1. Lecture 5 Negotiating Strategy 1.Begin Coalitional Analysis 2.Added Value and the Core 3.Axiomatic (Nash) Bargaining

2. Thinking Harder About ZOPA Recall, we can’t go below any person’s BATNA. –Is this enough? What if there is more than 1 person? Card Game –This is Added Value, what you bring to the group when you come in. –Added value may be an upper bound on what you can walk away with. Ok, now let’s do a simple negotiation: –Three people, any one alone gets nothing –Any group of 2 gets $10 –The full group of 3 gets $12

3. Peyton Young Example Three Towns, need to build a recycling center. –A can alone for 11 –B can alone for 7 –C can alone for 8 A&B can together for 15 (save 3) B&C can together for 13 (save 2) A&C can together for 14 (save 5), but… A,B,&C can together for 20 (save 6)

4. 3 Town Example Town must negotiate a split of the cost savings. Popular Principles of Fairness: –The towns can split savings equally. –The towns split savings in proportion to their contributions to the base cost. Problem? None of these things are compatible with incentives, i.e. none of these are in the Core. Definition of the Core: An agreement in which every group does at least as well as they could have by splitting off.

5. Nash Solution Axioms (Assumptions that we’ll use to solve a bargaining problem.) –Respects affine transformations –IIA (Independence of Irrelevant Alternatives) –Pareto Efficiency –Symmetry

6. Next Time Readings for Next Time: –See Syllabus Think about groups for reading presentation and discussions.