1. INFM 718A / LBSC 705 Information For Decision Making Lecture 11

2. Outline Decision-making for Negotiations Negotiation exercises Preview of Assignment 7

3. Negotiations Let’s start with an exercise. Buying or selling a book.

4. Negotiations Distributive bargaining –A negotiation situation where only one issue is at stake. Focus is on distributing one type of utility between two parties. Integrative bargaining –A negotiation situation where several issue are at stake. Focus is on distributing more than one type of utility between two parties.

5. BATNA BATNA: Best Alternative to a Negotiated Agreement. BATNA is the resistance point beyond which a party would rather leave the negotiation without an agreement. B: “I will not pay more than $80 for this.” S: “I will not sell this for less than $60.” BATNA B =$80BATNA S =$60

6. Agreement 30401009080706050 Seller’s BATNABuyer’s BATNA Agreement Zone Buyer’s Agreement Zone Seller’s Agreement Zone

7. Impasse Seller’s BATNABuyer’s BATNA Buyer’s Agreement Zone Seller’s Agreement Zone 30401009080706050

8. Impasse Seller’s BATNABuyer’s BATNA Buyer’s Agreement Zone Seller’s Agreement Zone 30401009080706050

9. Integrative Bargaining Example: Two sides are negotiating. There are two issues at stake. The sides have different utility perceptions and weights for the two issues. Settlement points are discreet (not continuous.)

10. Integrative Bargaining 300k 70 385 700 Price 310k320k 1 Month3 Months Delivery 2 Months 600 240 6 0 150 400 Price 1 Month3 Months Delivery 2 Months Seller Buyer 0 75 300 300k310k320k weight=70 w=30 w=60 w=40

11. Analysis for I.B. There are 3x3=9 settlement points. The best settlement for the seller is Price=320k; Delivery=3 months (Utility=700+300=1000) The best settlement for the buyer is Price=300k; Delivery=1 month (Utility=400+600=1000)

12. Analysis for I.B. The best integrative settlement is Price=320k; Delivery=1 month (Seller’s Utility=700+0=700) (Buyer’s Utility=0+600=600) (Total Utility=700+600=1300) This settlement maximizes the total utility and provides a balanced (although not equal) distribution of utility.

13. Integrative Bargaining Integrative bargaining exercise Peace talks between Bluebird and Yellowstone