NEGOTIATIONS

Foundational Principles

Day 1: The Distributive Negotiation Problem

APPROACHES
• Conflict Management
 adjudicative/consensual
 prevention, resolution, containment
• Foundational Negotiations
 structural
 foundations
• Advanced Negotiations
 psychological
 persuasion, power, ‘dirty’ tactics, defenses
• Ethics and Law of Negotiations
 institutional and normative context
 lies and lie detection
• Coaching
 student competitions, front-line business
 negotiate  analyze video  negotiate  analyze video …

Negotiations Dr. Seraphim Voliotis

1
OUTLINE
• Day 1: The Distributive Negotiation Problem
 Role play 1
 What is the distributive negotiation problem?
• Day 2: The Integrative Negotiation Problem
 Styles and Strategies
 Role play 2
 What is the integrative negotiation problem?
• Day 3: The Solution
 Role play 3
 Principled Negotiations: value creation
 How to create value in negotiations?
 Principled Negotiations: value distribution
 Role play 4
 How to distribute value in negotiations?
Negotiations Dr. Seraphim Voliotis

ESSENTIALS
• Readings
 variety of perspective: distributed after seminar
 course notes: distributed after course
• Participation
 smart-phones, not-so-smart phones, laptops etc…
 role-plays
o do not show information: counterpart, others
o immerse yourselves
o fair play: embellish but without advantage
o be adventurous
o learn from mistakes

Negotiations Dr. Seraphim Voliotis

2
WHY NEGOTIATIONS?
• Agreement
 negotiations  agreement

• Self interest in strategic interaction

 gain as much as possible
 the other wants to gain as much as possible

• In negotiation you never lose…(?)

Negotiations Dr. Seraphim Voliotis

DISTRIBUTIVE BARGAINING
bargaining zone

200 240 280 320 400

seller’s RP B’s offer B’s target S’s asking buyer’s RP
private public private public private

 Reservation Point (RP)

o buyer’s: the most willing to pay
o seller’s: the least willing to accept
 BATNA: best alternative to negotiated agreement
 target points (TP): best outcomes – aspiration point
 asking price – initial offer (IO): opening prices
 concessions: moving towards agreement
 escalation: occasionally things just don’t work

Negotiations Dr. Seraphim Voliotis

3
RESERVATION POINT
• depends on
o wants & needs
o calculation (valuation)
o psychology
o principles and morals
• are they set in stone?
 valuations change
o but this flat is older than the rest in the neighborhood…
o its plumbing needs fixing….
 money obtained
o I can only afford $800,000 but I guess I could get a loan…
 not clear in the outset
 delay in negotiation & cost of breakdown
 change of circumstances
• lying:
 dangerous  reduces bargaining zone
 obvious  nobody would (especially aggressively…)

Negotiations Dr. Seraphim Voliotis

ALTERNATIVES
• BATNA
 considered major source of power: cultivate – dynamic
 discover theirs
 reveal to other?
 influences RP but not necessarily the same
o greater: might not be purely comparable
o smaller: willing to wait it out – expectations
o none: having no alternatives doesn’t mean RP = 0
 common mistakes
o too ‘rosy’ a view – habituation (grass is greener…)
o aggregate: some alternatives are mutually exclusive
o uncertain  early commitment to agreement  low result
• WATNA: worst alternative – a reminder
Negotiations Dr. Seraphim Voliotis

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 TARGETS
• Aspirations
 personal and ‘wishful’, but improves results
 fixation on ‘bottom-line’  relaxation
• Psychology
 limited cognitive capacity to focus
o need a ‘focal’ point: RP or TP?
 self-esteem & optimism, but how much?
• Justifiable: the highest legitimate expectation
 with objective criteria – has to be feasible: e.g. social norms, laws,…
 but missing opportunities?
• Effective:
 specific
 commitment: Justify, Visualize, Write down, Tell (care), Material loss
 bring it in negotiation: don’t be bullied, don’t lose track
• Walk out
 on RP or TP?

Negotiations Dr. Seraphim Voliotis

S1

INITIAL OFFER: who/when

• offer first or not?
 custom – norms
 revealing information
 early commitment – missing opportunities
 signaling & tactics
 type of negotiation: Relationship v. Transaction
 market knowledge and security
 anchoring & contrast effect & reciprocity
• careful: those in power tend to make offers first
• neither opens?
 simultaneously
 3rd party
Negotiations Dr. Seraphim Voliotis

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Slide 10

S1 Seraphim, 20/05/2019
INITIAL OFFER: how much
• ranges: never
 unless conditions: e.g. creditworthiness of lessee
• importance
 most deals tend to settle in mid-point of (genuine) IO
 0.85 correlation of IO with outcome
• too low self-entrapment to lower margins
• too high  toughness, emotion, breakdown
• justifiable optimistic (also TP)
 contrast principle: ‘after-sell pitches’
 norm of reciprocity: duty owed for prior dealings

Negotiations Dr. Seraphim Voliotis

WINNER’S CURSE: negotiations

• Make a first offer & (immediately) accepted
 psychological need to ‘win our little battles’
 regret: could have asked for more
 informational differential: e.g. ‘company acquisition’
o giving a put option for free: the unilateral right to sell
• Making a first offer: leads to better results
 Anchoring +ve, but
 Unreasonable  escalation -ve
 Loss of idiosyncratic opportunity -ve
 Reveal information: need, RP, … -ve
 Lack of information: winner’s curse -ve
• So: not unless you know the market well
• Make non-binding openings (exploratory)?
Negotiations Dr. Seraphim Voliotis

6
 Thank You!

Negotiations Dr. Seraphim Voliotis