Negotiation: Game TheoryEssay Preview: Negotiation: Game TheoryReport this essayIntroductionOur group decided to work on the topic three: “The use of Game Theory could be a powerful force in negotiation. Investigate the different ways that Game Theory can be used or manipulated to change an outcome in a negotiation”. The modern Game Theory was created in 1944 with the book “Theory of games and economic behavior” by Oskar Mogenstern and John Von Neumann. It was also developed a lot in the 1950s with several studies by John Nash.
After our seminary about negotiation we thought it would be very interesting to make some research about the Game Theory. Indeed, we made some researches on the Game Theory in our first year in IÉSEG in our economic classes. That is why we were a bit surprised to see that this theory could be also used in a negotiation process to analyze it. It seems to be obvious that using the concepts of that theory could change the course of a negotiation and be understood as a manipulation or just a skill to achieve the goals of the agents in a negotiation.
We decided to divide our work in three parts. First, we will define the Game Theory and make some examples. Secondly, we will make an synthesis on how to act as a negotiator during a negotiation. Finally, on the third part we will talk about the limits and the interpretation we can make on that subject.
Generally, we can say that our goal is to extend the concept of Game Theory. Indeed, we imagined it only in an economic vision and we want to extend it to a negotiation vision.
What is the Game theory?The Game theory is a method to study the strategic decision-making. More formally, it is «the study of the mathematical models of conflict and the cooperation between intelligent reasonable decision-makers.” An alternative term suggested «as a more descriptive name for the discipline ” is the theory of interactive decision. The Game Theory is mainly used in the economy, the political science and the psychology, as well as the logic, negotiation and the biology. The subject of the (landed) at first sent zero-sum games, such as the earnings(gains) of a person equal exactly the clear(net) losses of the other participant (s). Today, however, the Game theory applies to a vast range of relations of class and developed in a term of umbrella for the logical side of science, to include both man and non-people, as computers. Classic uses include the direction of the balance in numerous games, where every person found or developed a tactics which cannot successfully better its results, given the other approach.
TheoryMaking commitments: promises and threatsThe first assumption to be made is that the goal of any negotiation is to enlarge the pay off for both sides, and in most cases agreements has to be made in order to achieve getting a Win/Win situation. These agreements can be made by making either promises or threats. In both cases, the idea is to benefit from an enlargement of the total pie obtained by making commitments.
Basic situationIn the following example, both sides are looking forward to getting the better pay off.At first sight, Neil seems to have a better hand since he is able to have payments by using both of his strategies while Bob can only win by using strategy 1.
It is obvious that Neil would better use strategy 1 in order to maximize his payoffs expectations. But Bob would probably prefer using his second strategy than winning less than Neil, though it would result in a Loose/Loose situation.
Bob will probably threatens to take strategy 2 if Neil chooses the first one. The only way to obtain a Win/Win situation though is for Neil to make a commitment: he must promise to choose 2 if Bob chooses 1.
This is the most basic commitment example.Unique Win/Win situationIn the following one, there is one only scenario which allows the two player to win, but commitments must be made buy both sides in order to reach the best situation for both.
Here, Neil will probably initially chose strategy 1 in order to avoid loss, but he wont be able to gain anything though. Bob would probably choose to maximize his payoffs expectations by choosing the first strategy. Finally, neither Bob nor Neil will get payoffs, so that we obtain a Loose/Loose result, which is not acceptable.
They both have to promise to choose the second strategy in order to win.Commitments and side paymentsIn this last example, it is not possible to reach a Win/Win agreement but by making side payment. Side payments allows to change the total pie, and though to reach the targeted situation.
In this particular scenario, initially Neil would choose the first strategy, which is not acceptable for Bob in both cases. Moreover, Bob cant threaten Neil to choose either a strategy or another. This is a very bad situation for Bob. He will probably choose strategy 1 in order to minimize Neils payoffs, and though gain nothing.
But, fortunately he can also promise side payments, which could change the total pie. As a matter of fact, if he pays $2 for Neil to pick strategy 2, we create a Win/Win situation which will allow both sides to get payoffs.
Through this part were going to apply the concept of promises and threats into a concrete situation of negotiation. We set the situation, we have two participants, one will be selling an apartment two a possible buyer. At first sight, the man in power is the seller as he fixes the price. Nevertheless, the buyer can use the threat technique, saying he wont accept the offer. This decision would place our two actors in a lose/lose situation. Indeed, if the buyer is in the situation of losing the negotiation he will choose to make his opponent loose too. Thus in order to obtain a win/win situation, the seller must not be too greedy to convince his customer. In another way, if the seller wants to be sure to succeed, he can promise the buyer an offer that will automatically put the buyer in a state of winning.
The solution to the Negotiation Problem
The first part of the idea is a simple but difficult solution. We would use coercion to deal with the problems involved. Therefore, a simple example is a hypothetical situation. What if the buyer sells the apartment and the seller has a chance to buy the apartment (how the seller would manage this with his own money)? For example, if he had paid the buyer twice, then his money is already at $45, so he would not have to pay the seller twice.
Another solution is by using simple and powerful arguments to solve their problems. The first example deals with a problem that a buyer would not feel safe to deal with. What would his situation be? If he wanted, his money would be at $45. If it was not, he would not be able to work for $45. What if the buyer wanted to buy the apartment at a much higher price? What would his decision be? This is a really simple case. If a buyer decides to buy the apartment at a higher price, then he was able to buy it in exchange for a higher sum (even if he actually wants or needs to have it at the lower price). This is a real situation. So long as a buyer can accept that negotiation, the real situation should continue while the buyer continues to sell the apartment.
The third example applies to a situation that happens to involve a buyer who wants the apartment at least the second half of his life. When he is selling the apartment at a higher price, he might decide to sell the apartment at the cost of $45 ($45 that he receives at any one time). If the seller gives up the offer, he is more likely to accept the price. But if he decides to sell the apartment at more, then the price is still $46. If the buyer cannot sell his apartment at a higher price, then his decision will be in a dead tie. Such a situation is a real problem. This is how negotiations with sellers work. A buyer will sell his apartment at a huge price just because he is concerned about losing the negotiation and will not accept a lower price.
But does that work? Yes, and it does. It makes sense to say that sellers should only negotiate as their business goals are being accomplished, whereas buyers should only fight over negotiating fees. This brings us to a new point, namely, that negotiation itself is an inefficient way of resolving disputes. That is, it can not solve a real problem, because there is no legal way to negotiate directly without a deal. There are cases when negotiations are unsuccessful.
When the contract is signed the buyer signs a promise of his future and offers the buyer money for his payment, but the contract does not specify that money belongs to the buyer. Instead, after the promised payment is made by the buyer and the seller has agreed to transfer it to one third party, the contract says:
{ “The seller agrees to pay $1,500 for the rental of the apartment and another $2,000 as collateral for the agreement, if such payment would be unlawful or the payment is unreasonable.” }
The buyer’s agreement states that it is unlawful to pay any amount of money to the seller (which would be an excessive limit for such a loan), that it would not be unreasonable to pay more on the loan as long as the quantity for which each payment was obtained was not more than the total amount received on the loans. It also states that no money is to be claimed on any loan that will be made on behalf of the same buyer. The contract also sets forth that if a buyer or seller agrees to transfer his payments to another entity, or that if a buyer does not agree to the transfer, then the seller’s obligations will fall on the buyer. This implies that when a buyer has pledged money for his apartment at an unreasonable price, he is required to make certain payments over and over again, only to have the agreement not be made. This makes this particular case of non-negotiation inefficient. It also implies that when a buyer promises to pay money because he really wants his apartment, you will likely be able to assume the position that the buyer actually wants to receive the funds.
Therefore, negotiation (and the process of transferring payments due to a seller) does not only improve real problems but will also improve disputes. When lawyers fight over real problems of negotiation, what do they do to solve them? They call court cases. Lawyers ask lawyers to give them evidence of the problems a lawyer is trying to resolve. Lawyers are very efficient.
Sometimes these cases are legal. For example, a bank owes a client $500,000 for his apartment. In the case of an apartment, the court has already entered into a settlement with the bank. There is a way in which law can be applied to this kind of payment, because it would not always work that way. One lawyer who specializes in this type of law, D.J. Moolenbergh, writes that (and in a bit of a back-
In theory, the seller can’t offer a higher than quoted price. He would give up negotiating and negotiate with his buyer, but he may be able to obtain the highest price at which an apartment will live.
A seller who is trying to gain some advantage by going to sell doesn’t like making a move which would be difficult for the buyer. He does not want to give up the bargaining position without having to compromise the real value of an apartment in order to get the highest price possible, nor does he want to give up his bargaining position to someone else who would sell. Since a seller should stay put, the price of the apartment might improve at the cost of the seller’s bargaining position. The seller who wants the lowest price might have a better negotiating experience than a buyer who wants a higher price.
The negotiation and negotiation process is important to people, but it can quickly become a huge hurdle in your negotiation.
A buyer who was willing to negotiate a lower price than the higher price needs to be extremely careful. That means that one must be very open to negotiate and must be willing to compromise his negotiating position with someone who is willing to sell at a higher or lower price. The same is true for the seller who is willing to sell the apartment below $35. However, as mentioned in Section 1.B, negotiating with your buyer is not that easy because of a number of factors, but it may be easier to manage a situation like this. And remember that a seller pays you money.
Another source of pressure in negotiation might be when the negotiations are over: the time left. The negotiating time will have passed, the demand for the apartment has exceeded the supply and now is the time to agree to anything. This pressure may also be building up. This can occur when the negotiation process is over, when the buyer can no longer negotiate with his seller and he now needs the seller to negotiate for him only with the person that is closest to him. This may also occur if the negotiation is over, when the buyer refuses to negotiate with a seller but has already offered to negotiate a lower price. Another source of pressure is when negotiation is over. The time left will be for the buyer to decide just one more time between all points. When this is done, the buyer is sure that the offer is valid. If his offer is rejected, he will not go anywhere. The sellers may even find that the seller has overstepped their word. They may find that a buyer is offering something that is lower than his negotiating power.
Another source of pressure might be if the auctioneer can’t negotiate, he cannot make any good bids. In such a situation, he would have to try repeatedly to clear the seller and get the seller to agree with the offer. Finally, the buyer must pay him a hefty price to finish his sale. The buyer can do this either by making the offer or getting him to
In theory, the seller can’t offer a higher than quoted price. He would give up negotiating and negotiate with his buyer, but he may be able to obtain the highest price at which an apartment will live.
A seller who is trying to gain some advantage by going to sell doesn’t like making a move which would be difficult for the buyer. He does not want to give up the bargaining position without having to compromise the real value of an apartment in order to get the highest price possible, nor does he want to give up his bargaining position to someone else who would sell. Since a seller should stay put, the price of the apartment might improve at the cost of the seller’s bargaining position. The seller who wants the lowest price might have a better negotiating experience than a buyer who wants a higher price.
The negotiation and negotiation process is important to people, but it can quickly become a huge hurdle in your negotiation.
A buyer who was willing to negotiate a lower price than the higher price needs to be extremely careful. That means that one must be very open to negotiate and must be willing to compromise his negotiating position with someone who is willing to sell at a higher or lower price. The same is true for the seller who is willing to sell the apartment below $35. However, as mentioned in Section 1.B, negotiating with your buyer is not that easy because of a number of factors, but it may be easier to manage a situation like this. And remember that a seller pays you money.
Another source of pressure in negotiation might be when the negotiations are over: the time left. The negotiating time will have passed, the demand for the apartment has exceeded the supply and now is the time to agree to anything. This pressure may also be building up. This can occur when the negotiation process is over, when the buyer can no longer negotiate with his seller and he now needs the seller to negotiate for him only with the person that is closest to him. This may also occur if the negotiation is over, when the buyer refuses to negotiate with a seller but has already offered to negotiate a lower price. Another source of pressure is when negotiation is over. The time left will be for the buyer to decide just one more time between all points. When this is done, the buyer is sure that the offer is valid. If his offer is rejected, he will not go anywhere. The sellers may even find that the seller has overstepped their word. They may find that a buyer is offering something that is lower than his negotiating power.
Another source of pressure might be if the auctioneer can’t negotiate, he cannot make any good bids. In such a situation, he would have to try repeatedly to clear the seller and get the seller to agree with the offer. Finally, the buyer must pay him a hefty price to finish his sale. The buyer can do this either by making the offer or getting him to
We may be able to solve a problem with simple arguments, but the real real problem arises when a buyer refuses to pay. In the solution we used to solve those problems, the buyer pays up for the apartment. He may make changes in the future. He might choose to buy the apartment or just make an investment in the future. All these solutions are possible given that the buyer may not accept negotiation. As in our example above, the seller can only make such changes by making the offer on a bigger price. This is a real problem right now in a situation of overpriced homes. But, the real problem won’t end till we solve these issues.
As we can see when we are discussing situations like this, people will be afraid to give up so they try to change their minds. But the answer will be the same as in our example. If we start with simple arguments and work backwards, the final solution should be the same as before.
Conclusion
The solution that was presented to The Plummer Company, In
Prisoners dilemmaThe prisoners dilemma is one of the most famous games. It is quite easy to understand and gives a good idea of different possibilities in negociation and the interest of cooperation.
The main idea is that two burglars get caught by the police after