1. 1 Full Information ¤ It is still hard to find all of the options. ¤ Need to really understand how the other side sees the world ¤ Engaged in joint problem solving ¤ I call it “Getting to Know”

2. 2 Jesse Jumpshot PackageSal%Merch ProfitsBonus A2.500 B201.5 C1.510%0.5 D1.25%0 E110%1

3. 3 Jesse Jumpshot PackageSal%Merch ProfitsBonus B201.5 C1.510%0.5 B is easy to figure out. 1.5 bonus is worth 0.9 to Jesse, costs Sharks 0.15 What is value of merchandise profits? Case doesn’t state chance of winning absent Jesse (assume 0) Jesse: 0.6 * Win 10 Sharks:0.1 * Win 12 = 8 = 3 0.4 * Lose 50.9 * Lose 2

4. 4 Jesse Jumpshot PkgSal%Merch Bonus Jess / Sharks Profits A2.5002.52.5 B201.52.92.15 C1.510%0.52.61.85 D1.25%01.61.35 E110%1 Case C: 2.6 = 1.5 + 10%(8) +.3; 1.85 = 1.5 + 10%(3) +.05 Case D: 1.6 = 1.2 + 5%(8); 1.35 = 1.2 +5% (3) Case E: 2.7 = 1 + 10%(8) +.6; 1.4 = 1 + 10%(3) +.1

5. 5 Jesse Jumpshot PkgSal%Merch Bonus Jess / SharksBATNAs Profits A2.5002.5(2.5)2.1 / (3) B201.52.9(2.15) C1.510%0.52.6(1.85) D1.25%01.6(1.35) E110%12.4(1.4) ZOPA is 2.1 to 3 Case doesn’t state chance of winning absent Jesse! Case C: 2.6 = 1.5 + (.6 +.2) +.3; 1.85 = 1.5 + (.12+.18) +.05 Case D: 1.6 = 1.2 + (.3 +.1); 1.35 = 1.2 + (.06+.09) Case E: 2.7 = 1 + (.6 +.2) +.6; 1.4 = 1 + (.12+.18) +.1

6. 6 Jesse Jumpshot What is Jesse’s reservation price? $2.21 (so that after paying the agent 5%, Jesse still has 2.1) Note that 0.95*2.205 = 2.1 Non-monetary values (winning championship)

7. 7 Jesse Jumpshot What is Jesse’s reservation price? $2.21 (so that after paying the agent 5%, Jesse still has 2.1) Note that 0.95*2.205 = 2.1 Not quite: What if Jesse gets $1 million salary plus rest in bonus. Then Jesse’s reservation price

8. 8 Jesse Jumpshot PkgSal%Merch Bonus Jess / SharksJess/Agent Profits A2.5002.5(2.5)2.375 /.125 B201.52.9(2.15)2.8 /.1 C1.510%0.52.6(1.85)2.525 /.075 E110%12.4(1.4)2.35 / 0.05 BATNA should take into account payment to agent!

9. 9 Pareto Optimality PkgSal%Merch Bonus Jess / SharksJess/Agent Profits A2.5002.5(2.5)2.375 /.125 B201.52.9(2.15)2.8 /.1 C1.510%0.52.6(1.85)2.525 /.075 E110%12.4(1.4)2.35 / 0.05 Only B, C, and E. Say you are at C, any ideas? Post-settlement settlement

10. 10 Creating Gains Differences Chance of winning: Jesse 60%, Sharks 10% Revenues if win: Jesse 10, Sharks 12. Revenue if lose: Jesse 5, Sharks 2 What is value to Jesse of 10% of revenues up to 10m vs 10% of rev. Same value, but cost of latter is higher to Sharks What is cost to Sharks of 10% of revenues if lose vs. 10% of first 2m if lose Same cost, but value of latter is higher to Jesse

11. 11 Pareto Optimality PkgSal%Merch Bonus Jess / SharksJess/Agent Profits B201.52.9(2.15)2.8 /.1 C1.510%0.52.6(1.85)2.525 /.075 E110%12.4(1.4)2.35 / 0.05 But none are Pareto in a larger context. Sharks get 0--2 in merchandising (“M”) as M is always at least 2 Jesse gets 2--5 in M if lose (as Sharks think this has zero probability) -- worth.4*3=1.2 Sharks get 10--12 in M if win (as Jesse thinks this has zero chance) If Jesse gets 100% of 2--10 if Sharks win -- worth.6*8 = 4.8; costs.1*8=.8 to Sharks Add $1 million guarantee and package is worth 7m to Jesse with cost of 1.8 to Sharks (this beats B and C). If Jesse only gets half of 2--10 M, then Jesse gets 4, Sharks pay 1.4 and so this beats/ties E. Hence none of B, C, and E are Pareto. What about adding a bonus if win? For each dollar, Jesse goes up.6, Sharks go down 0.1. So add $2 million bonus, and Sharks are at $2 million, Jesse is at $8.2m What about first 2m of bonus?

12. 12 Betting What do you (as Jesse) make of the fact that Sharks think chance of winning is 10% Are these joint gains real? Do you revise your beliefs? Do you as Sharks or as Jesse reveal your true views? (If so, to whom?) Jesse is betting $8 million that he will win the championship. How is this different than what Pete Rose did? Is it better or worse?

13. 13 What is the Moral?

14. 14 What is the Moral? AGREEING TO DISAGREE

15. 15 Sharing Information Revealing the right information creates value, revealing wrong information puts you at a disadvantage Revealing beliefs Revealing reservation price Revealing market comparables Rug Story

16. 16 Incentive Conflicts PkgSal%Merch Bonus Jess / SharksJess/Agent Profits A2.5002.5(2.5)2.375 /.125 B201.52.9(2.15)2.8 /.1 C1.510%0.52.6(1.85)2.525 /.075 E110%12.4(1.4)2.35 / 0.05 F1100% of 2--10m 07(1.8)6.95 / 0.05 F is far best for Jesse, A is far best for Agent!

17. 17 Incentives What do you expect the agent will do that may not be in Jesse’s interest What is agent getting 5% of Sharks contract but nothing of Five-Ways? (Not very sensible) How would you redesign the contract?

18. 18 Team #1 Interests versus positions Sharks talk/listen ratio is off What do you think of Jesse’s agent? Is it reasonable or not to consider salaries below 2.5m when that was on the table? Concede at the right price?

19. 19 Team #2 Sharks listen Truthful revelation of Jesse’s probabilities Shark’s reciprocate Jesse: I’m that good. Shark’s: Then bet on your yourself Less upfront and more performance based

20. 20 Team #3 What share is reasonable: 50% Do you have the numbers in place at that point? Sharks accept principle without accepting 50% anchor. Well done or not?

21. 21 Team #3 What share is reasonable: 50% Do you have the numbers in place at that point? Sharks accept principle without accepting 50% anchor. (But perhaps they should go even more. What fixed salary would you give up to go to 50%? What about 100%?)

22. 22 Team #4 Exaggerating value of merchandising Jesse wants contingency fee Agent resists Sharks appeal to Jesse