Syllabus

Course Description
We begin with an easy case to set the stage for more complex negotiation: buying and selling a used car. An oil price (Repetitive Prisoners’ Dilemma) negotiation is followed with a discussion of auction vignettes (Hillary Clinton’s book deal, online auctions--eBay and Amazon.com, Petrol Ofisi – an M&A auction in Turkey) and Cybersettle – an online dispute resolution service. The slope gets steeper. You will play one of two roles in a series of cases. Each side gets confidential information. A silicon wafer chip manufacturer tries to close a deal with a solvent service company. Several issues must be resolved. An online vendor of mid-priced wines negotiates sale of the company. Two companies negotiate an IT joint venture. You will participate in an email negotiation as either an account manager for a toiletries firm and or as his principal supplier. We move next to negotiations among more than two parties: Japan, The People’s Republic of China and the US negotiate an air flight agreement, an airframe manufacturer’s management team re-negotiates a long term contract with an airline management team. Three unions negotiate terms for privatization of a Welsh water works with the firm’s managing director.
Format

There are no quizzes, exams or papers. Your grade depends entirely on how effectively you negotiate with sophisticated counterparts – your classmates! Students must complete all negotiation exercises in order to receive a grade for the course. Results of each negotiation are entered on a SloanSpace web site and processed by the TA for summary and discussion the following class period. This is not a standard lecture course. Each class begins with an outline of what will be covered in that class. We debrief the preceding class’s negotiation, discuss principal themes, and then present a framework for the negotiation that will unfold in the class. Most of the negotiations will take place in class.

Assigned Readings

The two required texts for this course are:

Thompson, Leigh, The Mind and Heart of the Negotiator, Prentice-Hall, Second Ed., 2000.

Raiffa, Howard, Lectures on Negotiation Analysis, Program on Negotiation at the Harvard Law School, 1998.

The art cannot be separated from the science of negotiation and, indeed we shall emphasize art as an indispensable partner of science in the enterprise of negotiation. However, coupling easy to use software such as EXCEL, mathematical programming and a rational approach to reasoning about what is fair, opens a window of opportunity for improving the efficiency of the negotiation dance. Raiffa’s lectures are an introduction to, “...analysis that can help cooperative parties find efficient and equitable outcomes.”

The importance of what Howard has to say is highlighted by our experience with many years of “laboratory” testing of negotiators. In a negotiation that involves many complex issues, negotiators who do reach agreement, more often than not fail to find a jointly acceptable efficient agreement. Ex-post analysis shows that the right kind of preparation followed by skillful use of mathematical optimization during negotiation usually leads to a better outcome for all parties to the negotiation. I will use these ideas to evaluate your performance and summarize class results. You should therefore read and understand the principal ideas that Raiffa presents. However, you will not need to implement these ideas on a computer in order to complete the negotiation exercises.

Leigh Thompson’s book is easy to read and chock full of interesting insights about how to negotiate. It is full of practical advice about how to prepare, what to do at the bargaining table and how to be strategically creative. Chapters are well organized and most are self-contained. A “Take-away” paragraph summarizes each chapter's lessons.

We will begin with Chapter 1, “Negotiation, The Mind and the Heart” as retrospective reading to complement the first class. Your second assignment will include reading Chapter 11 “Tacit Negotiations and Social Dilemmas” as preparation for negotiating oil prices.

Thompson’s Chapter 2 offers valuable advice about preparation. What to do at the bargaining table and how to be creative and expand the pie for everyone are covered in Chapters 3 and 4. These chapters form the core of your reading assignments when we undertake two- and multi-party integrative negotiations. Sources of negotiating power are discussed in Chapter 7. The oft-asked question “How should I behave at the bargaining table?” is addressed in Thompson’s Chapter 5 treatment of negotiating style.

Administering Negotiations and Negotiation Logistics

Some negotiations will take place in class and will require that you prepare by doing the assigned readings only.

More complex negotiations require that each of you play a specific role. You will be assigned to a role and informed of this assignment in advance, generally the class period before the class at which the negotiation will unfold.

In addition to providing general information that is shared by all parties, each role player will be provided with private information that describes needs and aspirations of that role player. Private information may or may not be shared with your negotiation partner(s). That is up to you in some cases and is prohibited in others. While you may verbally, when this is explicitly allowed, share private information, we ask that you do not share the written version of private information for your role provided to you. When we ask that you do not share private information, you are honor bound to do so.

Post Negotiation Questionnaire

In addition to entering your results on the web, you are required to complete a post negotiation questionnaire. Responses to the questionnaire are part and parcel of your negotiation results.

In order to have your negotiation results count, you must fill out the questionnaire.

This questionnaire has two purposes: the first is to encourage self-reflection. For example, “How satisfied am I with the fashion in which I conducted this negotiation?”, “How do I evaluate the performance of my negotiating counterpart?”, “What might I have done differently that would improve the outcome for me? For both parties?” The second purpose is to enhance our joint understanding of how negotiators’ perceptions of self and of counterparts — trust, satisfaction, etc.— influence the negotiation dance and negotiation outcomes.

Honesty and Learning

You will feel a tension between playing a role “honestly” and simply playing to get the highest Zscore every time. Most of the time you will do as well by employing the guidelines that we develop for creating value and for claiming it while honestly acting in the spirit of the role that you are assigned. You do want to aim for a high Z-score and simultaneously stay within your role and the rules of the game. Of course, it is possible to cheat on this. You and your partner(s) can collude to break the rules or, for example, you might ask others who have taken the course earlier how they negotiated a particular exercise. But when you do, you deprive both yourself and your negotiating partner of a valuable learning experience. This type of behavior is more than inappropriate—it is a violation of trust. As a colleague says, “Such behavior is completely inappropriate and we urge you not to try it. Doing so devalues your own experience, spoils things for other students and deadens the discussion.” More often it is fun to negotiate in a setting where the stakes are not high (your job doesn’t depend on the outcome!). We may ask you to “Stretch yourself” and experiment with different negotiation styles. You may discover that you have untapped potential.

Class Learning as Research

A byproduct of this course is your contribution to negotiation research. Some of your negotiation cases will double as research investigations. You will be asked to complete web based confidential questionnaires before and/or after several of your negotiation exercises. This fits the philosophy of the course: Many of the negotiations you will experience have been studied in previous research projects in former classes, like yours. Students from those classes have contributed to your learning experience. By participating in this ongoing research, you enhance what future students learn. These new exercises will be designed to maximize both learning value and research potential. We have lots of practice satisfying both criteria, so don't worry about experiencing new exercises. They help keep the course fresh.Outcomes are recorded anonymously in our research database. If you do not want outcomes of your negotiations to be included, please approach your instructor after class.

Grading*

Your grade in this course depends exclusively on how well you negotiate with your counterparts.We shall distinguish two types of negotiations or competitive exercises for scoring: exercises in which you decide on a strategy to be played against all other members of the class and negotiations among a prescribed small number (one to six) of individuals, each chosen to play a specific role.

The Atlantis-Biovent case is an example of a competitive situation in which you will submit a strategy that will be played against strategies adopted by all other members of the class. In this case,Atlantis and Biovent have agreed to submit to a computer based mediation service offered by Cybersettle to see if they can settle without going to court.

You will be assigned specific roles to play in mixed motive bargaining cases. A mixed motive bargain is one in which you and your counterparts in other roles aim at an agreement that resolves more than one, possibly many, issues. You must manage the tension between creating value for both parties and claiming value. For example, you will undertake the sale of an on-line wine company,WineMaster.com to HomeBase.com. Each side possesses confidential information (“For your eyes only!”) that lays out aspirations and a “bottom line.” This information includes a detailed statement of the “net gain” that each party receives upon reaching agreement. Negotiations of this type are not strictly competitive because by judicious exchange of information both parties may improve their position (score). In addition, there may be asymmetries of power: it may be easy for one party to walk away and hard for the other to do so. Now suppose that WineMaster.com and HomeBase.com negotiate. All of you playing the role of WineMaster.com are negotiating under identical negotiation conditions, so it is reasonable to compare outcomes of negotiations of those who play the role of a WineMaster.com’s negotiator. Reasoning similarly, it is reasonable to compare outcomes of all who play the role of HomeBase.com’s negotiator. The question is “How do we arrive at a score that allows reasonable comparisons among parties playing different roles with different bargaining power and different scoring scales?”

The answer is to compute what we shall call a “normalized” or “Z-“ score. Here is how it works.Suppose that the average net gain above WineMaster.com’s best alternative to no agreement is found to be $650K with a standard deviation of $1200K. You, as a WineMaster negotiator, have achieved a net gain of $750K. Your Z-score is your raw score minus the average of all net gains in your role, $650K,divided by the standard deviation of raw scores achieved by all who played your role, $1200K, or

                                              ZYOU = ($750 - $650) / $1200 = .083.

Your counterpart at HomePage.com achieved a net gain of $1200K. The average of all HomePage.com net gains is $1100K with standard deviation $1600K. Then the Z-score for your negotiating counterpart is

                                     ZCOUNTERPART = ($1200 - $1100) / $1600 = .0625.

You received a recorded score of .083 and your counterpart receives a recorded score of .0625. Both of you scored higher than the mean. These scores are, in part, a measure of your negotiating skill and in part a measure of luck and the particular fashion in which your negotiating style meshed with that of your negotiating partner.

We will change match-ups for each negotiation during the course, so you may expect your good luck and bad luck to average out. To prevent a really unlucky experience from having too large a negative impact on your final average Z-score, we shall drop the worst two Z-scores for each individual. Your final Z-score will be an average of all but the two worst Z-scores that you achieve.

If you miss a negotiation, you will receive -4 as a Z-score. This is ample incentive to make sure that you either agree to negotiate with your counterparts at a time acceptable to the instructors or do the negotiation when assigned. More on the logistics of this later.



*See Howard Raiffa’s discussion of z-score grading in The Art and Science of Negotiation, pp. 26-32.  Our discussion is a shortened paraphrase of what Howard has to say, tailored to our examples.