Day 4 Lecture

Advanced topics in Distributive

Negotiation
Negotiation
 Hamilton Real Estate
In ONE word how would you describe the
negotiation?

Straw Poll
Results
 Fundamentals of Negotiation
BATNAs

Reservation Values

ZOPAs
What is the Sellers Reservation Value?
What about the Buyers Reservation Value?
Confronting Deception

Strategy 1: Ask
direct questions, and
listen carefully for
non-responses.

Strategy 2: Propose a
contingency contract
 Contingency Contracts
Build on differences. Dont argue over the
future, bet on it
Allow negotiators to spread risk through risk-
sharing
Allow negotiators to solve problems of trust
without confrontation
Increase the incentive of parties to perform at
or above contractually specified levels
Great lie-detection device diagnose honesty
 ZOPA: Zone of Possible Agreement

ZOPA

~ $42M $60M
Seller RV Buyer RV
PZOPA: PERCIEVED Zone of Possible Agreement

Buyers Perception of ZOPA

Sellers Perception of ZOPA

~ $42M $60M
Seller RV Buyer RV
 Evaluate the following scripts:

A. We understand that you might be interested in developing

this land for construction of luxury condominiums. We think
thats great. Of course, we both understand that this makes
the land quite valuable.

B. Perhaps we should begin by discussing your needs. What are

you plans for this excellent piece of real estate.

C. If the land is used for commercial development, it will make it

quite valuable. With that in mind, lets discuss some specifics.
What are your plans for this excellent piece of real estate?
 Beware the Confirmation Bias!!!

We search for
information that
supports/confirms
our preconceptions,
and disregard
information that
challenges it
 First offer considerations

How aggressive should you be?

How should you respond to aggressive first offers?

How should you respond to generous offers?

 How should you prepare?
Step 1
Assess (and improve) your own BATNA

Step 2
Calculate your RESERVATION VALUE

Step 3
Assess your other partys BATNA

Step 4
Calculate the other partys RESERVATION VALUE

Step 5
Evaluate the BARGAINING ZONE & Set a TARGET
 What about crowd info?
How did collective information affect
outcomes?
 Commitment Tactics
(In Increasing Order of Aggressiveness)
Providing alternatives
Finding alternatives that meet both parties needs
Split the difference
May be more suitable for small differences
Sweeteners
Be careful not to go beyond reservation price
Assume the close
Ratification
Final offer/Ultimatum
Exploding offers
Tactic that is likely to anger other party
 Hardball Tactics
Hardball tactics
Good cop/bad cop
Highball/lowball outrageous opening offers
Bogey pretending an issue is important when it is not
The nibble asking for a little more towards the end of
the negotiation
Intimidation/aggressive behavior
Snow job inundating the other party with information
Benefits and costs of hardball tactics
How can you use them and how do you defuse
them?
 Defusing Hardball Tactics
When unintentional
Offer to change to more productive methods
Agree on rules and procedures
Improve the accuracy of communication take their
perspective, invite them to take yours
Control issues reduce the number of substantive issues,
state issues concretely rather than as a principle, restrict
precedents
Establish commonalties
When intentional
Explicitly acknowledge that the other party is tough and you
can be tough too
Make the first small concession and ask for one in return
How do you ensure satisfaction
with the outcome?
Fairness in outcome: Feeling like they got
a good deal
Treatment in the process
Dignity and respect in particular
Honesty and transparency
 Negotiator Toolbox
Know your BATNA
Define your RP
Define your aspiration level
Research the other partys BATNA/reservation price
Make aggressive first offers whenever possible
Watch how you are making concessions
Make sure that concessions are reciprocated
Consider what commitment tactic to use
Beware of hardball