Agenda, Day 2  Questions about syllabus? About myths?  Prisoner’s dilemma  Prisoner’s dilemma vs negotiation  Play a single round  Play multiple rounds of prisoner’s dilemma  Strategies  The nature of negotiation  Negotiation defined MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit

Prisoner’s Dilemma  The parties are interdependent with respect to outcomes, but they make independent decisions.  Why is it a dilemma? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-2

Prisoner’s Dilemma  This is NOT a negotiation.  The parties do not communicate prior to their decision (or afterwards!) There is no way to make a credible threat or commitment.  Each party has only two choices. You can’t walk away from the situation or choose a different partner.  Both parties make decisions simultaneously, without any knowledge of what the other party will do.  Both parties know with certainty what the payoff matrix looks like. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-3

Prisoner’s Dilemma game matrix Player 1 Player 2 CooperateDefect Cooperate3, 30, 5 Defect5, 01, 1 Round 1: If your envelope has an even number, find a partner with an odd number. Play your red card to cooperate, and your black card to defect. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-4

Debrief: Round 1  What is rational?  Why choose to cooperate?  Why choose to defect? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit. 2-5

Rounds 2-5 Instructions  All those with even numbers on envelope, move to the left side of the room. Play 4 rounds with the same partner.  On the right side, all those with odd numbers on envelope play 4 rounds. After each round you must change partners. Record your decisions and outcomes on the index card, “my history”. (Also record what happened in round 1.) RoundMy partnerMy DecisionMy Reward My name:Total 2-5: Cooperate Defect

Debrief: Rounds 2-5  What is rational when repeated with different partners?  What is rational when repeated with the same partner?  What was your strategy?  What about for round 5? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-7

Strategies used in simulations  Strategies that involve unprovoked defections  Downing (aimed at understanding your partner’s strategy and then adapting to it)  Tester  Tranquilizer  “Nice” strategies with “reciprocity”:  Tit for Tat (repeat action of your partner in previous round)  Tit for two Tats (defect only after your partner has done so in the two previous rounds)  “Nice” but with No “forgiveness”:  Permanent Retaliation (Friedman) MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-8

How did you do? Individual score, rounds 2-5Frequency Are you feeling envious? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-9

Rounds 6-11 Instructions  Odds play evens. Stick with one partner.  IMPORTANT: Before you start, put your history card down so your partner can see your actions in rounds 1-5.  Record your decisions and outcomes on the second index card, “my history 2”. RoundMy partnerMy DecisionMy Reward My name:Total:

Rounds 6-11 Debrief What strategy did you use? Were you “nice”? How did your partner’s history (from rounds 1-5) affect your strategy? How is history like reputation? How is it different? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-12

How did you do this time? Individual score, rounds 6-11Frequency Are you still feeling envious? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-11

How did pairs of negotiators do? Paired score, rounds 6-11Frequency MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-13

Why does it matter how pairs do? Axelrod says that if you fail to take into account the impact of your actions on your partner, you will get trapped in a cycle of mutual destruction. In other words, if you focus on winning more points than your partner, you will antagonize your partner. If you focus instead on earning the most points as a pair, you will jointly extract more value from the game. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-14

Can the prisoner’s dilemma be adapted to be more like a negotiation?  Neither party will know with certainty what the payoff matrix looks like.  Both parties need to assess the context: is this a single negotiation, or will there be multiple rounds?  The parties will communicate prior to their decision.  In most cases, the quality of the relationship between the partners will be taken into consideration during the negotiation.  In most cases, the parties consider more than two alternatives, and they make decisions together about which ones to pursue.  In most cases, each party has the opportunity to walk away from the situation or choose a different partner. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-15

Rounds 12-21: Note if your partner is a friend or stranger.  On the left side of the room, play 10 iterations with a friend.  On the right side, play 10 iterations with a stranger. Player 1 Player 2 CooperateDefect Cooperate3, 30, 20 Defect20, 01, 1 IMPORTANT: Note the new payoff matrix. DISCUSS its implications with your partner before you begin. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-16

TrialMy partnerMy DecisionMy Reward MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit

What strategy could be used to maximize both of your points in rounds 11-21? Did any pairs of friends discover it? How? Did any pairs of strangers discover it? How? MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-18

Negotiation defined  Textbook: Negotiation is an interpersonal decision-making process necessary whenever we cannot achieve our objectives single-handedly.  Syllabus: Negotiation is the art and science of securing agreements between two or more parties who are interdependent and who are seeking to maximize their outcomes. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-19

Questions to consider  What is the rational solution to a single round prisoner’s dilemma?  Draw an example of a game matrix. Label the temptation and the sucker’s payoff.  Describe an example of an iterated prisoner’s dilemma in a business setting.  What three strategies involve unprovoked defections?  What is a “nice” strategy? What is “reciprocity”?  What does it mean to be “envious”?  Identify five ways that a prisoner’s dilemma is different from a negotiation. MGMT 544, Strategic Business Negotiation, Spring 2012, Prof. Piderit, 2-20