1. Business System Analysis & Decision Making - Lecture 12
Zhangxi Lin
ISQS 5340
July 2006

2. Chapter 10: Negotiation Cognition
Outline of the chapter
The Mythical Fixed Pie of Negotiations
The Framing of Negotiator Judgment
Nonrational Escalation of Conflict
Negotiator Overconfidence
Self-Serving Biases in Negotiations
Anchoring in Negotiations
Vividness in Negotiations

3. The Mythical Fixed Pie of Negotiations
What is “Fixed pie” assumption?
A fundamental, intuitive bias in human judgment that distorts negotiator behavior.
When individuals approach negotiations with a fixed-pie mentality, they assume that their interests necessarily and directly conflict with the interests of the other side.
Social norms lead us to interpret most competitive situations as win-lose
It causes the “incompatibility bias” – that one’s own interests are incompatible with the other party’s.
Example: Responses to the arm reduction proposal

4. The Framing of Negotiator Judgment
Positive framing vs. Negative framing
The effect of the selection of perceptual anchor on framing.
In the example of wage negotiation
Last year’s wage
Management’s initial offer
Union’s estimate of management’s reservation point
Union’s reservation point
The publicly known bargaining position
In order to avoid the adverse effects of framing, negotiators should always be aware of their frames and consider the possibility of adopting alternative frames.
A negotiator should always create anchors that lead the opposition toward a positive frame.
A mediator should convince both parties to view the negotiation in a positive frame

5. Nonrational Escalation of Conflict
The escalation begins when both parties enter a negotiation with extreme demands. If negotiators become committed to their initial public statements, they will nonrationally refuse to even consider concessions. Inappropriate stubbornness is likely because of “too much invested to quit”.
The negative outcome of the escalation of conflict
The baseball player’s strike
The owner lost $375 million and $326 million in 1994 and 1995 respectively
The players lost money, status, and bargaining power
Sebenius and Wheeler (1994) offered a potentially advantageous strategy for resolving the disagreement: Continue the baseball season, but do not allow the teams to receive revenue or players to receive their pay. Revenues and forgone pay would go into a pool until a resolution was reached. (Why? What is the insight here?)

6. Negotiator Overconfidence
Definition: The tendency that negotiators place too much confidence in their own assessments.
Negotiators tend to be overconfident that their position will prevail if they do “give in”.
If a more accurate assessment is made, the negotiator is likely to be more uncertain and uncomfortable about the probability of success and is more likely to accept a compromise.
An appropriately confident negotiator exhibiting more concessionary behavior will be more likely successful.
“When in Doubt, be overconfident”

7. Self-Serving Biases in Negotiations
Definition: The tendency that people define what is fair in ways that favor themselves.
“Tragedy of commons” – Herdsmen’s problem
When asymmetry exists, negotiators are likely to exhibit self-serving biases in their judgments about the fairness of resource distribution.
Asymmetry: Parties’ contribution to the problem vs. their willingness to cooperate with proposed solutions. (Eventually an information asymmetry problem)

8. Anchoring in Negotiations
More extreme offers lead to better deals for those making such offers, but they also increase the likelihood of an impasse.
First offers have a strong anchoring effect when great ambiguity exists.
Your opponent’s first offer will have little effect on you if you focus on your own alternatives and your own objectives.
While we learn a lot in the process of negotiation, we should avoid learning from the potential manipulative effect of the other side’s first offer.

9. Vividness in Negotiations
The most common failure in assessing one’s own preferences is the tendency to overweight vivid concerns and underweight more important, nonvivid concerns.
(view “Tucker”)
Example: selling the extended warrantee with a new car

10. Conclusions
Both Chapter 9 & 10 offer an overview of the decision perspective to negotiation
Chapter 9 – basic analytic structure
Chapter 10 – the questions that Raiffa’s work left unexamined
Author’s suggestion: a successful negotiator will use descriptive models to anticipate the likely behavior of the opponent and identify errors to avoid in his/her own negotiation behavior.