flashcards
What is a BATNA?
best alternative to a negotiated agreement.
four steps for assessing the BATNA
- list your alternatives
- evaluate your alternatives
- establish your BATNA
- calculate your reservation price
what is the black knight strategy?
my way or fight
what is the white dove strategy?
peace at all costs
what is the walkaway?
the point at which you loose interest in a deal
what is the ZOPA?
zone of potential agreement.
what differences create value?
differences in valuations
differences in risk attitude
differences in time preference
differences in capabilities
differences in expectations
what is positional bargaining?
people locking themselves into position that they cannot see a way out
how to avoid positional bargaining
avoid taking hard stands (unless it really is your outer limit)
early on, talk about your numbers in terms of “maybe” - that leaves the door open to new issues
when should you make the first offer
make your offer when you are confident of the value of their walkaway
what characterizes a good first offer?
you want to make an offer that really makes them have to stretch to meet you. The ideal proposal is one that is not accepted nor rejected too quickly.
4 steps of the formal analysis of decisions
- decision structuring
- assessment and information gathering
- evaluation of the decision problem
- sensitivity analysis
how to calculate which decision leads to the highes profit?
folding back the decision tree
decision biases
- forgetting non-monetary consequences
- not goot at estimating probabilities
auction formats: how bids are collected
- sealed bid
- ascending bid
- descending bid
bidders valuation types
- common value
- private value
best bid in a second price, sealed bid auction
best bid = bidder’s valuation
what is the assumption the black knight and the white dove have and how to change the mental mode?
black knight and white dove assume that negotiation is combat. The simple observation that negotiation is joint decision making (because getting a deal requires that both sides feel they win), leads to a better way of negotiation.
Fundamental question to prepare by
What is the value proposition in this negotiation? What is going to drive the deal?
examples of non-monetary consequences that should be included in the payoff of the model
- reputation
- future projects.
Questions to think about in preparing to negotiate?
- What is your BATNA-Walkaway?
- What is theirs?
- ZOPA: What is you claiming argument?
What is the aspiration?
What you hope you get
example for common value bidder valuation
oil drilling rights
example for private value bidder valuation
home furnishings
bidder’s behavior in a Dutch Auction
Bid Shaving (as in First-Price, Sealed Bid Auction)
bidder’s behavior in Second Price Auction
bid your valuation
What is sniping
in a timed online auction, the action of placing a bid likely to exceed the current highes bid as late as possible - usually seconds before the end of the auction - giving other bidders no time to outbid the sniper.
reasons for sniping
in common value auctions: sniping can occur to protect information (other bidders watch to see what the experts are bidding on and then bid on those items themselves: experts can snipe to prevent other from cashing in on their expertise)
in private value auction: as implicit collusion, mitigate price wars. bidding high at last minute and letting chance determine outcome is better for both players than bidding early and precipitating a bidding war.
as best response to naive incremental bidding, prevent “just-want-to-win” bids ( a lot of people will actually bid again if they find they have been outbid, which can quickly lead to a bidding war. -> result: someone probably paid more than they had to for that item -> sniping can avoid bidding wars.
