Shall we negotiate? Module 1 Flashcards
What is the BATNA?
Best Alternative to Negotiated Agreement
Another way to describe the BATNA?
A player’s best outside option
What is the ZOPA?
Zone of Possible Agreements
Another way to describe the ZOPA?
The deal space
What is a player’s RV?
Reservation Value
Another way to describe the RV?
The lowest amount you’ll accept in a negotiation
When might it be best not to enter a negotiation? Give a few examples
When expected costs (e.g. time) of negotiation exceed the expected benefit
When your BATNA is low and you expect the other party to know it
When your BATNA is high and there is no ZOPA
When starting a negotiation sends the wrong signal
When the relationship may suffer from negotiation
When negotiation is culturally inappropriate
From a game-theoretic perspective, in what negotiation games does the first-mover have an advantage?
Ultimatum game
Infinite-period alternating offer game
From a game-theoretic perspective, in what game does the first mover have a disadvantage?
Two-period alternating offer game
In practice, what tends to be the main first-mover advantage in negotiations?
Anchoring
In practice, what tends to be the main first-mover disadvantage?
Not having the opportunity to gain more information
What are the 5 key elements of a game?
Players Actions Knowledge Outcomes Preferences
What does a player’s strategy include?
The action a player will take in every possible situation in the game
In the extensive form of a game, how is it denoted when a player is unsure of what node they’re in?
A dashed line
What are the 2 ways that players can take their actions in a game?
Sequentially or simultaneously
When do the strategies of players form a Nash equilibrium?
If every chosen strategy is a best response against the strategies chosen by others
i.e. when best responses coincide and are consistent with actual choices
If there is no Nash equilibrium in pure strategies, when might there still be a Nash equilibrium?
In mixed strategies
What does it mean to play a mixed strategy?
Randomising over pure strategies according to a specific probability distribution
What does eliminating nth order dominated strategies lead to when n goes to infinity?
The set of rationalisable strategies
A Nash equilibrium must consist of what?
Rationalisable strategies
Are all rationalisable strategies a Nash equilibrium?
No, but all Nash equilibrium consist of rationalisable strategies
Explain the Traveler’s Dilemma
2 players
Both players simultaneously mention an integer between 180 and 300
The player who chooses the lowest number L gets payoff L+R, where R>1
The player who chooses the highest number H gets a payoff of L-R
If L=H, they both get L
What is the Nash equilibrium of the Traveler’s Dilemma?
Both players choose 180
What is the Nash equilibrium in pure strategies of the matching pennies game?
There isn’t one
What is the Nash equilibrium of the matching pennies game?
Nash equilibrium in mixed strategies. Both players randomise their decision with 50% probability of either option
What is a non-credible threat?
A threat to take an action that would never be taken
How can you derive a subgame perfect equilibrium?
Backwards induction
What are the implications of the two-period alternating-offer game?
An agreement is reached in the first period
The player who moves last has power
The more impatient the last player, the less power they have
What must be assumed as part of the two-period alternating-offer game?
Complete information
How can you interpret the discount factor in the infinite-period alternating-offer game?
Either as impatience, or the probability that the game continues in the next period
What is the subgame perfect equilibrium of the ultimatum game with outside options?
Proposer offers the responder’s outside option (or 1 unit more if played in units)
In Goeree and Holt’s paper, what was the effect of reducing R in the one-shot Traveler’s Dilemma?
Average claim went up
