INFM 718 A LBSC 705 Information For Decision

INFM 718 A / LBSC 705 Information For Decision Making Lecture 11

Outline • Decision-making for Negotiations • Negotiation exercises • Preview of Assignment 7

Negotiations • Let’s start with an exercise. • Buying or selling a book.

Negotiations • Distributive bargaining – A negotiation situation where only one issue is at stake. Focus is on distributing one type of utility between two parties. • Integrative bargaining – A negotiation situation where several issue are at stake. Focus is on distributing more than one type of utility between two parties.

BATNA • BATNA: Best Alternative to a Negotiated Agreement. • BATNA is the resistance point beyond which a party would rather leave the negotiation without an agreement. • B: “I will not pay more than $80 for this. ” • S: “I will not sell this for less than $60. ” • BATNAB=$80 BATNAS=$60

Agreement Buyer’s Agreement Zone Seller’s BATNA 30 40 50 Buyer’s BATNA 60 70 80 Agreement Zone 90 100

Impasse Seller’s Agreement Zone Buyer’s BATNA 30 40 Seller’s BATNA 50 60 70 80 90 100

Impasse Seller’s Agreement Zone Buyer’s BATNA 30 40 50 60 70 Seller’s BATNA 80 90 100

Integrative Bargaining • Example: • Two sides are negotiating. There are two issues at stake. The sides have different utility perceptions and weights for the two issues. • Settlement points are discreet (not continuous. )

Integrative Bargaining Price Delivery 700 385 Seller 300 75 weight=70 70 300 k 0 310 k 320 k Price 600 150 w=40 310 k w=60 240 0 300 k 1 Month 2 Months 3 Months Delivery 400 Buyer w=30 320 k 6 1 Month 2 Months 3 Months

Analysis for I. B. • There are 3 x 3=9 settlement points. • The best settlement for the seller is Price=320 k; Delivery=3 months (Utility=700+300=1000) • The best settlement for the buyer is Price=300 k; Delivery=1 month (Utility=400+600=1000)

Analysis for I. B. • The best integrative settlement is Price=320 k; Delivery=1 month (Seller’s Utility=700+0=700) (Buyer’s Utility=0+600=600) (Total Utility=700+600=1300) • This settlement maximizes the total utility and provides a balanced (although not equal) distribution of utility.

Integrative Bargaining • Integrative bargaining exercise • Peace talks between Bluebird and Yellowstone