Exam 2 Flashcards
Agents - are individuals hired or designated to act as a representative on behalf of a Principal.
1) Why should one consider hiring an agent?
2) How do an agent’s motives align with those of the principal?
3) What are the costs of hiring an agent?
1) One should consider hiring an agent for their help in situations when they’re able to provide
o (i) contextual knowledge and expertise (e.g. specialized attorneys),
o (ii) access to the marketplace (e.g. real estate agents’ access to MLS),
o (iii) pre-established relationships (e.g. bankers’ relationships with syndicate lenders), and
o (iv) a reduction in the principal’s workload (e.g. real estate agent recommending an offer price)
2) An agent is an interested third party (i.e. share in the costs and benefits of the final outcome) whose goals may differ from those of other parties including the principle.
3)The costs associated with hiring an agent include:
o (i) that agents claim resources, reducing the bargaining zone of the principals,
o (ii) the agent’s goals and incentives may conflict with the principal’s best interests
o (iii) an experience of loss of control by the principal
1) Common Knowledge Effect - Definition
2) Assembling a Team - Team members should be selected based on 3 criterion
1) is based on the idea that teams seldom effectively pool individual knowledge and, instead, tend to discuss Shared Information that all or many team members are aware of at the expense of discussing Unshared Information that only one or a few of the team members know.
2) Team members should be selected based on:
o (i) Skills and Abilities: Team leaders should seek out members who have relevant resources and capabilities for the negotiation at hand
o (ii) Motivation: Team leaders should choose members that are committed to the team’s goals and objectives and “buy-in” to the work the team is doing
o (iii) Diversity: Diversity of knowledge, skill sets, and viewpoints yields more effective problem-solving solutions, more creative ideas, and better approaches to complex problems. Cialdini’s Principle of Liking states that team leaders are more likely to find members that are similar to them, while diversity will lead to a more effective negotiation team.
1) Definition of Multi-Party negotiation. There are 2 types of Multi-Party Negotiations:
2) What’s the opposite of Multi-Party Negotiations
3) What’s the challenge of Multi-Partry Negotiations
4) How do aggregate resources are distributed among parties in a Multi-Party negotiation?
5) What are the different ways (3) Multi-Party reach an agreement/decision?
1) is a process in which three or more persons or teams, with their own interests, decide how to resolve their conflicting preferences among issues
Within Multii-Party Negotiations, it can take several form:
(i) Distributive, in which the parties try to claim a fixed value, focus on a single issue, and generally don’t have a long-term, recurring relationship, or
(ii) Integrative, in which both sides claim value but are able to create value as well through the negotiation process, focus on multiple issues to allow for potential logrolling, have an ongoing relationship, and are able to creatively add additional issues or create contingency contracts to deal with impasses
2) Dyadic Negotiations, in which two parties are negotiating against each other.
3) The critical challenges of multi-party negotiations include:
(i) dealing with coalitions - Coalitions are subgroups of two or more individuals or teams that join together in using their resources to affect the outcome of a decision
(ii) formulating tradeoffs - can involve Circular Logrolling in which one party offers concessions to a different party while trying to receive accommodations from yet another party in the negotiation
4)The value can be divided amongst three or more parties based on (i) Equity (ii) Equality or (iii) Needs:
(i) Equity - Equitable Distributions follow the rule of “you get what you deserve” as each party receives value proportionate to what they put in. Equity should be used as the basis for distribution when there’s a need to promote (i) contribution and (ii) performance
(ii) Equality - Equal Distributions follow the rule that each party should receive an equal proportion of value such that each party gets Total Value / Number of Parties.
(iii) Needs - Needs-Based Distributions follow the rule of “from each according to ability and to each according to need” as each party receives value proportionate to what they need, rather than based on what they provided. Need should be used as the basis for distribution when there’s a need to promote (i) harmony, but may also need to the unintended promotion of (ii) neediness
In multi-party, multi-issue negotiations, the focus should be on the Process of the negotiation. No one having control over the process can lead to (i) the redundancy of arguments or (ii) domination of communication by a minority, making the negotiation process less efficient and more likely to result in an impasse
5) Decision Rules, which include (i) majority, (ii) consensus, or and (iii) unanimity, involve deciding how the group will decide:
(i) majority - everyone receives 1 vote and agreement is reached only at 51%
(ii) consensus - involves joint problem solving and reaching an agreement that no party is against, even if not all parties are in favor of the outcome
(iii) unanimity - involves reaching an agreement in which every party agrees, which avoids the issues of majority agreement as it doesn’t leave anyone out. The problem with unanimity is that it can be very time consuming to get all parties to reach an agreement, especially when there are many parties, or unanimity may not ultimately be feasible
Coalition:
1) Under what circumstances are coalitions likely to be formed
2) How can it be strengthened? 4 ways
3) How can another party’s coalitions be weakened?
1) Coalitions are likely to form when decisions are made by Majority rule, such as at an executive committee meeting of partners or on a board of directors.
2) A party’s own coalitions can be strengthened by
o (i) Emphasizing the costs to the other parties of not joining the coalition,
o (ii) Building interpersonal relationships among coalition members,
o (iii) Selecting coalition members for their reputations of honoring commitments and
o (iv) Proposing an allocation structure commensurate with the distribution of power or resources among the coalition
3) The other parties’ coalitions can be weakened or discouraged from forming if
o (i) A powerful party blocks the formation of a coalition by restricting negotiation with each party separately,
o (ii) Capitalizing on philosophical or strategic differences within a coalition to sow dissent and
o (iii) Offering to buy out members of the coalition by offering the other party a more favorable outcome if they defect
Dispute Resolution:
1) What are disputes
2) What are the 3 approaches for resolving disputes:
1) Disputes occur when one party makes a claim or demand on another party that is rejected
2) Interest-Based Approach, Rights-Based Approach and Power-Based Approach
Define:
1) Interest-Based Approach + ways to apply it
2) Rights-Based Approach + ways to apply it
3) Power-Based Approach + ways to apply it
4) What happens when parties have reached an impasses and acknowledge their INABILITY to move forward?
1) Interest-Based Approaches involve both parties working together the determine the underlying needs and goals of each party. These could also be viewed as Collaborative Approaches or Problem-Solving Approaches.
Applying an interest-based approach involves
o (i) exploring the nature of the problem collaboratively;
o (ii) probing to understand each side’s perspective, interests, needs, and goals; and
o (iii) proposing and evaluating numerous options to meet the needs of both parties
2) Rights-Based Approaches to dispute resolution involve determining who is “right” in the conflict and if there are standards (e.g. legal agreements, industry convention, etc.) that can be applied. The primary idea is to find an Objective View from a third party that is (i) unbiased or neutral, (ii) respected, and (iii) authoritative.
• For example, taking a rights-based approach may involve appealing to a third-party intermediary, such as a bankruptcy court or arbitrator, to assess whether one’s rights-based claim is “better” than that of the other party, such as by having a signed contract with explicit provisions covering the items in dispute.
Strategies to assess a rights-based claim in a dispute may include Using Legal Standards could include consulting existing (i) legal precedent and Using Social Standards or Fair Standards involves looking outside of legal standards in favor of either Distributive Justice or Procedural Justice
These methods attempt to apply an objective view to the dispute but run into the issue of applying a subjective idea of “fairness” to reach an objective outcome
Rights-based approaches may be best applied to a dispute in the following scenarios:
o Interest-based approaches have been exhausted, or have stalled, and the parties remain at an impasse
o One believes that (a) their claim in the dispute has greater legal, moral, or fair standing than that of the other party and (b) a third party will agree with them. Typically, parties will feel more comfortable taking a rights-based approach if they become enamored by the perceived legal or moral superiority of their claim.
o (iii) One’s goal is to effectively claim as much of the amounts in dispute as possible. This may be useful in a situation where the parties have reached an impasse and one is willing to allow a third party to allocate value and determine the outcome for each side, under the belief that the third party will support their claim and allocate more value to them.
3) Power-Based Approaches to dispute resolution involve one party’s ability to (i) force their counterpart to accept their claim in the dispute and overcome resistance from the other party or (ii) coerce or inflict harm upon the other party if their resolution to the dispute is no initially accepted
• In order for the power-based approach of threatening the other party to be used, the less powerful counterpart must believe that the other party will (i) actually take harmful action against them and (ii) the magnitude of the harm will be sufficient that accepting their claim would be less detrimental
• Power-based approaches may be best applied to a dispute in the following scenarios:
o (i) The outcome is more important than the overall relationship with the counterparty
o (ii) There is a need for quick implementation and, thus, a quick resolution to the dispute
o (iii) Previous efforts to negotiate or use interest-based or rights-based dispute resolution approaches have failed or stalled
4) Arbitration is carried out through a third-party arbitrator that has the ability to determine a binding outcome that all parties agree to follow. Arbitration is only applicable when the parties have reached an impasse and acknowledged their inability to move forward to reach an agreement without external support.
Pros and weaknesses of:
1) Interest-Based Approach
2) Rights-Based Approach
3) Power-Based Approach
Strengths:
Interests-based:
• Parties learn what motivates each other
• Parties attempt to find mutual gains
Right-based:
• Parties learn each other’s interpretation of how the contract, law, or precedents apply to the dispute situation
Power-based:
Parties are able to save face and not appear weak to each other
Weaknesses:
Interests-based:
• Difficult to implement when emotions are running high and the parties struggle to collaboratively share information
Right-based:
• Parties will likely be unable to agree on how the contract, law, or precedents apply to the situation
Power-based:
• Parties do not recognize each other’s view of the power distribution between them
Four-ways to affectively move dispute in a more constructive direction
o (i) Avoid the tendency to push back, which tends to lead to incompatible responses
o (ii) Reframe the dispute as a problem to be solved between the two parties
o (iii) Invite criticism of proposed solutions from the counterpart to facilitate ongoing discussion
o (iv) Ask the counterpart questions, including “what if” type questions
Negotiating through Third Parties can take 3 aspects:
Mediator: + its benefits
Arbitrator:
Agent:
A Mediator is a disinterested third party (i.e. no stake in the final outcome) with no authority to make decisions or enforce an agreement. under an interests-based approach without escalating the dispute (e.g. arbitration, litigation, bankruptcy).
Benefits of Mediation
o (i) Provide a controlled environment for the parties to vent their emotions without worsening the impact of the other side’s negative emotions when caucusing
o (ii) Control the negotiation process to ensure that each disputant is able to communicate their positions and perceive their interests as being taken into account
o (iii) Engage the disputants in the process to search for an acceptable settlement
o (iv) Motivate the parties to resolve the dispute by steering the conversation towards the downside for both parties if no solution is found (i.e. disputants resort to their BATNAs) or upside if they’re able to reach an amicable agreement
An Arbitrator is a disinterested third party that has the authority to make a decision and enforce a final agreement through either Conventional or Final-Offer Arbitration
o In Conventional Arbitration, the arbitrator is not limited to selecting one of the parties’ proposals but is instead able to dictate the terms of the final agreement on their own
o In Final-Offer Arbitration, the arbitrator is limited to selecting one of the parties’ proposals, which may lead to the parties involved making more conservative demands since extreme proposals will likely be disregarded
Arbitration systems tend to be biased in favor of defendants given defendants are more likely to be recurring clients to the arbitrator. Conversely, plaintiffs tend to be one-time users of an arbitrator’s services. Arbitrators are independent contractors who have financial incentive to attempt to retain clients’ business.
An Agent, such as in agent-based negotiation, is an interested third party (i.e. share in the costs and benefits of the final outcome) whose goals may differ from those of the other parties
Integrative Frontier - Definition
What are the key processes?
or the Pareto Efficient Outcome in which an agreement is made that maximizes the aggregate utility of the agreement for both parties. At the integrative frontier, there is no agreement (Joint Gains) that would have made one party better off without making the opposing party worse off.
The goal of getting to the integrative frontier is optimally efficient because any other agreement would leave value on the table and be suboptimal for both parties
Reaching integrative agreements involve better outcomes for both parties and may be the only way to reach an agreement if reservation prices of both parties are high
1) Issue Diagnosis:
Integrative bargaining may involve (ii) compatible issues, and (iii) integrative issues (Log rolling)
Compatible Issues are those in which both parties’ goals exist in parallel and the needs of one party are equal to the needs of the other: Negotiation tactics for compatible issues include (i) momentum building and (ii) “strategic misrepresentation”
Integrative Issues are those in which the goals of each party are not completely in opposition of each other and, thus, beneficial trades and more efficient deals can be achieved: Logrolling involves identifying a solution that trades off across issues such that the joint gains increase overall
2)Post-Settlement Settlements:
involve attempting to determine if the integrative frontier has been reached, the point at which no agreement would make any party better off without worsening the outcome for the other party after an initial agreement has occurred
o Once an initial agreement is reached, both parties tend to be less stressed and potentially more creative since they’re aware that is at least an acceptable agreement on the table
o By readdressing certain issues after reaching an agreement, both parties can determine if there’s value to be extracted that has not yet been realized
Contingency Contracts:
- Definition
- Under what circumstances does it create value
- What’s required for them to work?
Contingency Contracts
o 1) Consistent with creatively structuring the deal and betting on differing expectations, Contingency Contracts leverage differences between the two parties’ views to create joint gains
o Contingency contracts may create value and joint gains when different parties have (i) different expectations about uncertain future events, (ii) different risk appetites, and/or (iii) different timing preferences
o Contingency contracts require
(i) differences in expectations, risk appetites, or timing preferences between counterparts;
(ii) continued interaction between the two parties or general alignment of incentives so that both parties are motivated to reach an agreement;
(iii) the ability of both parties to enforce the contract following the occurrence of the contingent event; and
(iv) clear and measurable criteria to determine if the contingent future event has occurred under the terms of the contract
The negotiation Planning Form is used to outline (4 things)
What is the increment value
How are rank determined
The negotiation Planning Form can be used to outline
(i) the fundamental interests of both parties;
(ii) specific issues and possible positions, including your incremental value and rank, as well as the counterpart’s
speculative ranking;
(iii) the costs and benefits of your BATNA and the expected BATNA of the counterpart; and
(iv) possible proposals and packages to enter the negotiation with
Incremental Values, the psychological or financial cost expected by making a concession
Rank can be determined based on the magnitude of the incremental values for each issue
Consensus cultures
consensus cultures often focus on relationships rather than deals, the parties involved will often want to take substantial time to learn about you and forge a deeper relationship before talking about the deal. The lengthy timetable may be very frustrating to negotiation teams from decisive, top-down cultures. Unfortunately, there’s usually little that can be done to speed up the process unless there’s already consensus for the deal.
Multiple Equivalent offers - how it can be used
Trust is a willingness to make yourself vulnerable to the counterpart by sharing information that can be used against you. If your counterpart is unwilling to trust you, Multiple Equivalent Offers can be utilized. Making multiple equivalent offers is a technique for extracting information about your counterpart’s priorities when they’re not forthcoming with information.
Culture as an Onion - three layers
Explain what they are
there are three layers to culture: (i) Visible Reality, (ii) Norms and Values, and (iii) Unquestioned, Basic Assumptions:
1) Visible Reality impacts social aspects such as behavior, fashion, food, language, etc. This also includes business aspects such as organizational charts, human resources policies, and handbooks
2) Norms are a shared belief in what is right and wrong, what should be done, or a general preference towards certain choices
Values are a shared belief in what is good and bad, or what is generally liked or disliked
3)Unquestioned, Basic Assumptions (Level Three)
Basic Assumptions in culture include ways to reconcile dilemmas or problems faced
Key areas of differences across culture include:
(i) individualism and collectivism,
(ii) power distance,
(iii) achievement motivation,
(iv) comfort with uncertainty,
(v) use of time, and
(vi) level of formality
(i) Individualism highlights personal achievements, individual welfare, personal rights, and efficiency over loyalty
- Collectivism highlights ingroup ties, collective welfare, societal responsibility, and loyalty.
(ii) Power Distance
o Egalitarianism minimizes the importance of individual wealth, status, and initiative and seeks equality
o Hierarchal cultures are guided by status and deference to social order. In these cultures, power connotes privilege and those in power seek obedience and respect.
(iii) Achievement Motivation
o Task-Orientation to achievement motivation is action-focused and involves comfort with explicit messages, assertiveness, and competitiveness
o Relational-Orientation to achievement motivation is harmony focused and involves avoiding confrontations in favor of politeness, solidarity, and cooperation
(iv) comfort with uncertainty,
o High-Risk Orientation (High Uncertainty) cultures value variety, flexibility, and adaptation and take a pragmatic approach to the rules
o Low-Risk Orientation or Structure Orientation (Low Uncertainty) cultures value consistency and predictability; provide more structure, rules, and procedures; and expect adherence to the rules
(v) Use of Time
o In cultures with a Cyclical or Traditional View of Time, time is viewed as being plentiful, circular, and convenient
o In cultures with a Linear or Modern View of Time, time is viewed as a scarce resource that needs to be segmented and managed economically. Cultures that view time in this way see punctuality as recognition that their counterpart respects and values their time.
(vi) Level of Formality
o Highly Formal cultures are very bureaucratic and stress the use of titles and formal channel whereas Informal cultures stress familiarity, variety, and idiosyncrasy
Arbitration - Definition
Final-Offer Arbitration
Traditional Arbitration
Mediation
An Arbitrator is a disinterested third party that has the authority to make a decision and enforce a final agreement through either Conventional or Final-Offer Arbitration. Arbitration is only applicable when the parties have reached an impasse and acknowledged their inability to move forward to reach an agreement without external support.
In Final-Offer Arbitration, the arbitrator is limited to selecting one of the parties’ proposals, which may lead to the parties involved making more conservative demands since extreme proposals will likely be disregarded
In Traditional/Conventional Arbitration, the arbitrator is not limited to selecting one of the parties’ proposals but is instead able to dictate the terms of the final agreement on their own. If negotiators know that an impasse will lead to traditional arbitration, they typically assume that the arbitrator will reach a decision approximately at the midpoint between the final offers. To move the midpoint as close as possible to the preferred outcome, each side will propose the most extreme final offer it can justify, thus reducing the likelihood of reaching a negotiated agreement.
In Mediation, a neutral third party assists the parties in their efforts to negotiate a mutually-acceptable agreement but has no authority to impose an agreement
