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This document contains Chapters 1 to 3 Chapter 1 Negotiation: The Mind and Heart OVERVIEW This chapter can either be assigned before students arrive on the first day of class or after the first class meeting. As a general teaching principle, I never assign reading in advance; instead, the reading always follows the exercise. The chapter lends itself well to small discussion groups. For example, during the first day or week of class, students can work in small groups for 10-15 minutes with the objectives of: (1) identifying the key challenges that managers face when they negotiate; and/or (2) identifying factors in the new economy that make negotiation more relevant. I usually like to give very current examples of how negotiation is a core management competency (e.g., examples of interdependence, competition, information age, and globalization). I suggest presenting the six “myths” of negotiation and the key reasons why people are ineffective. It can be very helpful to discuss the key learning objectives as they apply to the course or session. If students are keeping a journal as part of their class, they can be asked to develop their own learning objectives. Lecture Outline Negotiation: Definition and scope Negotiation is an interpersonal decision-making process necessary whenever we cannot achieve our objectives single-handedly. Thus, effective negotiation is not just about money—it is equally about relationships and trust. Scope of negotiation ranges from two-party to highly complex multiparty and multinational deals In the business world, people negotiate at multiple levels and contexts: within departmental or business units, between companies, and even across industries negotiation as a core management competency Five key reasons why effective negotiation skills are increasingly important for executives, leaders, and managers in the business world: Dynamic nature of business Interdependence Economic forces Information Technology Globalization most people are ineffective negotiators Research shows that people do not negotiate well Less than 4% of managers reach win-win outcomes, 20% reach lose-lose outcomes Even on issues for which people are in perfect agreement, they fail to realize it 50% of the time negotiation traps Leaving money on the table (“lose-lose” negotiation) Settling for too little (the “winner’s curse”) Walking away from the table (negotiators reject terms offered by the counterparty that are demonstrably better than any other option available to them) Settling for terms that are worse than your alternative (the “agreement bias”) why are people ineffective negotiators? Egocentrism (the tendency for people to view their experiences in a way that is flattering for themselves) Confirmation bias (tendency of people to see what they want to see when appraising their own performance) Satisficing (the tendency to satisfice—to settle for something less than people otherwise could have) Self-reinforcing incompetence debunking negotiation myths Myth 1: Negotiations are fixed-sum (whatever is good for one person must ipso facto be bad for the counterparty) Myth 2: You need to be either tough or soft Myth 3: Good negotiators are born Myth 4: Life experience is a great teacher Myth 5: Good negotiators take risks Myth 6: Good negotiators rely on intuition Proactive and reactive strategies Learning objectives Improve your ability to negotiate successfully General strategy for successful negotiation Enlightened model of negotiation (fraternal twin model) the mind and heart Deliberate, rational, thoughtful strategies for negotiation (mind) Relationships and trust in negotiation (heart) Key Terms confirmation bias The tendency of people to seek support for their beliefs that may lead them to overlook or discount relevant information that contradicts or challenges their beliefs. egocentrism The tendency of people to view their experiences in a way that is flattering towards or fulfilling for themselves. negotiation An interpersonal decision-making process, necessary whenever we cannot achieve our objectives single-handedly. satisficing A decision-making approach that involves doing just enough to arrive at a reasonable solution, but not an optimal one. Suggested Exercises and other materials CD-ROM: DRRC/KTAG CD-ROM of Negotiation, Teamwork, and Decision-Making Exercises This CD is a collaboration between the Kellogg School of Management’s Dispute Resolution Research Center (DRRC) and the Kellogg Team and Group Center (KTAG). It contains 118 negotiation, teamwork, and decision-making exercises. The CD is ideal for instructors who are building or modifying term-long courses in negotiation, team and group behavior, and decision-making. Supplemental materials for The Mind and Heart of the Negotiator (author’s PowerPoint slides, lecture outlines, quiz items, and a sample syllabus) are also available on this CD. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu,. An online catalogue of exercises is viewable at www.kellogg.northwestern.edu/drrc. EXERCISE: Blue Buggy by Gaylen D. Paulson This is a two-party, deal-making exercise with a negative bargaining zone. Nevertheless, 15%-20% of negotiators reach agreement illustrating irrationality and agreement biases. Another 15%-20% generate creative agreements that illustrate the limitations of the frames and assumptions negotiators bring to the table. Preparation: 10 min. Negotiation: 15 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu;. EXERCISE: College Town Apartments by Leigh Thompson This is a qualitative dispute resolution exercise between two college roommates. The dispute concerns the timely payment of rent; the exercise has a large variety and range of mutually acceptable outcomes. It involves perceptual differences regarding one’s own behavior as well as the counterparty’s. Because the two parties live together and share common interests, relational, emotional, and social issues also factor into the dispute. Preparation: 45 min. Negotiation: 60 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. MULTIPLE-CHOICE QUESTIONS Negotiation is a contest of wills between opposing parties an interpersonal decision-making process necessary whenever we cannot achieve our objectives single-handedly any buyer-seller transaction in which a good or service is exchanged the process of compromise so as to avoid conflict and reach agreement Along with the dynamic nature of business, interdependence, globalization, and information technology, what is the fifth key reason for the importance of negotiation skills? profit, meaning that people seek to maximize their earnings antagonism, meaning that people are increasingly irritated by others economic forces, meaning that people need to know how to operate in uncertain environments alternatives, meaning that people are not very creative unless they have to be to find a way out The interdependence within organizations implies that people need to know how to integrate their interests and work together have similar incentive structures be experts in competitive environments develop different norms of communication Most negotiators continually improve their performance realize that they are in perfect agreement leave money on the table reach “win-win” outcomes “Lose-lose” negotiation occurs when negotiators make too-large concessions fail to recognize and exploit opportunities for mutual gain reject terms offered by the counterparty feel obligated to reach agreement When a negotiator rejects a proposal that is demonstrably better than any other option available this is called the agreement bias the winner’s curse walking away from the table or hubris settling for too little According to Nobel Laureate Herb Simon, satisficing is helping other people the synonym of optimizing settling for less than could have setting high aspirations All of the following are myths that negotiators often hold, except: whatever is good for one party must be bad for the counterparty negotiator needs to be either tough or soft good negotiators are born good negotiators do not rely on intuition Negotiation is a mixed-motive enterprise, such that parties manage both economic and psychological dimensions have incentives to cooperate as well as compete use both deliberate thought and intuition balance rewards and costs Being a successful negotiator depends on “outsmarting” the counterparty the counterparty’s lack of preparedness experiential learning, feedback, and learning new skills always letting the other party tip their hand first Answer key: 1.B; 2.C; 3.A; 4.C; 5.B; 6.C; 7.C; 8.D; 9.B; 10.C. Discussion Questions What are the key reasons why effective negotiation skills are increasingly important in the business world? What are the “traps” of negotiation? What are some of the primary reasons why many people are ineffective negotiators? What are the most prevalent myths about negotiation, and how do these myths hamper people’s ability to learn effective negotiation skills? What is the fraternal twin model of negotiation, and why does it contribute to more successful outcomes in negotiation? Suggested answers: They are increasingly important because of the following five key reasons: (1) the dynamic nature of business, (2) interdependence, (3) competition, (4) the information age, and (5) globalization. Leaving money on the table (also known as “lose-lose” negotiation); settling for too little (also known as “the winner’s curse”); walking away from the table (sometimes this shortcoming is traceable to hubris or overweening pride; other times, it results from gross miscalculation); and settling for terms that are worse than the alternative (also known as the “agreement bias”). Some of the primary reasons are: the tendency for people to view their experiences in a way that is flattering or fulfilling for themselves (egocentrism); the tendency for people to see what they want to see when appraising their own performance (the confirmation bias); the acceptance of mediocrity (satisficing); being unaware of one’s own incompetence, and being reluctant to change one’s behavior and experiment with new courses of action. The most prevalent myths are: Myth 1: Negotiations are fixed-sum in nature; Myth 2: Negotiators need to be either tough or soft; Myth 3: Negotiation skills are something that people are born with; Myth 4: Experience is a great teacher; Myth 5: Effective negotiation necessitates taking risks and gambles, or using threats and bluffs; Myth 6: Good negotiators rely on intuition or “gut feeling.” People’s negotiation ability is hampered because negotiators tend to be combative, they do not get feedback on their performance, or because their memories tend to be selective, remembering successes and forgetting shortcomings. The fraternal twin model assumes that the counterparty is every bit as motivated, intelligent, and prepared as you are. Thus, it contributes to more successful outcomes because parties rely on simultaneously expanding and allocating the pie of resources, rather than on “outsmarting” or tricking the other party. Chapter 2 Preparation: What to Do Before Negotiation OVERVIEW This chapter is best discussed after students have prepared for and completed their first negotiation of the course (I suggest a simple, distributive negotiation in a multiweek course). Much class/lecture time should be spent on the concepts of the BATNA and reservation price. If the instructor is using a group or team-based approach, student groups can engage in a 15-minute discussion of the factors that were critical for preparation. The instructor can compile a master list of each group’s ideas. This list can be comp-ared with Exhibit 2-4 at the end of the chapter. As several biases are identified in this chapter, the instructor can point to instances of these biases occurring in the actual negotiations that students completed. For a homework assignment, students can be asked to use the preparation tips in preparing for a real, out-of-class negotiation. Lecture Outline the fixed-pie perception Most negotiators view negotiation as a fixed-pie (fixed-sum) enterprise, in that they believe whatever is good for one person must be bad for the counterparty. People who have fixed-pie perceptions usually take one of three suboptimal approaches when preparing for negotiation: Resign themselves to capitulating to the counterparty (soft bargaining) Prepare for attack (hard bargaining) Compromise in an attempt to reach midpoint between opposing desires (often regarded to be a win-win negotiation, but in fact, it is not) Common assumption is that concessions are necessary by one or both parties to reach agreement The mixed-motive decision-making enterprise Effective preparation for a negotiation encompasses three general abilities: Self-assessment Assessment of the counterparty Assessment of the situation self-assessment What do I want?: Target/aspiration Underaspiring negotiator (winner’s curse) Overaspiring or positional negotiator Grass-is-greener negotiator (reactive devaluation) What is my alternative to reaching agreement in this situation? Best Alternative to a Negotiated Agreement (BATNA) BATNAs and reality Your BATNA is time-sensitive Do not let the counterparty manipulate your BATNA Determine your reservation point (Exhibit 2-1) Step 1: Brainstorm your alternatives Step 2: Evaluate each alternative Step 3: Attempt to improve your BATNA Step 4: Determine your reservation price Be aware of focal points Beware of sunk costs Do not confuse your target point with your reservation point Identify the issues in the negotiation Identify the alternatives for each issue Identify equivalent packages of offers Packages should all be of equivalent value or attractiveness (also see Appendix 1) Premature concessions Identifying packages of offers does not make you appear to be a positional negotiator Assess your risk propensity Risk aversion Reference points define what people consider gains or losses Three sources of risk in negotiation Strategic risk BATNA risk Contractual risk Endowment effects Reference points Am I going to live to regret this? Counterfactual thinking Violations of the sure thing principle Do I have an appropriate level of confidence? Overconfidence effect sizing up the other party Who are the other parties? Hidden table Are the parties monolithic? Counterparties’ interests and position Counterparties’ BATNAs situation assessment Is the negotiation one-shot, long-term, or repetitive? (Exhibit 2-2) Do the negotiations involve scarce resources, ideologies, or both? Consensus conflict Scarce resource competition Is the negotiation one of necessity or opportunity? Is the negotiation a transaction or dispute situation? Are linkage effects present? Is agreement required? Is it legal to negotiate? (Exhibit 2-2) Is ratification required? Are there time constraints or other time-related costs? Time pressure and deadlines (Exhibit 2-3) Time-related costs Time horizon Are contracts official or unofficial? Where do the negotiations take place? Are negotiations public or private? Is third-party intervention a possibility? What conventions guide the process of negotiation (such as who makes the first offer)? Do negotiations involve more than one offer? Do negotiators communicate explicitly or tacitly? Is a power differential a factor between parties? Is precedent important? Conclusion Effective preparation places the negotiator at a strategic advantage at the bargaining table Three general areas of preparation—self, counterparty, context, or situation Summary of preparation (Exhibit 2-4) should be used before negotiation Key Terms BATNA Acronym for a negotiator’s Best Alternative To a Negotiated Agreement. consensus conflict Conflict that occurs when one person’s opinions, ideas, or beliefs are incompatible with those of another. contractual risk A situation in which settlement outcomes are determined with uncertainty at the time of settlement. counterfactual thinking The act of thinking about how things might have turned out differently. fixed-pie perception The belief that the counterparty’s interests are directly and completely opposed to one’s own. focal point Salient number, figure, or value in a negotiation that appears to be valid but is actually arbitrary and/or has no basis in fact. hidden table The negotiations that take place behind the scene between a principal and his or her constituents. linkage effects A phenomenon that refers to the fact that some negotiations will affect other negotiations; i.e., resolutions in one situation will have implications for a future situation. monolithic party A member of a group that acts as a single unit; i.e., there is no divergence within the group. Mixed-motive enterprise A negotiation involving both cooperation and competition. overconfidence effect Refers to unwarranted levels of confidence in people’s judgment of their abilities, the likelihood of positive events, and underestimates the likelihood of negative events. party A participant in negotiation. Parties can be individuals, groups, organizations, communities, or nations. positional negotiator A person who determines a set of terms desired in a negotiation, presents those terms, and refuses to budge on any dimension of any issue. ratification Approval of a contract by a body or group not necessarily present at the negotiation table. reactive devaluation The tendency for people to devalue an option previously considered to be more attractive, merely as a consequence of it being offered by the counterparty. reference point What a person considers to be a gain or loss. reservation point The point at which a negotiator is indifferent between reaching a settlement and walking away from the bargaining table. risk aversion Preference for a sure thing rather than a gamble that has an equal or greater expected value. scarce resource competition Conflict or competition that exists when people perceive one another as desiring the same limited resources. strategic risk The relative risk levels of the tactics that negotiators use at the bargaining table. sunk costs Money invested that cannot be recovered. sure thing principle A principle that states that if alternative x is preferred to y, in the condition that some event, a, occurs, and if x is also preferred to y in the condition that some event, a, does not occur, then x should be preferred to y, even when it is not known whether a will occur. target or target point The ideal or upper limit of what a negotiator expects to get out of a negotiation. Also called the aspiration or aspiration point. time horizon The amount of time between the negotiation and the consequences, or realization, of negotiated agreements. winner’s curse A situation in which a negotiator makes an offer or requests something that is immediately accepted by the opponent. Suggested Exercises and other materials EXERCISE: The Biopharm-Seltek Negotiation by Leonard Greenhalgh Biopharm-Seltek is a distributive negotiation over the sale of a manufacturing facility that produces genetically-engineered compounds. Negotiators are given information about the costs of their alternatives, but have to determine aspirations, reservation prices, and opening offers themselves. There are no teaching notes; however, the teaching notes associated with Coffee Contract (see suggested cases for Chapter 3) can easily be adapted for this exercise. Preparation: 10 min. Negotiation: 20 min. Available from Creative Consensus, Inc., P.O. Box 5054, Hanover, NH 03755. Phone/fax: (603) 643-0331. EXERCISE: Coffee Contract by Tony Simons and Thomas Tripp Coffee Contract is a distributive exercise. It concerns the contract for coffee at the Cornell Hotel School. The exercise provides a good context for teaching fundamental negotiation concepts like bargaining zone, reservation prices, and BATNAs, as well as distributive negotiation tactics, openings, concession making, and threats. Creative students may build in some integrative elements, and even if the students fail to find these creative ideas, the instructor can use them to introduce integrative negotiations. Preparation: 15 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Commodities Brokers
by Leigh Thompson and Leaf Van Boven This is a set of three negotiations between two brokers. It is a multiple-time-period, two-party integrative negotiation between two brokers trading four commodities, in which there is risk involved. Participants are randomly assigned to the role of Broker Jones or Broker Smith in the trading of various quantities and grades of wheat, rice, copper, and crude oil. This is an excellent negotiation exercise for illustrating the impact of risk and uncertainty on behavior and performance over time. Preparation: 15 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Energetics meets Generex by W. Trexler Proffitt, Jr. This is a two-party distributive negotiation based on a real California wind energy farm transaction. It is good for illustrating biases including anchoring and availability. There is the option to provide an outside offer during the negotiation that illustrates the power of BATNA. Preparation: 10 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Les Florets by Stephen B. Goldberg A simplified version of Texoil (see below) set in France. Preparation: 30 min. Negotiation: 45-60 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Texoil by Stephen B. Goldberg This is a qualitative negotiation over the sale of some property. The case has no overlapping bargaining zone unless the parties uncover some of each other’s interests. It is a very good case for teaching about interests, what information should and should not be shared, and creativity in negotiations. Preparation: 30 min. Negotiation: 60 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. MULTIPLE-CHOICE QUESTIONS The winner’s curse occurs when a negotiator sets his/her aspirations too high a negotiator makes an offer that is immediately accepted the counterparty demonstrates retaliative behavior no one can be trusted A type of negotiation behavior known as reactive devaluation is demonstrated by the grass-is-greener negotiator a positional negotiator an overaspiring negotiator an underaspiring negotiator BATNA Alternative to a Negotiated Agreement) determines the point at which a negotiator is prepared to make larger concessions keep options open walk away from the negotiation table identify counterparty’s alternatives One strategy for improving one’s BATNA is to discuss it with the counterparty follow the “falling in love” rule replace it with aspiration point change it as a result of the progress of the negotiation The reservation point is mostly related to the negotiator’s target point negotiator’s BATNA bargaining zone (ZOPA) negotiator’s opening offer The three sources of risk in negotiation include tactical risk, strategic risk, overconfidence risk failure risk, BATNA risk, information-sharing risk contractual risk, overconfidence risk, failure risk strategic risk, BATNA risk, contractual risk The endowment effect is the difference between what sellers demand and what buyers are willing to pay a tendency for people to value an object more once they own it the value we associate with a certain object or outcome saving money instead of purchasing goods A dispute occurs when parties have to resort to their BATNAs parties fail to exchange resources a claim is made by one party and rejected by the other party we turn down favors and rewards from others Most commonly, third-party intervention takes the form of power differential pie-slicing partnership mediation or arbitration Which of the following statements are not true when it comes to BATNAs? They are dynamic and constantly changing It is generally wise to reveal them They are determined by the negotiator’s available options They are a good anchor point for the negotiator Answer key: 1.B; 2.A; 3.C; 4.B; 5.B; 6.D; 7.B; 8.C; 9.D; 10.B. Discussion Questions What is the fixed-pie perception, and how does it affect a person’s preparation for negotiation? What are some of the problems that arise in the determination of one’s target or aspiration point in a negotiation? What is the difference between a target point and reservation point, and why is it important not to confuse the two? Why should negotiators break down the issues in a negotiation into multiple issues, rather than engage in a single-issue negotiation? Why is it advisable to assess the self, the counterparty, and any negotiation situation before commencing negotiations? What are some of the questions a negotiator needs to address when assessing the negotiation situation? Suggested answers: The fixed-pie perception means that whatever is good for one person must ipso facto be bad for the other party. Negotiators who have this perception usually adopt one of three stances: resign themselves to capitulating to the other side, prepare for a battle of wills, or mutual compromise in an attempt to reach a midpoint between opposing desires. Identifying a target or aspiration may cause three major problems: setting target or aspirations too low and opening the negotiation by requesting something that is immediately granted; setting the target point too high and refusing to make concessions; not knowing what one really wants—only that one wants what the counterparty is not giving and does not want what the counterparty is offering. Target point relates to an ideal situation, but the reservation point relates to what represents as one’s BATNA. Using one’s target point as a reservation point can result in the following fatal flaws: agreeing to a settlement that is worse than what the negotiator could do or walking away from a potentially profitable deal. In most negotiation situations, more than one issue is at stake but they may remain “hidden” unless negotiators unbundle them. By doing so, negotiators can add value to negotiations, formalize the issues and alternatives by creating a matrix, and determine a variety of different combinations of the issues that all achieve his or her target point. The negotiator who has identified a BATNA and set a reservation price and a target point, knows when to walk away, and how much is reasonable to concede. The negotiator who has researched the counterparty’s BATNA and interests is less likely to be tricked or confused. Some of the questions prior to commencing negotiations are: What do I want?; What are the issues in the negotiation?; What issues are relevant to the other party?; Is agreement required? Assessing oneself, the counterparty, and the negotiation situation before commencing negotiations is advisable for several reasons: 1. Preparation: Assessing oneself allows a negotiator to understand their own strengths, weaknesses, interests, and objectives. This self-awareness helps in crafting a negotiation strategy and setting realistic goals. 2. Understanding the Counterparty: Assessing the counterparty involves gathering information about their interests, objectives, negotiation style, and potential constraints. This understanding enables a negotiator to anticipate the other party's moves and tailor their approach accordingly. 3. Contextual Awareness: Assessing the negotiation situation involves understanding the broader context within which the negotiation takes place. Factors such as market conditions, legal framework, cultural differences, and timing can significantly impact the negotiation dynamics. Some questions a negotiator needs to address when assessing the negotiation situation include: 1. What are my objectives? What am I trying to achieve in this negotiation? 2. What are my strengths and weaknesses as a negotiator? 3. What is the counterparty's position? What are their interests and objectives? 4. What is the counterparty's negotiation style? Are they aggressive, collaborative, or somewhere in between? 5. What constraints, if any, does the counterparty face? 6. What are the potential outcomes of this negotiation? What is my BATNA (Best Alternative to a Negotiated Agreement) and theirs? 7. What external factors might influence the negotiation, such as market conditions or regulatory changes? 8. What cultural differences exist between myself and the counterparty, and how might they affect the negotiation? 9. What is the urgency of reaching an agreement? Is there a deadline or time pressure? 10. What is the level of trust between myself and the counterparty, and how can it be built or maintained during the negotiation? By thoroughly assessing oneself, the counterparty, and the negotiation situation, a negotiator can enter the negotiation process well-prepared, increasing the likelihood of achieving a favorable outcome. Chapter 3 Distributive Negotiation: Slicing the Pie OVERVIEW This chapter is probably one of the two most important in the book (the other being Chapter 4). The instructor can introduce the BATNA concept (preferably in the form of a debrief of the first exercise of the course). Following this, the instructor can introduce the bargaining zone concept and work through positive and negative bargaining zones. The rest of the chapter is divided into two major skill areas: (1) how to increase one’s slice of the negotiation pie; and (2) understanding the psychology (and economics) of fairness. I usually cover pie-slicing skills in detail, as students are so preoccupied with this subject; and later in the term, I raise the topic of fairness. There is any number of ways to make this material come alive in the classroom, ranging from good old-fashioned lecture to small discussion groups. Another alternative is to give students a “homework” assignment to analyze their own negotiations in terms of pie-slicing strategies. The instructor can collect these and share the “best” examples with the entire class. Given that distributive negotiation is competitive, a discussion of lying and ethics is also appropriate. Lecture Outline the bargaining zone and the negotiation dance Bargaining zone, or zone of possible agreements (ZOPA), represents the region between each party’s reservation point. Bargaining zone can be positive or negative (Exhibits 3-1A and 3-1B) If parties fail to reach agreement in positive bargaining zone, the result is suboptimal In a negative bargaining zone, parties should pursue other alternatives Bargaining surplus: Amount of overlap between parties’ reservation points Negotiator’s surplus (Exhibit 3–2): Positive difference between the settlement outcome and the negotiator’s reservation point; it indicates mixed-motive nature of negotiation pie-slicing strategies Assess your BATNA and improve it Determine your reservation point, but do not reveal it Research the counterparty’s BATNA and estimate the reservation point Set high aspirations (be realistic, but optimistic) Your first offer represents the most important anchor point Avoid the winner’s curse Avoid boulwarism Make the first offer (if you are prepared) Immediately reanchor if the other party opens first Plan your concessions Pattern of concessions (unilateral or bilateral) Magnitude of concessions Graduated reduction in tension (GRIT) model Timing of concessions Support your offers with facts Appeal to norms of fairness Do not fall for the “even split” ploy the most commonly asked questions Should I reveal my reservation point? Should I lie about my reservation point? Lying is unethical Lying hurts your reputation Should I try to manipulate the counterparty’s reservation point? Should I make a “final offer” or commit to a position? Saving face the power of fairness There are multiple methods of fair division Equality rule Equity rule Needs-based rule Situation-specific rules of fairness Social comparison (Exhibit 3-3) Upward comparison Downward comparison Comparison with similar others What drives the choice of the comparison other? Self-improvement Self-enhancement Accurate self-evaluation People seek equity in their relationships with others Restoring equity — when people sense inequity they seek to restore it (Exhibit 3-4) How to eliminate tension arising from inequity Alter the inputs Alter the outcomes Cognitively distort inputs or outcomes Leave the situation Cognitively distort either the inputs or outcomes of an exchange partner Change the object of comparison Procedural justice — people evaluate not only the fairness of outcomes, but also the fairness of procedures by which those outcomes are determined Fairness in relationships — judgments about what is fair are driven by the nature of the relationship we have with the counterparty (Exhibit 3-5; Exhibit 3-6) Egocentrism taints judgments of fairness Some cognitive mechanisms allow for egocentric judgments Selective encoding and memory Differential retrieval Informational disparity Avoid problems through wise pie slicing Consistency Simplicity Effectiveness Justifiability Consensus Generalizability Satisfaction Conclusion When it comes to slicing the pie, the most valuable information is a negotiator’s BATNA Negotiators can enhance their ability to garner a favorable slice of the pie by engaging in the following strategies: Determine their BATNA prior to negotiations Attempt to improve upon their BATNA Determine your reservation point Research the counterparty’s BATNA Set high aspirations Make the first offer Immediately reanchor if the counterparty opens with an “outrageous” offer Plan your concessions, support your offer with facts Appeal to norms of fairness Do not fall for the “even split” ploy Negotiators should not reveal their reservation price and never lie about their BATNA A negotiator who is well versed in the psychology of fairness is at a pie-slicing advantage Key Terms bargaining surplus The amount of overlap between parties’ reservation points. bargaining zone or zone of possible agreements (ZOPA) The region between parties’ reservation points in which a final settlement should be obtained. bilateral concessions Concessions made by both parties. boulwarism A bargaining style named for Lemuel Boulware, former CEO of General Electric, in which one’s first offer is one’s final offer. chilling effect When you ask for something outrageous and risk souring the relationship. equality rule A principle that prescribes equal shares for all. equity rule A principle that prescribes that distribution of resources should be proportional to a person’s contribution. even split Dividing evenly the two offers currently on the negotiation table. face The value a person puts on his or her public image, reputation, and status vis-à-vis other people in the negotiation. face-threat sensitivity (FTS) Likelihood that a negotiator will have a negative reaction to a threat to his or her public image, reputation, or status vis-à-vis other people in the negotiation (“face”). Goal-setting paradox A negotiator who focuses on ideas and feels less satisfied than a negotiator who focuses on their reservation point. graduated reduction in tension model (GRIT) Unilateral conciliatory actions designed to de-escalate a conflict. magnitude of concessions Extent to which one party has conceded from an initial-stated position. mixed-motive negotiation A negotiation in which parties want to cooperate with their opponent to reach mutual agreement, but must compete to maximize their share of the joint gains. needs-based rule A rule that states that the benefits people receive should be proportional to their needs; also called welfare-based allocation. negative bargaining zone A negotiation situation in which there is no positive overlap between parties’ reservation points. negotiation dance The process of making offers and counteroffers in a negotiation. negotiator’s surplus The positive difference between the settlement outcome and the negotiator’s reservation point. pattern of concessions In negotiation, the sequence of consecutive concessions made by parties. premature concessions Making more than one concession in a row before the counterparty responds or counteroffers. ruthless competitor A person who prefers to have more resources than the counterparty, regardless of relationship. suboptimal outcome In negotiation, an outcome in which negotiators leave money on the table, reach an impasse, or are generally worse off not reaching agreement than reaching agreement. timing of concessions In negotiation, determination of whether concessions are immediate, gradual or delayed. winner’s curse A situation in which a negotiator makes an offer that is immediately accepted by the opponent, thus signaling the fact that the negotiator offered too much. Suggested Exercises AND OTHER MATERIALS EXERCISE: The Biopharm-Seltek Negotiation by Leonard Greenhalgh Biopharm-Seltek is a distributive negotiation over the sale of a manufacturing facility that produces genetically engineered compounds. Negotiators are given information about the costs of their alternatives, but have to determine aspirations, reservation prices, and opening offers themselves. There are no teaching notes; however, the teaching notes associated with Coffee Contract (see below) can easily be adapted for this exercise. Preparation: 10 min. Negotiation: 20 min. Available from Creative Consensus, Inc., P.O. Box 5054, Hanover, NH 03755. Phone/fax: (603) 643-0331. EXERCISE: Blue Buggy Buyer by Gaylen D. Paulson This is a two-party deal making exercise with a negative bargaining zone. Nevertheless ,15%–20% of nego-tiators reach agreement illustrating irrationality and agreement biases. Another 15%–20% generate creative agreements that illustrate the limitations of the frames and assumptions negotiators bring to the table. Preparation: 10 min. Negotiation: 15 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu.. EXERCISE: Bullard Houses by Ron Karp; revised by Mox Tan, David Gold, Andrew Clarkson, Paul Cramer, Douglas Stone, and Bruce M. Patton DRRC’s version of this Harvard Program on Negotiation (PON) exercise is excellent for raising issues of ethics in negotiation. It is a one-on-one, qualitative negotiation between agents over a piece of prime real estate. It emphasizes the role of agents, lying, misrepresentation, and trust. Preparation: 60 min. Negotiation: 60 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Buying a House by Sally Blount Buying a House is a two-party, quantified distributive negotiation with a $10,000 overlapping bargaining range. It can be used to teach pure distributive negotiations and the use of comparative standards. Preparation: 15 min. Negotiation: 20 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Club West
by Craig R. Fox & Alan C. Fox; adapted by Stephen B. Goldberg, and Jeanne M. Brett Club West is a lawsuit. Club West illustrates setting reservation prices in legal disputes, egocentric bias and reactive devaluation. Preparation: 30-60 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu.. EXERCISE: Coffee Contract by Tony Simons and Thomas Tripp This distributive exercise concerns the contract for coffee at the Cornell Hotel School. It provides a good context for teaching fundamental negotiation concepts like bargaining zone, reservation prices, and BATNAs, as well as distributive negotiation tactics, openings, concession making, and threats. Creative students may build in some integrative elements, and even if the students fail to find these creative ideas, the instructor can use them to introduce integrative negotiations. Preparation: 15 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Energetics meets Generex by W. Trexler Proffitt, Jr. This is a two-party distributive negotiation based on a real California wind energy farm transaction in 2002. It is good for illustrating biases including anchoring and availability. There is the option to provide an outside offer during the negotiation that illustrates the power of BATNA. Preparation: 10 min. Negotiation: 30 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: GI-Fix by Max H. Bazerman GI-Fix is a two-party distributive negotiation between the head of a pharmacy for an HMO and the sales representative of a pharmaceutical company over the price and volume of a drug. Preparation: 30 min. Negotiation: 30-45 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: Hollywood by Holly A. Schroth, Clarence Chen, Edward Sieh, and Patricia Yu Hollywood is an exercise designed to illustrate the role of agents in negotiation. It has two parts, a negotiation between each principal and his/her agent, and a negotiation between agents. The exercise is primarily distributive over salary, but there is the opportunity to add issues to the table. Preparation: 15-20 min. Negotiation: 45 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. EXERCISE: MAPO by Mark N. Gordon, Tim Reiser, Elizabeth Gray, Lynn Gerber, Bruce M. Patton, and Valerie A. Sanchez DRRC’s version of this Harvard University Program on Negotiation (PON) case is a multi-issue union management contract negotiation, with integrative potential. It comes with numerous exhibits that provide an opportunity to discuss using fairness standards while negotiating distributive agreements. Preparation: 60 min. Negotiation: 120 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu.. EXERCISE: Sugar Bowl by Gaylen D. Paulson Sugar Bowl is a fun and compact introductory exercise originally designed for use in short negotiation seminars or workshops. The exercise presents a very approachable negotiating context, and one that persons are likely to feel is relevant to their own experiences. The key to the exercise is a relatively generous positive bargaining zone that often leaves both sides initially feeling successful, but later realizing they might have gotten a better distributive outcome (and thereby making them more receptive to course material). In a very short space of time issues are raised related to aspirations, reservation prices, alternatives, bargaining zones, and tactics for effective value claiming. Preparation: 5 min. Negotiation: 5-10 min. Debrief: 15-20 min. Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu.. EXERCISE: Virtual Victorian by Wendi Adair, Gaylen D. Paulson, and W. Trexler Proffitt, Jr. Virtual Victorian is a distributive, house buying negotiation that is carried out through agents and via e-mail. There are four parties: the buyer, the buyer's agent, the seller, and the seller's agent. Preparation: 60 min. Negotiation: one week (e-mail). Available from the Dispute Resolution Research Center at the Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. Phone: (847) 491-8068; e-mail: drrc@kellogg.northwestern.edu. CHAPTER: Judgmental biases in conflict resolution and how to overcome them. In M. Deutsch, P.T. Coleman, and E.C. Marcus (Eds.) Handbook of Conflict Resolution, 2nd Edition, Jossey-Bass. by Leigh Thompson, Janice Nadler, and Robert Lount From the introduction of the paper: A common misconception held by negotiators and dispute resolution professionals is that conflict escalation, stalemates, impasses, and lose-lose agreements are driven by intransigence and self-interested motivations. Whereas, self-interest and opposing motivations do interfere with productively resolving conflict, there are many seemingly benign beliefs and cognitions that also interfere with effective conflict resolution but often go undetected. Unfortunately, these beliefs are not easily corrected during the process of conflict resolution itself because it is difficult for negotiators to monitor them. Furthermore, third-party intervention is no guarantee that erroneous beliefs and cognitions will be adequately identified and eliminated. In fact, the mere presence of a third party may exaggerate the tendency of these faulty and erroneous beliefs to disturb the otherwise effective resolution of conflict. Further, third parties and other self-proclaimed “neutrals” often fall prey to similar cognitive biases. We argue in this chapter that identifying and challenging negotiator biases can do much to effectively resolve disputes and conflicts of interest. Unfortunately, most negotiators are not aware of the existence of cognitive biases and their deleterious effects. In the first section, we introduce our basic framework and key assumptions. In the second section, we provide illustrative examples of the effects of cognitive bias on conflict management. Finally, we examine methods by which to eliminate or reduce cognitive bias at the bargaining table. MULTIPLE-CHOICE QUESTIONS The bargaining zone, or zone of possible agreements (ZOPA), is the range below the seller’s reservation point and above the buyer’s target point below the seller’s target point and above the buyer’s reservation point between negotiators’ reservation points between negotiators’ target points The negotiator’s surplus is the positive difference between negotiators’ reservation points the settlement outcome and the negotiator’s reservation point the bargaining surplus and the settlement outcome the best possible economic outcomes If you reveal your reservation point during the course of negotiation the other party has little or no interest to offer you anymore parties will reach an impasse the counterparty will reveal its reservation point you will get a bigger slice of the pie A negative bargaining zone indicates that parties are worse off by not reaching agreement than reaching agreement there is no positive overlap between the parties’ reservation points parties should keep negotiating to find a positive bargaining zone the counterparty’s first offer was not accepted Which of the following is a strategically wise method of anchoring? setting an assertive aspiration point early in the negotiation immediately rejecting the counterparty’s first offer determining the exact midpoint between the last two offers on the table refusing to make any concessions When formulating counteroffers and concessions, negotiators need to consider three things the starting value, the end value, and the magnitude of concessions the fairness, the misuse, and the pattern of concessions the pattern, the magnitude, and the timing of concessions the impact, the size, and the timing of concessions Lying about your reservation point is known as the “chilling effect” reduces the size of the bargaining zone reduces the size of concessions will lead to a lose-lose outcome Which of the following statements is most true regarding equity in negotiation? People tend to use equal division rule most of the time Distribution should be equal regardless of one’s contribution People feel entitled to make what others do despite their efforts Most people prefer to receive outcomes that are fair Procedural justice concerns fairness of the processes in legal proceedings of the processes by which decisions are made in the distribution of rights or resources in the rectification of wrongs If the counterparty opens with an “outrageous” offer, the negotiator should lower his/her aspirations reveal his/her reservation price immediately re-anchor appeal to norms of fairness and justice Answer key: 1.C; 2.B; 3.A; 4.B; 5.A; 6.C; 7.B; 8.D; 9.B; 10.C. Discussion Questions What is the bargaining zone in a negotiation? How does a positive or negative bargaining zone affect the outcome of a negotiation? What are the most important factors to consider when making concessions in negotiation (so as to maximize your share of the bargaining zone)? Should a negotiator reveal his or her reservation point? Why or why not? What are some of the costs of lying in a negotiation? What are some factors that dictate which rules of fairness are employed in a specific negotiation situation? Suggested answers: The bargaining zone is the range between negotiators’ reservation points. Positive bargaining zone means that mutual agreement is better than resorting to BATNAs. Negative bargaining zone indicates there is no positive overlap between the parties’ reservation points and negotiators should not waste time negotiating but exercise their BATNAs instead. When making concessions, negotiators need to consider the pattern, the magnitude, and the timing of concessions. Negotiators should not offer more than a single concession at a time, however, many negotiators make premature concessions—more than one concession in a row before the counterparty responds. Another consideration is to determine how much to concede—the amount reduced or added (depending upon whether one is a seller or buyer) from one’s previous offer. It is unwise to make consistently greater concessions than one’s opponent. The timing of concessions refers to whether they are immediate, gradual, or delayed. Revealing one’s reservation point is generally not a good strategy unless it is especially good and the bargaining zone is small. This knowledge allows a negotiator to make offers that barely exceed the counterparty’s reservation point and claim the entire bargaining surplus for oneself. Some negotiators reveal their reservation point to demonstrate that they trust the other party, however, more effective ways exist to build trust. Additionally, “trusting” the counterparty with your reservation point does not help to maximize your surplus. Lying about your reservation point reduces the size of the bargaining zone and negotiations may end in impasse. The most common lie in negotiation is “This is my final offer” and it would be embarrassing to continue negotiating after making such a statement. Finally, lying hurts your reputation. Once you have a reputation of a tough negotiator, people will behave more competitively with you. Additionally, people who discover that they have been deceived, seek retribution. Some of the factors are: the goals involved in a negotiation situation (e.g., equality-based rules to maintain group solidarity, equity-based to enhance productivity). Similarly, a negotiator’s relationship to the other party influences the choice of fairness rules (equality rule for negotiators who share similar attitudes and beliefs, or are likely to engage in future interaction, or if public decisions and allocation are made). Fairness rules also depend on whether people are dealing with rewards versus costs (equality is used to allocate benefits, but equity is used to allocate burdens). The selection of fairness rules is also influenced by extenuating circumstances (e.g., in complex situations people are more likely to use the equality rule). Instructor Manual for The mind and heart of the negotiator Leigh L. Thompson 9780132543866, 9781292023199, 9780132827669, 9780135198582
