1 of 23

Preparing for Negotiation

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

1

2 of 23

Exercise: Rules

  • Exercise: Blue Buggy
    • Two-person negotiation over the sale of a used car.
      • Car buyer.
      • Car seller.

​

  • Rules:
    • You will be randomly assigned a role.
    • You will be matched with somebody else in the other role.
    • You will have 15 minutes to reach a deal.
    • All signed contracts must be submitted before the deadline.

​

2

3 of 23

Exercise: Role Assignment

  • Roles:
    • Car buyer = odd number (1, 3, 5, …)
    • Car seller = even number (2, 4, 6, …)

​

3

Matching

1-2

15-16

29-30

43-44

57-58

3-4

17-18

31-32

45-46

59-60

5-6

19-20

33-34

47-48

61-62

7-8

21-22

35-36

49-50

63-64

9-10

23-24

37-38

51-52

65-66

11-12

25-26

39-40

53-54

67-68

13-14

27-28

41-42

55-56

69-70

4 of 23

Exercise: Debriefing

  • Buyer:
    • Introduce your role.
    • Why do you want to buy a car?

​

  • Seller:
    • Introduce your role.
    • Why do you want to sell the car?

4

5 of 23

Should I Negotiate?

  • Almost everything is negotiable!
    • Do not ask a permission to negotiate.
    • If you want to negotiate, then negotiate.

​

  • Should I negotiate?
    • (1) Do I enjoy negotiating or not?
    • (2) What is the value of a negotiation?
    • (3) What is the opportunity cost of my time negotiating?
    • (4) What are the risks of negotiating?

5

6 of 23

Preparing for Negotiation

  • (1) Self-assessment
    • What is my Target?
    • What are my BATNA and Reservation Point?
    • What are the Issues in the negotiation?
    • What are my Interests?

​

  • (2) Assessing the other party
    • What are their BATNA and Reservation Point?
    • What are their Interests?

​

  • (3) Assessing the situation
    • What type of a negotiation?
    • What are the procedural issues?

6

7 of 23

(1) Self-Assessment

  • What is my Target (aspiration level)?
    • What would be my best outcome?
    • Advice: be optimistic, but realistic!

​

7

8 of 23

Exercise: Target

  • Buyer:
    • What is your target?
      • Get the car for as cheap as possible.
      • Less than $3,250.

​

  • Seller:
    • What is your target?
      • Sell the car for as much as possible.
      • $3,795 (according to the ad).

​

​

8

9 of 23

(1) Self-Assessment

  • What is my BATNA?
    • Best Alternative To a Negotiated Agreement
    • BATNA is time sensitive (it is important to try improving it).
    • BATNA is determined by objective reality (not by a negotiator’s wishes).

​

​

9

10 of 23

(1) Self-Assessment

  • What is my Reservation Point? (quantification of BATNA)
    • Step 1: Brainstorm your alternatives.
    • Step 2: Evaluate each alternative.
    • Step 3: Attempt to improve your BATNA.
    • Step 4: Determine your reservation price.

10

11 of 23

Exercise: Reservation Point

  • Buyer:
    • What are your BATNA and reservation price?
      • Buy another car.
      • Reservation price: $3,250 (bound by a budget constraint).

​

  • Seller:
    • What are your BATNA and reservation price?
      • Sell the car to a friend.
      • Reservation price: $3,350.

​

11

12 of 23

(1) Self-Assessment

  • What are the Issues in the negotiation?
    • Can you decompose single-issue (fixed-sum) into multi-issues?
    • Can you identify equivalent packages of offers? ($100k salary is similar to $90k salary + $10k bonus)

​

  • What are my Interests?
    • Which issues are the most important to you?
    • What alternatives are the most preferable to you?

​

  • Other things to consider when making assessment:
    • What is your my first offer?
    • What information should you reveal to the other party?

12

13 of 23

(2) Assessing the Other Party

  • Who is the other party?
    • Are they negotiating on behalf of another party?
    • Do they have real authority to negotiate?

​

  • What are their BATNA and Reservation Point?
    • What information can you obtain about their BATNA?

​

  • What are their Interests?
    • Which issues are most important to the other party?
    • What alternatives are most preferable to the other party?

​

​

13

14 of 23

Exercise: Other Party

  • Buyer:
    • What is the seller’s BATNA and reservation price?
      • Sell the car on the market.
      • Reservation price: $3,115 - $4,550.

​

  • Seller:
    • What is the buyer’s BATNA and reservation price?
      • Buy another, similar car on the market.
      • Reservation price: $3,115 - $4,550.

​

14

15 of 23

(3) Assessing the Situation

  • What type of a negotiation?
    • Is the negotiation an exchange or dispute situation?
    • Is the negotiation one-shot, long-term, or repetitive?
    • Are contracts official or unofficial?

​

  • What are the procedural issues?
    • What conventions guide the process of negotiation?
    • Who makes the first offer?
    • Do negotiations involve more than one offer?
    • Are there time constraints or other time-related costs?

​

​

15

16 of 23

Exercise: Closing the Deal

  • Reservation prices:
    • The buyer cannot go above $3,250.
    • The seller cannot go below $3,350.

​

  • Bargaining range (zone):
    • Negative bargaining zone of -$100.

​

  • Any possible price?
    • Probably not (unless coming up with some creative solution)

​

16

17 of 23

Exercise: Closing the Deal

17

18 of 23

Negotiation Biases

  • Cognitive biases are mental errors caused by our simplified information processing strategies:
    • Overconfidence.
    • Agreement bias.
    • Anchoring bias.
    • Incompatibility bias.
    • Fixed-pie bias.
    • Confirmation bias.
    • Self-serving bias.
    • Availability heuristic.
    • In-group bias.
    • Exaggeration of conflict bias.

​

18

19 of 23

Agreement Bias

  • Agreement bias:
    • Settling for terms worse than your alternative (BATNA).

​

  • Rationality behind the agreement bias:
    • Incorrectly identified BATNA.
    • Relational considerations (“We are friends, so let’s make a deal”).
    • Pressure to be liked (“I don’t want to look greedy, so let’s do this”).
    • Feelings of sympathy (“Let me help you”).
    • Risk-aversion (“I’m not sure if I will be able to get a better deal”).

​

  • Potential solutions
    • Work in a team: teams are better at avoiding the agreement bias.
    • Prepare for negotiation: clearly determine your BATNA and reservation point.

​

19

20 of 23

Negotiation Stages

  • Preparing for negotiation:
    • (1) Self-assessment
    • (2) Assessing the other party
    • (3) Assessing the situation

​

  • Process of negotiation:
    • Strategies
    • Biases
    • Negotiating styles

​

  • Closing the deal:
    • Signing the contract
    • Conflict resolution

20

21 of 23

Signed Contract

  • Charlie Brown
    • “Peculiar thing about this document. It was never notarized.”
    • https://www.youtube.com/watch?v=IvOvDcly4aY

​

21

22 of 23

Thank you!

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

22

23 of 23

References

  • Thompson, L. (2004). The Mind and Heart of the Negotiator. New Jersey: Prentice Hall. (Chapter 2)

​

23