Psychological Tools and Traps

1. Mythical Fixed Pie Assumption: An assumption that our

interest conflict with the interests of the other side.
2. Anchoring
3. Overconfidence
4. Framing
5. Availability
6. Escalation
7. Reciprocation
8. Contrast Principle
9. Big-Picture Perspective: Don’t get lost in the details.
$250,000
 Types of Negotiations
Divide the “Pizza” Enlarge the “Pizza”
Distributive Integrative
Competitive Cooperative
Win / Lose Win / Win
Zero Sum Non-Zero Sum
Adversarial Problem-solving
Position-based Interest-based
Claiming Value Creating Value
 Position-based vs. Interest-based
Negotiations
•  Regardless of whether a negotiation appears
to be position-based or interest-based,
always search for underlying interests in an
attempt to build a larger pie.

•  But also be ready for positional bargaining—
even after finding mutual interests.
 $250,000
$400,000
Seller Buyer
170,000 $80,000 Seller Buyer
200,000 200,000
 Seller's Confidential Information Buyer's Confidential Information

Seller is elderly; has health problems Buyer is India-based co. building US headquarters

Needs at least 150,000 for senior apt. Will pay up to 250,000; cash sale

Tracy wants house but can’t afford it Pat is secret agent for the company; wants job offer

Seller wants to keep possession for 3 mos. Company needs possession in one month

No other purchasers If unsuccessful, co. will buy another house (well-
maintained, on Main Street) for 265,000

Seller wants at least 15% down payment, Needs 1/3 of lot for parking lot; will tear down house
tile artwork, and promise not to install and add attractive landscaping
plastic siding
Company builds senior apartments; sales are slow



 Seller's Confidential Information Buyer's Confidential Information

Seller is elderly; has health problems Buyer is India-based co. building US headquarters

Needs at least 150,000 for senior apt. Will pay up to 250,000; cash sale

Tracy wants house but can’t afford it Pat is secret agent for the company; wants job offer

Seller wants to keep possession for 3 mos. Company needs possession in one month

No other purchasers If unsuccessful, co. will buy another house (well-
maintained, on Main Street) for 265,000

Seller wants at least 15% down payment, Needs 1/3 of lot for parking lot; will tear down house
tile artwork, and promise not to install and add attractive landscaping
plastic siding
Company builds senior apartments; sales are slow



 house

Seller Company
170K

house

Seller Company
Senior Apartment worth 200K (but costs Company 150K)

house + 2/3 lot

Tracy Company
100K (company financed)
•  Seller’s interests met, plus additional 30K
•  Tracy's interests met (obtained house)
•  Company's interests met (parking lot),
plus additional shareholder value (200K)
and community reputation maintained
•  Pat (hopefully) gets job with company
http://www.youtube.com/watch?v=IGQmdoK_ZfY
 $250,000
$400,000
Seller Buyer
170,000 $80,000 Seller Buyer
200,000 200,000
 Game Plan
Course Overview
Introduction to the University of Michigan

The Four-Stage Negotiation Process:

1.0 Prepare: Plan Your Negotiation Strategy
2.0 Negotiate: Use Key Tactics for Success
3.0 Close: Create a Contract
4.0 Perform and Evaluate: Finish the End Game

Apply Your Negotiation Skills: “The House on Elm Street” Negotiation
Negotiation Performance Review
Self-assessment:
•  What did you do well?
•  How can you improve?
Assessment of the other side:
•  What did they do well?
•  How can they improve?
Personal Negotiation Assessment Questions
•  Established a relationship?
•  Searched for underlying interests?
•  Asked questions and listened to the answers?
•  Found out whether the other side had authority?
•  Used an effective “first price” strategy?
•  Looked at negotiation from the other side?
•  Used reciprocity when trading interests?
•  Kept a big picture perspective?
 Game Plan
Course Overview
Introduction to the University of Michigan

The Four-Stage Negotiation Process:

1.0 Prepare: Plan Your Negotiation Strategy
2.0 Negotiate: Use Key Tactics for Success
3.0 Close: Create a Contract
4.0 Perform and Evaluate: Finish the End Game

Apply Your Negotiation Skills: “The House on Elm Street” Negotiation