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Negotiation & Persuasion
Charlie Harrison 312 - 560 - 7148
1
Negotiation & Persuasion
Negotiation Paradigms
Goal
(
October 30, 2014 2
Negotiation & Persuasion
Negotiation Paradigms
Goal
Reservation Price
(
October 30, 2014 3
Negotiation & Persuasion
Negotiation Paradigms
Goal
Reservation Price
BATNA (Best Alternative to a Negotiated Agreement)
October 30, 2014 4
Negotiation & Persuasion
Negotiation Paradigms
Goal
Reservation Price
BATNA (Best Alternative to a Negotiated Agreement)
October 30, 2014 5
Negotiation & Persuasion
Negotiation Paradigms
Offer
Goal
Reservation Price
BATNA (Best Alternative to a Negotiated Agreement)
6 October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
7
Win - Win
Exploring Relative Priorities to Expand the Pie
Delivery ASAP or Delayed Price or Quality
Guaranteed Max or Time and Materials One time payment or installment payment
Risk of Loss Allocation
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
8
Win - Win
Exploring Relative Priorities to Expand the Pie
Delivery ASAP or Delayed Price or Quality
Guaranteed Max or Time and Materials One time payment or installment payment
Risk of Loss Allocation
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
9
Win - Win
Requires
Trust and Information Sharing to Work
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
10
Zone of Possible Agreement
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
11
Zone of Possible Agreement
Seller’s Range of Prices
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
12
Zone of Possible Agreement
Seller’s Range of Prices
Buyer’s Range of Prices
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
13
Zone of Possible Agreement
Seller’s Range of Prices
Buyer’s Range of Prices
What determines where you settle?
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
14
Zone of Possible Agreement
Seller’s Range of Prices
Buyer’s Range of Prices
What determines where you settle?
Leverage & Aspiration
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
15
Zone of Possible Agreement
Seller’s Range of Prices
Buyer’s Range of Prices
What determines where you settle?
Leverage & Aspiration Aspiration
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
16
Preparation
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
17
Preparation
Know the Facts - Know the Law
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
18
Preparation
Know the Facts - Know the Law
Determine your Goal - Determine your Offer
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
19
Preparation
Know the Facts - Know the Law
Determine your Goal - Determine your Offer
Know your BATNA - Set your Reservation Price
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
20
Preparation
Know the Facts - Know the Law
Determine your Goal - Determine your Offer
Know your BATNA - Set your Reservation Price
Discover the other side’s BATNA
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
21
Preparation
Know the Facts - Know the Law
Determine your Goal - Determine your Offer
Know your BATNA - Set your Reservation Price
Discover the other side’s BATNA
Improve your BATNA
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
22
Create Value
Build Trust
Ask Diagnostic Questions
Leverage Differences Valuation - Future Expectations Risk Tolerance - Time Preference Use Post Settlement Agreements
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
23
Create Value
Build Trust
Ask Diagnostic Questions
Leverage Differences Valuation - Future Expectations Risk Tolerance - Time Preference Use Post Settlement Agreements
October 30, 2014
Negotiation & Persuasion
Negotiation Paradigms
24
Create Value
Build Trust
Ask Diagnostic Questions
Leverage Differences Valuation - Future Expectations Risk Tolerance - Time Preference Use Post Settlement Agreements
October 30, 2014
Negotiation & Persuasion
25 October 30, 2014
Negotiation & Persuasion
Questions?
)
26 October 30, 2014
Negotiation & Persuasion
Prospect Theory
27 October 30, 2014
Negotiation & Persuasion
28
General Informed that 600 Men Will Die in an Ambush unless One of Two Routes is taken
October 30, 2014
Negotiation & Persuasion
29
I
Route A
200 will be saved
Route B
1/3 chance 600 will be saved & 2/3 chance none will be saved
General Informed that 600 Men Will Die in an Ambush unless One of Two Routes is taken
October 30, 2014
Negotiation & Persuasion
30
Patient with Lung Cancer Given Two Treatment Options
October 30, 2014
Negotiation & Persuasion
31
Patient with Lung Cancer Given
Two Treatment Options
I
Surgery
Of 100 Cases: 10 die during Surgery
32 are dead after one year 66 are dead after 5 years
Radiation
Of 100 Cases 0 die during treatment
23 are dead after one year 78 are dead after 5 years
Patient with Lung Cancer Given Two Treatment Options
October 30, 2014
Negotiation & Persuasion
32
General Informed that 600 Men Will Die in an Ambush unless One of Two Routes is taken
October 30, 2014
Negotiation & Persuasion
33
II
Route A
400 will die
Route B
1/3 chance none will die & 2/3 chance 600 will die
General Informed that 600 Men Will Die in an Ambush unless One of Two Routes is taken
October 30, 2014
Negotiation & Persuasion
34
Patient with Lung Cancer Given Two Treatment Options
October 30, 2014
Negotiation & Persuasion
35
II
Surgery
Of 100 Cases: 90 survive the Surgery
68 survive after one year 34 survive after 5 years
Radiation
Of 100 Cases 100 survive the treatment 77 survive after one year 22 survive after 5 years
Patient with Lung Cancer Given Two Treatment Options
October 30, 2014
Negotiation & Persuasion
36
General Informed that 600 Men Will Die in an Ambush unless One of Two Routes is taken
I
Route A
200 will be saved
Route B
1/3 chance 600 will be saved & 2/3 chance none will be saved
II
Route A
400 will die
Route B
1/3 chance none will die & 2/3 chance 600 will die
October 30, 2014
Negotiation & Persuasion
37
Patient with Lung Cancer Given Two Treatment Options
I
Surgery
Of 100 Cases: 10 die during Surgery
32 are dead after one year 66 are dead after 5 years
Radiation
Of 100 Cases 0 die during treatment
23 are dead after one year 78 are dead after 5 years
II
Of 100 Cases:
90 survive the Surgery 68 survive after one year 34 survive after 5 years
Of 100 Cases
100 survive the treatment 77 survive after one year 22 survive after 5 years
October 30, 2014
Negotiation & Persuasion
Prospect Theory
38
The studies have shown that
October 30, 2014
Negotiation & Persuasion
Prospect Theory
39
The studies have shown that
the emotional pain of a dollar of loss is
October 30, 2014
Negotiation & Persuasion
Prospect Theory
40
The studies have shown that
the emotional pain of a dollar of loss is
twice the emotional pleasure of a dollar of gain.
October 30, 2014
Negotiation & Persuasion
The studies have shown that
the emotional pain of a dollar of loss is
twice the emotional pleasure of a dollar of gain.
Or
Losses are twice as powerful as gains.
Prospect Theory
41
The studies have shown that
the emotional pain of a dollar of loss is
twice the emotional pleasure of a dollar of gain.
October 30, 2014
Negotiation & Persuasion
Prospect Theory
42
We are risk adverse when protecting a gain.
October 30, 2014
Negotiation & Persuasion
Prospect Theory
43
We are risk adverse when protecting a gain.
We are risk seeking when avoiding a loss.
October 30, 2014
Negotiation & Persuasion
Prospect Theory
44
We are risk adverse when protecting a gain.
We are risk seeking when avoiding a loss.
The difference is how the decision is framed.
October 30, 2014
Negotiation & Persuasion
45
$ Starting Dollars $ $ Just Gained Dollars $
Protecting A Gain (Risk Averse)
Point of Reference.
October 30, 2014
Negotiation & Persuasion
46
$ Starting Dollars $
Avoiding a Loss (Risk Seeking)
Point of Reference.
October 30, 2014
Negotiation & Persuasion
47
$ Starting Dollars $ $ Just Gained Dollars $
Protecting A Gain (Risk Adverse)
$ Starting Dollars $
Avoiding a Loss (Risk Seeking)
The only difference is the point of reference.
October 30, 2014
Negotiation & Persuasion
Questions?
)
48 October 30, 2014
Negotiation & Persuasion
Anchoring & Adjustment
49 October 30, 2014
Negotiation & Persuasion
50
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
October 30, 2014
Negotiation & Persuasion
51
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
October 30, 2014
Negotiation & Persuasion
52
What is your best guess about the height of the
tallest redwood?
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
October 30, 2014
Negotiation & Persuasion
53
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
What is your best guess about the height of the
tallest redwood?
Average Answers: 282 feet
October 30, 2014
Negotiation & Persuasion
Average Answers: 282 feet
54
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
What is your best guess about the height of the
tallest redwood?
844 feet
October 30, 2014
Negotiation & Persuasion
55
Average Answers: 282 feet
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
What is your best guess about the height of the
tallest redwood?
844 feet
Difference between the average answers: 562 feet
October 30, 2014
Negotiation & Persuasion
56
Average Answers: 282 feet
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
What is your best guess about the height of the
tallest redwood?
844 feet
Difference between the average answers: 562 feet
Difference between the anchors: 1,020 feet
October 30, 2014
Negotiation & Persuasion
57
Average Answers: 282 feet
Individuals in Two Similar Groups Were Asked Two Different Sets of Questions:
Is the height of the tallest
redwood more or less
than 180 feet?
Is the height of the tallest redwood more or less
than 1,200 feet?
What is your best guess about the height of the
tallest redwood?
844 feet
Difference between the average answers: 562 feet
Difference between the anchors: 1,020 feet
Anchoring Effect: 562 / 1,020 = 55% October 30, 2014
Negotiation & Persuasion
58
Individual Brokers in Two Similar Groups Were Each Shown the Same House but Given Two Different Listing Prices and
Asked Their Opinion of Value:
October 30, 2014
Negotiation & Persuasion
59
Individual Brokers in Two Similar Groups Were Each Shown the Same House but Given Two Different Listing Prices and
Asked Their Opinion of Value:
Anchoring Effect: 41%
October 30, 2014
Negotiation & Persuasion
60
Individual Brokers in Two Similar Groups Were Each Shown the Same House but Given Two Different Listing Prices and
Asked Their Opinion of Value:
Anchoring Effect: 41%
Two Groups of Business Students Were Were Each Shown the Same House and Given the Same Two Different Listing
Prices and Asked Their Opinion of Value:
October 30, 2014
Negotiation & Persuasion
61
Individual Brokers in Two Similar Groups Were Each Shown the Same House but Given Two Different Listing Prices and
Asked Their Opinion of Value:
Anchoring Effect: 41%
Two Groups of Business Students Were Were Each Shown the Same House and Given the Same Two Different Listing
Prices and Asked Their Opinion of Value:
Anchoring Effect: 48%
October 30, 2014
Negotiation & Persuasion
62
Each Member of Two Groups Was asked:
What is the Proportion of African Nations in the UN?
October 30, 2014
Negotiation & Persuasion
63
Each Member of Two Groups Was asked:
What is the Proportion of African Nations in the UN?
A Wheel of Fortune Generated a Different Random Number for each of
the Two Groups.
October 30, 2014
Negotiation & Persuasion
64
Each Member of Two Groups Was asked:
What is the Proportion of African Nations in the UN?
A Wheel of Fortune Generated a Different Random Number for each of
the Two Groups.
The Wheel of Fortune was rigged to stop at 10 for one group and
65 for the other.
October 30, 2014
Negotiation & Persuasion
65
Each Member of Two Groups Was asked:
What is the Proportion of African Nations in the UN?
A Wheel of Fortune Generated a Different Random Number for each of
the Two Groups.
The Wheel of Fortune was rigged to stop at 10 for one group and
65 for the other.
Anchoring Effect: 41%
October 30, 2014
Negotiation & Persuasion
66
A Group of German Judges, Averaging 15 Years Experience, Were Each Shown the
Same Description of a Shoplifter.
October 30, 2014
Negotiation & Persuasion
67
Each Judge Rolled a Ten Sided Die, Then Gave a Sentence.
A Group of German Judges, Averaging 15 Years Experience, Were Each Shown the
Same Description of a Shoplifter.
October 30, 2014
Negotiation & Persuasion
68
The dice Were Loaded to Only Show a 3 or 9.
Each Judge Rolled a Ten Sided Die, Then Gave a Sentence.
A Group of German Judges, Averaging 15 Years Experience, Were Each Shown the
Same Description of a Shoplifter.
October 30, 2014
Negotiation & Persuasion
69
Anchoring Effect: 50%
The dice Were Loaded to Only Show a 3 or 9.
Each Judge Rolled a Ten Sided Die, Then Gave a Sentence.
A Group of German Judges, Averaging 15 Years Experience, Were Each Shown the
Same Description of a Shoplifter.
October 30, 2014
Negotiation & Persuasion
Anchoring & Adjustment
70 October 30, 2014
Negotiation & Persuasion
Anchoring & Adjustment
71
The introduction of a random number will create a cognitive “anchor.”
October 30, 2014
Negotiation & Persuasion
Anchoring & Adjustment
72
The introduction of a random number will create a cognitive “anchor.”
The anchor will affect a decision unrelated to the number.
October 30, 2014
Negotiation & Persuasion
Anchoring & Adjustment
73
The introduction of a random number will create a cognitive “anchor.”
The anchor will affect a decision unrelated to the number.
Knowing the anchor is random does not change the anchoring.
October 30, 2014
Negotiation & Persuasion
Questions?
)
74 October 30, 2014
Negotiation & Persuasion
Availability
75 October 30, 2014
Negotiation & Persuasion
76
Do more people die each year of:
Car Accident? Cancer of the
Digestive System?
October 30, 2014
Negotiation & Persuasion
77
Do more people die each year of:
Car Accident? Cancer of the
Digestive System?
Annual Deaths: 35,000 147,000
October 30, 2014
Negotiation & Persuasion
78
Do more people die each year of:
Car Accident? Cancer of the
Digestive System?
Annual Deaths: 35,000 147,000
Number of News Stories: 137 1
October 30, 2014
Negotiation & Persuasion
Availability
79
Items which are Vivid or more Recent
October 30, 2014
Negotiation & Persuasion
Availability
80
Items which are Vivid or more Recent
will have a Disproportionate impact on
October 30, 2014
Negotiation & Persuasion
Availability
81
Items which are Vivid or more Recent
will have a Disproportionate impact on
Risk Perception and Decision Making.
October 30, 2014
Negotiation & Persuasion
Questions?
)
October 14, 2014 82
Negotiation & Persuasion
October 14, 2014 83
