Games people play: negotiations

WHAT IS NEGOTIATION?
D1
D2
DISCUSSION
D4
Dn
D3
D5
SOLUTION

GAME THEORY
● Game simulates real life
● Includes 5 elements:
Players = decision makers
Strategies available
Rules
Outcomes
Payoffs

AN EXAMPLE OF GAME THEORY:
THE PRISONER'S DILEMMA

TYPES OF NEGOTIATIONS
DISTRIBUTIVE
Involve win-lose, fixed-amount situations wherein one party’s gain is another party’s loss
INTEGRATIVE
Involve joint problem solving to achieve results benefiting both parties which can lead to win-win or lose-lose outcome

FOUR KEY CONCEPTS
BATNA
Reservation Price
ZOPA
Value Creation

KNOW YOUR BATNA!
Best Alternative to a Negotiated Agreement (BATNA)
Typical example: negotiate or go to court
Improving your situation
Improve your BATNA
Identify the other side’s BATNA
Weaken the other party’s BATNA

RESERVATION PRICE
The least favorable point at which one will accept a deal
The “walk-away”
Example: you are looking for larger office space. You set your BATNA at $20/SF and your Reservation Price at 30$/SF

ZOPA
Zone of Possible Agreement (ZOPA).
The difference between the Seller’s Reservation Price and the Buyer’s Reservation Price
ZOPA
250$
275$
Seller’s
Reservation Price
Buyer’s Reservation Price

QUESTION:
What will happen if we change points of buyer’s and seller’s reservation price?
ZOPA
250$
275$
Seller’s
Reservation Price
Buyer’s Reservation Price

VALUE CREATION
Create value = enlarge the pie
Basic principles:
Seek out shared interests
Propose mutually beneficial trades
Secure insecure contracts

PLANNING THE NEGOTIATIONS:
PRE-NEGOTIATING
Objectives
What is involved? (+extremes)
Goals of opposition
NOT the costs => what is VALUABLE

PLANNING THE NEGOTIATIONS:
NEGOTIATING
confidence and power
keep the negotiation in your control
aim as high as you feel necessary
remain flexible
know your business

COMING TO AN AGREEMENT
Write down the terms
Discourage the other side from seeking further concessions
Be happy =)