Negotiations

Question 1

Pareto Efficiency

Answer 1

A situation is pareto efficient if no party can be doing better without the other party doing worse, given an initial allocation.

Not necessarily fair: split $10 in $2 and $8 is pareto efficient, but not fair from an equity/equality perspective.

Question 2

ZOPA

Answer 2

Zone of possible agreement:

• positive or negative (no overlapping area).
• lies between the reservation price of the negotiating parties.

Calculate: expected value of BATNA incl. transaction costs, time value etc.

Question 3

BATNA

Answer 3

Best Alternative to a Negotiated Agreement

Back-up plan, best outcome that is available to each party if the negotiation results in an impasse

• specific option (e.g. alternative offer at specified value)
• course of action: decision tree with probabilities

Question 4

Reservation Price

Answer 4

• Monetary walk-away point in negotiation
• The worst deal each party is willing to make
• Threshold to agreement

Question 5

Principled Negotiation:

Cornerstones

Answer 5

1. Separate the PEOPLE from the problem
2. Focus on INTERESTS not positions
3. INVENT OPTIONS: increase the pie
4. Set OBJECTIVE CRITERIA to determine the outcome