BN - Lecture 2: Psychology of Negotiations

Question 1

Decision-Making

Answer 1

• Occurs as a reaction to a problem
• Requires us to interpret and evaluate information
• We typically receive data from multiple sources we need to screen, process and interpret
• Which data are relevant to the decision and which aren’t?
  our perceptions will answer that question
• We need to develop alternatives and evaluate their strengths and weaknesses

Question 2

Rational Decision-Making Model

Answer 2

• Rational: characterised by making consistent, value-maximising choice within specified contraints
• A decision-making model that describes how individuals should behave in order to maximise some outcome

1. Define the problem
2. Identify the decision criteria
3. Allocate weights to the criteria
4. Develop the alternatives
5. Evaluate the alternatives
6. Select the best alternative

• Assumes that the decision maker has complete information and identifies all options without bias

Question 3

Bounded Rationality

Answer 3

• A process of making decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity
• Most people respond to a complex problem by reducing it to a level they understand
• Many problems don’t require an optimal solution because they are too complicated to fit the rational decision-making mode, so people satisfice; they seek solutions that are satisfactory and sufficient.
• The solution is good enough, rather than the optimal one

Question 4

Intution

Answer 4

• The least rational way of making decisions, made by an unconscious process created from distilled experience
• Intuitive decision-making relies on holistic associations, or links between disparate pieces of information; is fast; and is affectively charged (engages emotions)
• Intuition isn’t rational, but isn’t necessarily wrong
• Doesn’t always contradict rational analysis; the two can complement each other
• Intution is complex and based on years of experience and learning

Question 5

Social Cognitive Factors That Bias Our Attitudes and Judgment

Answer 5

• Bad is stronger than good
  Negativity bias: negative events of equal intensity have greater effect on people than good or neutral events
  Loss aversion: people’s tendency to strongly prefer avoiding losses to acquiring gains
• Easy is better than hard:
  Availability bias: mental shortcut that relies on immediate examples that come to a person’s mind, people heavily weigh judgments towards more recent information
  Confirmation bias: tendency to search for or interpret information in a way that confirms one’s beliefs or hypotheses rather than being objective