L1 NEG

Pre-Assignment

• who are you negotiating for? your customer/yourself/your friend
  • mostly people negotiate for themselves, even tho they appear to negotiate for someone else
    • e.g. real estate agents

Recap Game Theory

Fixed Pie Bargaining

• only a fixed size pie available
  • no win-win outcomes
  • my win, their loss and vice versa
• Dictator Game, Ultimatum Game
• preferences matter
  • is there more than money which is important?
  • fairness, reputation, promises, etc
• repetition matters
  • Repeated Ultimatum Game
  • Backward Induction
  • “you always meet twice in life”
• competition matters
  • Market Game
    • power from offering to accepting side
  • adding just a single party on one side changes everything to the opposing side
  • you are “priced” at your Opportunity Cost

Case Study: One-Issue Negotiation

• BATNA - best alternative to negotiated agreement
  • the better the BATNA the stronger your bargaining power
  • in game theory called: “outside option”
• ZOPA -
• Principle-Agent Problem

Game Theory: Bargaining

Asymmetric Information

• Open Book Accounting
• Cummnication
  • Cheap Talk works
    • works better than expected
    • most people buy into cheap talk, even tho it should not change anything about the negotiation terms
  • credible information is almost as effective as cheap talk,
    • works less than expected

Patience

• patience … aversion against delays
• Rubinstein Bargaining Model
  • value of patience 0 < p < 1 … Discounting value
  • kind of a Repeated Ultimatum Game, but with discounting
  • ex: $p_1=0.5,p_2=0.9⟹d_1=0.18,d_2=0.82$
  • as patience increases the split converges to 50/50
  • with lower patience the first mover advantage is stronger
    • with higher patience the first mover advantage is weaker

Example Trump vs Pelosi

• todo l1