CHAPTER 2

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Preparation:
What to Do Before
Negotiation

CHAPTER 2

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The Fixed-Pie Perception

Most negotiators usually take one of three
suboptimal approaches when preparing for
negotiation:
Resignation to capitulating to the other side (soft
bargaining)
Preparation for attack (hard bargaining)
Compromise (often regarded to be a win-win
negotiation, but in fact, it is not)
Instructors Manual with Overheads to accompany
The Mind and Heart of the Negotiator 5/e (Thompson)

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CHAPTER 2

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Preparation: Self-Assessment (I)

What do I want (target or aspiration)?
What is my alternative to reaching agreement in this
situation (BATNA)?
Determine your reservation point
Be aware of focal points
Beware of sunk costs
Do not confuse your target point with your reservation
point
Instructors Manual with Overheads to accompany
The Mind and Heart of the Negotiator 5/e (Thompson)

Copyright 2012 Pearson Education,

Inc. publishing as Prentice Hall

CHAPTER 2

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Preparation: Self-Assessment (II)

Identify the issues in the negotiation

Identify the alternatives for each issue
Identify equivalent packages of offers
Assess your risk propensity
Endowment effects
Am I going to live to regret this?
Violations of the sure thing principle
Do I have an appropriate level of confidence?

Instructors Manual with Overheads to accompany

The Mind and Heart of the Negotiator 5/e (Thompson)

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Inc. publishing as Prentice Hall

CHAPTER 2

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Developing a Reservation Point

Step 1: Brainstorm Your Alternatives. Imagine that you want to sell your house. Your target point$275,000. What will you do in the event that you do not
get an offer of $275,000? Consider as many alternatives as possible.
Step 2: Evaluate Each Alternative. Order the various alternatives in terms of their relative attractiveness, or value. If an alternative has an uncertain
outcome, such as reducing the list price, you should determine the probability that a buyer will make an offer at that price. Suppose that you reduce
the list price to $265,000. Based on research, you assess the probability of an offer to be 60%. The best alternative should be selected to represent
your BATNA.
Step 3: Attempt to Improve Your BATNA. In this case, you might contact a rental company and develop your rental options, or you may make some
improvements that have high return on investment (e.g., new paint). Of course, your most attractive BATNA is to have an offer in hand on your
house.
Step 4: Determine Your Reservation Price. The least amount of money you would accept for your home at the present time. You assess the probability of
an offer of $250,000 or higher to be 95%. You think there is a 5% chance that you will not get such offer and will rent it. The probabilities always sum
to exactly 100%. We have considered all possible events occurring. No alternative is left to chance. You can assess your expected probabilities of
selling your house:

Reduce the price of your home to $265,000

Psale = 60%

Reduce the price of your home to $250,000

Rent the house

Psale = 35%
Prent = 5%

An overall value for each of these risky alternatives is assessed by multiplying the value by its probability:

Value of reducing price to $265,000 = $265,000 x 0.6 = $159,000

Value of reducing price to $250,000 = $265,000 x 0.35 = $87,500
Value of renting the house = $100,000 x 0.05 = $5,000
Add all the values of the alternatives to arrive at an overall evaluation:
= 0.6($265,000) + 0.35($250,000) + 0.05($100,000) = $159,000 + $87,500+ $5,000 = $251,500

Instructors Manual with Overheads to accompany

The Mind and Heart of the Negotiator 5/e (Thompson)

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Inc. publishing as Prentice Hall

CHAPTER 2

2-6

Preparation: Assessing the Other Party

Who are the other parties?

Are the parties monolithic?
Counterparties interests and position
Other negotiators BATNAs

Instructors Manual with Overheads to accompany

The Mind and Heart of the Negotiator 5/e (Thompson)

Copyright 2012 Pearson Education,

Inc. publishing as Prentice Hall

CHAPTER 2

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Preparation: Assessing the Situation (I)

Is the negotiation one-shot, long-term, or repetitive?
Do the negotiations involve scarce resources, ideologies,
or both?
Is the negotiation one of necessity or opportunity?
Is the negotiation an exchange or dispute situation?
Are there linkage effects?
Is agreement required?
Is it legal to negotiate?
Is ratification required?
Are there time constraints or other time-related costs?
Instructors Manual with Overheads to accompany
The Mind and Heart of the Negotiator 5/e (Thompson)

Copyright 2012 Pearson Education,

Inc. publishing as Prentice Hall

CHAPTER 2

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Preparation: Assessing the Situation (II)

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 there a power differential between parties?
Is precedent important?

Instructors Manual with Overheads to accompany

The Mind and Heart of the Negotiator 5/e (Thompson)

Copyright 2012 Pearson Education,

Inc. publishing as Prentice Hall

CHAPTER 2

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