Rational Bargaining

What is meant by rational bargaining

John Nash on bargaining

Fisher and Ury – principled negotiation
Slide 1
Bill and Jack
Slide 2
John Nash

Nash does not look at how you arrive at a
soulution – the focus is the content of the
solution

Nash assumptions

Rational bargainers who can compare each others
desires for various things

Bargainers who have equal bargaining skills

Bargainers have full knowledge of tastes and
preferences of the other
Slide 3
Bill and Jack
Slide 4
Bill and Jack in Negotek
Slide 5
Bill and Jack both gain
Slide 6
John Nash


Nash`assumptions may not always hold
 Zero-sum
or non-cooperative behaviour
 Non-sero
sum or co-operative behaviour
These match our ”Red” and ”Blue”
negotiation styles
 Distributive
 Integrative
bargainers (claimers)
bargainers (creators)
Slide 7
Benefits of bargaining
Slide 8
Are people rational?

Kennedy ”The main problem with assuming
rationality is that it is at variance with how
people behave”

Irrational escalation

Fixed pies

Anchoring

Referent behaviour

Fallacy of prominence

Overconfidence
Slide 9
Are people rational?

“Brilliant . . . It is impossible to exaggerate
the importance of Daniel Kahneman’s
contribution to the understanding of the
way we think and choose. He stands
among the giants, a weaver of the
threads of Charles Darwin, Adam Smith
and Sigmund Freud. Arguably the most
important psychologist in history,
Kahneman has reshaped cognitive
psychology, the analysis of rationality and
reason, the understanding of risk and the
study of happiness and well-being . . . A
magisterial work, stunning in its ambition,
infused with knowledge, laced with
wisdom, informed by modesty and deeply
humane. If you can read only one book
this year, read this one.”— Janice Gross
Stein, The Globe and Mail
Slide 10
Fisher and Ury – Getting to yes
http://www.williamury.com/books/getting-to-yes
Slide 11
Principled solution
Slide 12
Fisher and Ury`s prescriptions
Slide 13
BATNA

Best Alternative to a Negotiated
Agreement
 On
which basis will you agree to or walk away
from a bargain
– BATFOL – Beste Alternativ Til
en FOrhandlings Løsning
 Norwegian
Slide 14
Negotiators as mediators
Slide 15
Streetwise Manipulation
Slide 16
Streetwise Manipulation

”A ploy recognised is a ploy disarmed”
 You
need to know the ploys in order to
understand when they are used against you
 Ploys
may affect power, which again affect
what outcome you expect
Slide 17
Chester L. Karass
Slide 18
Chester L. Karass
Slide 19
First Seminar on Negotiating Changed
My Life…

When you are about to say yes, say no one
more time.

Learn not to flinch.

Leave less on the table and leave others
satisfied.

Start out with low, opening offer.

Encourage the other party to open up first.

The use of time is important.
Slide 20
First Seminar on Negotiating Changed
My Life…

Make concession on a minor issue.

Take time to answer questions.

Confusion can exist between need and want.

Negotiate on small items.

Learn when to leave
Slide 21
Power and outcome
Slide 22
Who has the power?
Slide 23
Ploys

All ploys belong to one of three main
types
 Dominance
 Shaping
 Closing
Slide 24
Dominance ploys

Negotiators may seek to dominate in the
opening phase of negotiation
 Pre-conditions
 This
is non-negotiable!
 Rigging
the agenda
Slide 25
Shaping ploys

Often used in the middle of negotiations to
affect what one party may feel is possible
 This
is the ”final offer”
 Fait-accompli
Guy/Soft Guy – ”almost everybody
sound in body and mind knows of it, so I
wonder why it still works”
 Tough
 The
”Bogey”
Slide 26
Karass Bogey

Let's say you want to landscape and fence your backyard
in an unusual way. The job is reasonably complex due to
the layout. You get a bid of $25,000 from a local
contractor. It is neither the lowest nor highest bid, but you
decide it is the most reliable and responsive—you'd like to
do business with them.

The trouble is you only want to spend $18,000 to $20,000
for the project. So you try a Bogey. You tell the contractor
that you really love their proposal, but I only have $18,000
to spend. The contractor will generally respond to the
$18,000 Bogey by either changing their proposal or
exploring what alternatives are available.
Slide 27
Karass Bogey

The U.S. Government uses it when they tell a
defense contractor to take a closer look at their
million-dollar proposal because the government
budget is only $700,000.

A school district uses it when it tells its architect to
redesign the high-school building to fit the $22
million limitation imposed by the bond financing.
Slide 28
Karass Bogey

A project manager uses it when she tells her
technical services department that the
implementation schedule only allows twelve mandays for their portion of the project.

An industrial buyer uses it when showing the
salesperson that the amount budgeted by the
accounting department is less than what the
seller bid.
Slide 29
Shaping ploys, continued

The ”Krunch” – you have to do better than
that

The ”Nibble” – if you can`t get a dinner, get a
sandwich

Salami ploy

Sell cheap, get famous

Add-on

Limited authority
Slide 30
Closing ploys

Quivering Quill

Yes, but

Now or Never

Take It or Leave It

Split the Difference
Slide 31
Karass – split the difference

I know buyers who use the spilt approach.
They make a low starting offer, raise it only
slightly, and then say, "Okay, let's split the
difference." These buyers know it's hard for a
salesperson to say no to such a reasonable
request. The salesperson gets sucked into
the split and then discovers they give away
information to justify why a simple split is not
equitable and use this as an opportunity to
explore other options.
Slide 32