R4. Tradeoffs and concessions.pdf

Options the derived numbers do not reflect any

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options: the derived numbers do not reflect any attitudes toward risk. Here is where the advantages of utility scoring become apparent. Such techniques enable one to find suitable scoring procedures that not only reflect preferences under certainty, but that appropriately use expected utility calculations as guidelines forchoices between lot- teries with well-specified probabilities. 2 In negotiations, probabilities may become relevant in several ways. The consequences associatred with an agreed-upon final con- tract might involve uncertainties not under the control of the nego- tiators. Differences in probability assessments might be exploited in terms of contingency contracts. But even in idealized cases where there are no external uncertainties outside the control of the negotiators, each negotiator is uncertain about what his adversary ultimately will do. Should Steve hold out for $350,000 in the Elm- tree House sale, instead of settling for $300,OOO? Should a union, which can secure a given contract from management, refuse to accept the contract and submit to the uncertainties of voluntary arbitration? A well-developed theory of utility analysis has been devised to handle both uncertainties and multiple attributes, but the theory, while operational, is not easy to use and requires a level of co- herency that few individuals, and still fewer groups, achieve. Most people, even in simple risky situations, don't behave the way the theory of utility would have them behave. There are a few re- searchers who prefer to trust the recommendations of formal utility analysis rather than their own intuition, even though this behavior would not occur without the existence ofthe theory. A larger num- 2. Many analysts as sume that a value scoring system-designed for tradeo!l's under certainty-can also be used for probabilistic choice (using expected values). Such an assumption is wrong theoretically, but as 1 become more experienced 1 gain more tolerance for these analytical simplifications. This is, 1 believe, a relatively benign mistake in practice (see Bell and Raiffa, 1980).
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156/ TWO PARTIES, MANY ISSUES ber of analysts who understand the theory simply don't trust it; tht" point to examples of situations (the Allais Paradox, the Ellsht~'l Paradox, the experimental results of Kahneman and Tversky f' ~:,:;, which they, even knowing the theory, would deliberately act out ui accord with it. Sorne are probably confused and will eventually s.c;lC the value of utility analysis. Sorne are not confused, but have d(,t,;"l> psycholo'gical concerns; they may anticípate that a given act mig.tJ&1 lead to an unfortunate outcome, which will result in persistel4 deeply felt pangs of regret. Such psychólogical concems are usuaH:. not accommodated in applications of the theory of utility, but ,,¡; principIe they could be-with further complexities in the theOf) Even though you, as a negotiator, might want to act reflectivel~.
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