Negotiation Subprocesses By Carolina Eder Annalena Koehler Anton

Negotiation Subprocesses By Carolina Eder Annalena Koehler Anton Hristov Vilhelm Öhrn

Negotiation � Everyone uses negotiation in day to day life. � Negotiation is a process in which a group or involved parties resolve matters, by discussing and coming to an agreement.

Negotiating Rationally: The power and Impact of the Negotiator´s Frame � To analyze negotiation rationally the negotiator has to understand the psychological forces which have a big impact on the negotiator´s effectiveness.

Negotiator frame � Structure problems � Processes information � Frame the situation

Framing of Negotiations Ex. 1 � Situation adapted from Russo and Schoemaker - Difference between the two situations - Actually for both it should be worth it to invest the same amount of time � First Scenario – Very Good deal � Second Scenario – Not that attractive ◦ Frame represents percentage of discount

Framing of Negotiations Ex. 2 � Situation - Richard Thaler Content In both versions, the result is the same. No negotiation with the seller Percentage of elasticity of the demand of the product Frame – high cost is expected at hotel - High cost is considered “rip-off” in the store

Conclusion (Framing of Negotiation) � Those two examples show important framing is to solve problems and make Decisions

Framing of Risky Negotiations � Framing potential gains or potential losses � Framed either as “gains” or “losses” ◦ Gains of similar value – prefer certainty over lottery ◦ Losses of sim. Value – prefer lottery over certainty � Example : $3500 gain considered a loss ◦ Personal goal was a $5000 increase ◦ Frame based on available information �(info not known – average raise = $2000)

Reference point/Base Line � Crucial in forming the Frame ◦ Basis for evaluating if option is a gain or loss ◦ Determine our willingness to accept/reject an option ◦ It is a result of our expectations ◦ Usually what we own is our automatic reference point

Endowment Effect � “Buyer” points and “Seller” have different reference ◦ Seller – personal attachment to the object he owns ◦ Values this attachment, therefore puts higher value ◦ Buyer is not attached, he estimates a lower value for an object � Ex: Coffee Mug priced from $. 50 to $. 9. 50 ◦ Sellers - $7. 12 ◦ Buyer – $2. 88 (closer to market value) ◦ Chooser - $3. 12 (get $ or mug, no buying/selling)

Framing, Negotiation Bias and Strategic Behavior � Strategically manipulate framing to direct negotiation performance � Framing the options in terms of potential gain ◦ Situation perceived as more favorable � Same option Framed in terms of losses ◦ Lower chance of a favorable perception

Thank You for the Attention!