zone of agreement is from SR to BR (e.g., $8M). A Negative Bargaining Zone Seller’s Reservation Price (SR) (e.g., $25M) Buyer’s Reservation Price (BR) (e.g., $17M) If BR < SR, then there is no zone of possible agreement. Key Negotiation Principles Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Aspiration Level Aspiration Level Final Price ( in millions) $23.5 $23.0 $22.5 $22.0 $21.5 $21.0 $20.5 Buyer focused on BATNA Buyer focused on aspiration level Distributive Bargaining Tactics First offers Concessions Persuasion First Offers Who made the first offer? How did the first offer affect the negotiation? First Offers in Synertech­Dosagen First Offers in Synertech­Dosagen Final Price (in millions) $25 $24 $23 $22 $21 $20 $19 $18 $17 Buyer made first offer Seller made first offer • There is a high correlation between the first offer and the final price • Counteroffers and later concession behavior less predictive of final price The First Offer How high should the first offer be? “As high as you can go without embarrassing yourself in front of a respected 3rd party” (Fisher & Ury, 1991) What’s embarrassing? What’s optimistic? Learn the market! Only let the other party make the first offer when You have no information It is inappropriate to do so (e.g., job negotiations) Immediately re­anchor if your counterpart makes the first offer Concessions & Persuasion Allow yourself room to make concessions Don’t go in with a “first and final offer” Make bi­lateral, not uni­lateral concessions Make your concessions smaller as you approach your goal Use objective rationale to support your argument Again, learn the market Distributive Negotiation Strategies Know your BATNA Strengthen your BATNA whenever possible Know your reservation price Do not reveal your reservation price Research the other party’s BATNA/reservation price Define your aspiration level and focus on that Make first offers whenever possible If they make the first offer, immediately re­anchor Watch how you are making concessions Prepare objective rationale for your arguments ...
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