Shall we negotiate? Module 1

Question 1

What is the BATNA?

Answer 1

Best Alternative to Negotiated Agreement

Question 2

Another way to describe the BATNA?

Answer 2

A player’s best outside option

Question 3

What is the ZOPA?

Answer 3

Zone of Possible Agreements

Question 4

Another way to describe the ZOPA?

Answer 4

The deal space

Question 5

What is a player’s RV?

Answer 5

Reservation Value

Question 6

Another way to describe the RV?

Answer 6

The lowest amount you’ll accept in a negotiation

Question 7

When might it be best not to enter a negotiation? Give a few examples

Answer 7

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

Question 8

From a game-theoretic perspective, in what negotiation games does the first-mover have an advantage?

Answer 8

Ultimatum game

Infinite-period alternating offer game

Question 9

From a game-theoretic perspective, in what game does the first mover have a disadvantage?

Answer 9

Two-period alternating offer game

Question 10

In practice, what tends to be the main first-mover advantage in negotiations?

Answer 10

Anchoring

Question 11

In practice, what tends to be the main first-mover disadvantage?

Answer 11

Not having the opportunity to gain more information

Question 12

What are the 5 key elements of a game?

Answer 12

Players
Actions
Knowledge
Outcomes
Preferences

Question 13

What does a player’s strategy include?

Answer 13

The action a player will take in every possible situation in the game

Question 14

In the extensive form of a game, how is it denoted when a player is unsure of what node they’re in?

Answer 14

A dashed line

Question 15

What are the 2 ways that players can take their actions in a game?

Answer 15

Sequentially or simultaneously

Question 16

When do the strategies of players form a Nash equilibrium?

Answer 16

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

Question 17

If there is no Nash equilibrium in pure strategies, when might there still be a Nash equilibrium?

Answer 17

In mixed strategies

Question 18

What does it mean to play a mixed strategy?

Answer 18

Randomising over pure strategies according to a specific probability distribution

Question 19

What does eliminating nth order dominated strategies lead to when n goes to infinity?

Answer 19

The set of rationalisable strategies

Question 20

A Nash equilibrium must consist of what?

Answer 20

Rationalisable strategies

Question 21

Are all rationalisable strategies a Nash equilibrium?

Answer 21

No, but all Nash equilibrium consist of rationalisable strategies

Question 22

Explain the Traveler’s Dilemma

Answer 22

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

Question 23

What is the Nash equilibrium of the Traveler’s Dilemma?

Answer 23

Both players choose 180

Question 24

What is the Nash equilibrium in pure strategies of the matching pennies game?

Answer 24

There isn’t one

Question 25

What is the Nash equilibrium of the matching pennies game?

Answer 25

Nash equilibrium in mixed strategies. Both players randomise their decision with 50% probability of either option

Question 26

What is a non-credible threat?

Answer 26

A threat to take an action that would never be taken

Question 27

How can you derive a subgame perfect equilibrium?

Answer 27

Backwards induction

Question 28

What are the implications of the two-period alternating-offer game?

Answer 28

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

Question 29

What must be assumed as part of the two-period alternating-offer game?

Answer 29

Complete information

Question 30

How can you interpret the discount factor in the infinite-period alternating-offer game?

Answer 30

Either as impatience, or the probability that the game continues in the next period

Question 31

What is the subgame perfect equilibrium of the ultimatum game with outside options?

Answer 31

Proposer offers the responder’s outside option (or 1 unit more if played in units)

Question 32

In Goeree and Holt’s paper, what was the effect of reducing R in the one-shot Traveler’s Dilemma?

Answer 32

Average claim went up