Instructor:            Professor Steven Lippman
Office:                 D517, Anderson School
Phone/Fax:          (310) 825-3649 / (310) 474-4213
Meeting Times:    To be announced (3 hour class)

Go to topic:
Course Overview

About the Negotiation Exercises:
      I.   Importance                                                    V.   Defeating the Purpose of the Exercises
     II.  Scoring Your Performance                             VI.  Money
     III.  Negotiating Earnestly                                    VII.  Attendance and Grading
     IV. Time and Training                                         VIII. Uneven Workload

Weekly Class Schedule
     
   

TEXT & READINGS:
Required Texts: Getting To Yes by R. Fisher and W. Ury (Penguin Books, 1985)
                         The Art and Science of Negotiation by Howard Raiffa (Harvard U Press, 1982)

Cases:               Confidential instructions required for six of the negotiation exercises will be distributed during the
                         quarter. One HBS case is in the readings packet.

WEEKLY SCHEDULE
     Negotiation exercises usually are due Monday mornings prior to the class meeting scheduled for discussion of the exercise. Most class sessions will include an "in-class" negotiation exercise. Exercise results are to be returned either by Fax or to my office (see Livia Besharat or Alex Duffy, D517) by the designated times.

COURSE OVERVIEW
     In this course we analyze a variety of bargaining situations including bidding, selling real estate, settling a legal dispute, mergers and acquisitions. In each instance we abstract from some of the contextual detail to reveal the strategic essence common to a larger class of problems. You will engage in simulated negotiation exercises designed to emphasize particular analytical concepts. The main purposes of these exercises are to

• let you discover concepts applicable to a wide variety of interactive decision processes;
• convince you that simple analysis helps;
• develop tactical negotiating skills and provide an opportunity to put new tools and concepts to the test;
• let you experience personal and moral dilemmas that inevitably surface in bargaining situations.
  

     One of the basic premises of this course is that simple quantitative analysis helps, primarily because it develops clarity of thought. While we will perform some quantitative analysis, the course emphasizes clear thinking rather than number crunching. A second premise of this course bears on molding experience into learning: "narratives without an underlying theory can inform, but they do not necessarily illuminate." In short, you can't learn from your experience if you don't have a conceptual framework. The conceptual framework is imparted via the lectures and readings. The experience is imparted via the negotiation exercises.

     The first part of the course (weeks 1 & 2) covers the basics: elements of Decision Analysis and applications to competitive bidding.
     The remainder of the course deals with bargaining proper. Building from simple to complex negotiations (2 parties & 1 issue; then 2 parties & many issues; then many parties and many issues), the course will develop an analytical framework that will help you understand your negotiating situation, the tactics that are available given the situation, and the array of moves that can be employed to improve your prospects by changing the situation.

ABOUT THE NEGOTIATION EXERCISES:
I. Importance                                                                                                                        Back to the Top
     The key learning component of this course are the in-class and the 11 out-of-class negotiation exercises. These exercises are quite unlike HBS cases.  In particular, seven of the out-of-class exercises entail negotiating face-to-face against an opponent. It is crucial for class discussion, timely feedback on your performance, and your learning that all aspects of the exercises be completed as per the time and due dates specified in class. You will need to be extraordinarily diligent in attending to these dates. Thus, you and your assigned opponent(s) must plan in advance. Other than hospitalization, I can not readily imagine an acceptable reason to miss the due date on a negotiation exercise. [Transportation problems, computer malfunction, attending a wedding, or an out-of-town business trip are examples of unacceptable reasons.]

     You will learn a great deal from the out-of-class exercises. A major requirement of the course is to faithfully carry out the exercises and share your insights with others during class discussion. Do NOT share your insights and/or discuss the exercises outside class: not with members of the class or with other students!! To do so can defuse your learning and/or will risk influencing yourself or others prior to completing the negotiation. In fact, strenuously avoid doing a "postmortem" with your negotiating partner immediately after completing your negotiation.

II. Scoring Your Performance                                                                                            Back to the Top
     Prior to engaging in the exercises you may be of the opinion that these negotiations are merely simulated play acting -- nothing to get too worked up about. But some of you may find the negotiations to be exceedingly real and extremely stressful: both your ego and (50% of) your grade are on the line. To take some of the sting out of the situation and to avoid counter-productive and/or decidedly unethical behavior, a process score -- judged by your opponent -- is included.

     There are two types of cases/exercises: those with statistical interactions and those with personal interactions. In exercises with statistical interactions, namely the bidding exercises [exercises #1,2,10], you will be asked to record your strategy which will then be pitted against the strategy of all other students in the course. In games with personal interactions, you will be given the confidential instructions associated with the role you are assigned to play in a given exercise, and you will be given the name(s) of the other player(s) with whom you will negotiate; you then interact face-to-face (or over the phone).

     For each exercise your performance relative to the other students in the class will be recorded. Let us suppose that you represent labor in negotiating a contract with management; your management partner is John Doe. You and John meet and negotiate a contract which is scored according to well-specified instructions. Suppose further that the contract is scored 695 points for you and 39 points for John Doe. It would NOT be meaningful to compare the numbers 695 and 39 to determine which part performed better because initial conditions for the two parties are very different. Furthermore, the exercise need not be strictly competitive (especially because labor and management might value issues differently and both would rather not incur a prolonged strike). Comparing scores across roles is not meaningful. But comparing scores within a role is meaningful: there are 17 other labor- management pairs engaged in the same negotiation, each with identical initial conditions.

     Your score of 695 can be compared with the scores of the other labor representatives. Suppose that the mean of these labor scores is 665 with a standard deviation of 40. Then your 'raw score' of 695 for this exercise corresponds to a standardized score or z-score of .75: z = {x - u}/o or .75 = {695 - 665}/40. A z-score of .75 tells you that your negotiated outcome as a labor player was .75 standard deviations better than the average performance of all labor representatives in the population of negotiators. Now suppose that the mean of the management scores is 34 with a standard deviation of 5. John's z-score is {39 - 34}/5 = 1. Both you and John scored higher than the mean -- perhaps because you worked out a jointly desirable contract -- and John's z-score is even higher than yours.

     In general, your aim should not be to do "better" than your counterpart because "better" is often meaningless in contexts which are not strictly competitive and where you and your counterpart start in asymmetric positions. The best practical advice is to try to maximize your own raw score. In some exercises you may be in a position to considerably raise the score of the person you are playing with (not against) while raising your own score just a little bit. That is certainly a good thing to do. How about improving the other person's score without changing your own? On the whole, you will find that you will do better and be happier with yourself if you empathize with your patner.

     If an ethical issue is involved, you may purposely choose an action that is likely to result in a lower score for yourself and a higher score for your counterpart. Will this "ethically appropriate" action be reciprocated? Maybe; but if it is not, is this the sole reason to help others? Don't expect all your fellow students to think alike: be wary. This does not mean that you should act in ways that you believe are ethically inappropriate just because others seem to be doing it.
        Your aim is to maximize your own score -- tempered by your concern to do what is right.

     Your score in any given exercise is only partly a measure of your own skills. As in "real life", it also depends on your partner and on luck. On balance, the effects of partner and luck upon your overall score are likely to wash out and/or to be minor after 18 independent negotiations. Nevertheless, to avoid having a single exercise completely ruin your overall average, your worst in-class and your worst out-of-class score will be deleted. Furthermore, to avoid overweighing outcomes in which some players misunderstood the rules, etc., z-scores above 1.8 and below -1.8 will be rescaled in a manner yet to be determined. [For example, I may place an upper bound of 2.0 on all z-scores.]

III. Negotiating Earnestly                                                                                                    Back to the Top
     Negotiating is an activity which, like any other contact sport, is fun only if you try to do it well. Also, you won't learn much if you don't put much effort into the negotiation. Take these exercises seriously. Negotiated outcomes -- the bottom line -- matter a great deal. Thus, we don't follow the maxim "It's not whether you win or lose, it's how you play the game."
     On the other hand, learning is an existential process, as per these lines from a Swahili song:
          Life has meaning only in the struggle,
          Triumph or defeat is in the hands of the Gods
          So let us celebrate the struggle.
In other words, after giving it your all while negotiating, don't be concerned with the outcome.

     Easier said than done. To make it easier -- but by no means easy -- to maintain (and foster) this attitude, we shall also focus upon the process, for the PROCESS by which these outcomes are achieved is often as important as the outcome. Focus upon the process is attained by measuring your performance on the process dimension. You will be asked to rate the negotiating behavior of each of your partners on a scale of 1 to 10. Your raw score on the process dimension is simply the average of the ratings given to you by your negotiating partners. Again, to avoid any rating from having too great an impact on your overall grade, your worst rating will be deleted. Your process z-score will account for 10% of your grade.

IV. Time and Training                                                                                                       Back to the Top
     Do NOT underestimate either the amount of preparation time or the amount of time required to interact with your counterpart. Some of these exercises may take you as little as 30 minutes; others might entail as much as 15 hours (inclusive of preparation and contact with your opponent). You may find it advantageous to have more than one meeting with your opponent. Because many of you are on campus only infrequently, you are sure to make use of the telephone. I encourage you NOT to limit your face-to-face interactions on the telephone.
     A word to the wise: begin as early as possible.

V. Defeating the Purpose of the Exercises                                                                        Back to the Top
     There are many ways to cheat and/or defeat the purpose of the exercises. Cheating is virtually undetectable by the instructor -- doing so is likely to improve your z-score. Even worse, there are many ways to ruin the experience for currently enrolled students and for future students.

     You should always respect the "rules of the game." The instructions for the exercises are typically self-explanatory. For example, if the instructions for a multi-round game say that you and your counterpart must make offers simultaneously and one round at a time, do not present your counterpart with a signed list of all 20 rounds' offers. In six of the exercises you will receive confidential instructions. During the negotiations, you may elect to share information with your opponent. However, the rules of the game do NOT permit you to show your confidential instructions to the other side. In actual negotiations you cannot refer to a set of confidential instructions to authoritatively convince your negotiating partner about your values, beliefs, or capabilities. In fact, one of the major problems in actual negotiations is to convince a skeptical counterpart of the truth.

     It is easy to defeat the purpose of these exercises. Here are some of the ways of cheating:
a.    find out how other students played before you "officially" engage in a given negotiation;
b.    pick up clues from former participants;
c.    obtain a copy of your partner's confidential instructions;
d.    deviate from the specified rules of the exercise and "do a deal with your opponent" (i.e., collude with your opponent) WHEN collusion is prohibited.

     Don't fool yourself with some excuse such as "I just want to know how it feels to cheat" or "I just want to experiment." If you can't resist the temptation to cheat when the stakes are low, will you be able to resist with serious stakes! Behavior within the course is an excellent predictor of behavior during an actual negotiation.

     Finally, despite the process score, a negotiation can become unpleasant -- especially with a rapacious opponent. This is part of the reality of negotiations. I'm aware of two good(?) friends who agreed in advance to "cheat and/or totally cooperate" if paired in a negotiation exercise so as to avoid any unpleasantry which might damage their relationship. Of course, a friendship which can't withstand the rigors of a classroom negotiation isn't much of a friendship.

     If you can't agree in advance to play by the rules, you won't maximize your learning. Do yourself and everyone else a favor: enroll in a different course.

VI. Money                                                                                                                            Back to the Top
     We will have approximately 10 in-class exercises. Most are "played" for z-scores, but two (see classes #2 & 5) are played for US currency. There is no requirement that you participate in the exercises which involve money -- and observing is almost as instructive. But please remember that money is real, and just as you will be paid your winnings, you must pay your losses. It is not possible to lose money in the exercise from the final paper: my research budget will supply the money to pay YOU.

VII. ATTENDANCE and GRADING                                                                                 Back to the Top
     The good news is that I utilize a very "liberal" grading curve: roughly an equal proportion of A, A-, B+, and B grades will be given. A grade of B- will be given when performance is extraordinarily below par and/or written work is not handed in.

     Because the majority of the learning in this class is experiential, your learning is hindered when you don't participate in an exercise. Clearly, it is important to participate in all of the exercises, both those that occur during class time and those that occur out-of-class. For this reason both attendance and participation in the exercises are an important part of your learning and your grade. Also, if you are not present, your assigned partner can not participate in the exercise. Therefore, class attendance is mandatory, and attendance will be taken. [Being present for the majority of a given class session is NOT sufficient.]

     I understand that personal emergencies and illnesses happen -- and that one person's emergency is another's distraction. You may miss one of the ten class sessions without penalty -- and without explanation. Missing a second class session -- regardless of reason -- will cause your grade to be lowered one notch, say from A- to B+. If you miss a third class, your grade will be lowered by one grade, say from A- to B-. The point is not to punish you but rather to make it clear from the outset that attendance in class and participation in the exercises are mandatory and an important part of the learning.

GRADING (Subject to minor [<5%] adjustments):
     
     Out-of-class Exercises
          negotiated outcomes                    40%
          negotiating process/behavior        10%
     Class Participation                            15%
     In-class Exercises                             20%
     Written assignments & final paper     15%
NO midterm or Final Examination

VIII. Uneven Workload                                                                                                   Back to the Top
     The workload for this course across the ten weeks of the quarter is markedly uneven. The majority of the reading and writing (other than the final paper) occurs early in the quarter, and the last face-to-face negotiation will be completed at the very end of week 8. Even the final paper is due early prior to the last class meeting. The total time required to complete the work for this class is a little less than for your other classes. One student commented, "this class has short bursts of extreme effort followed by a generally casual work load." You need to plan accordingly.

     There will be about 18 exercises and half a dozen short writing assignments. It feels like something is always due -- and this is the reality. Thus, there is a large cognitive burden just keeping track of what is due and when. However, most of the tasks can be completed in a relatively short time. If you are organized, you will find the work load light -- and hopefully the ratio of learning to effort very high.

ACKNOWLEDGEMENT:    I wish to thank Professor Ingemar Dierickx of INSEAD for permission to use many of his materials, including (free of charge) six of the copyrighted negotiation exercises which he has developed during the last 10 years. Professor Dierickx is one of the world's most outstanding teachers. Each of his exercises has been "tested" on more than 3,000 MBAs and nearly 1,000 executives.

Note 1:   All of the negotiation exercises are due PRIOR to the day they will be discussed in class. Unless told otherwise,                your results must be handed in either to my mailbox in D513 or to my home FAX (310) 474-4213-- email is                not acceptable.
               See the schedule for precise times and dates.

Note 2:   There is a large amount of material to cover; we will not discuss all of the assigned readings during class.

WEEK 1: Course Overview & Elements of Decision Analysis (1)
          Introduction and orientation; Decision Trees; BATNA

          Reading: Vatter et. al. Introduction to Decision Analysis
               Roughly the same material is covered in Howard Raiffa, Decision Analysis, pp 1-27. This text offers an excellent introduction
                    to Decision Analysis and is highly recommended, especially to those who have had little prior exposure to the subject.                     Copies are in your course packet.
                             The Ventron Engineering case is included as an opportunity for you to practice and examine your understanding of                              decision trees. Bidding for O.U. Kidd is also a worthwhile exercise.
              
          Case: Bidding for $1 -- take care: this deserves more attention than is obvious at first glance
                      
                      1. Ultimatum Game (in-class)

WEEK 2: Elements of Decision Analysis (2); Introduction to Competitive Bidding
          Reading: begin reading Fisher & Ury, Getting to Yes
                            see McAfee & McMillan, "Auctions & Bidding," J. of Econ. Lit., 1987 for a complete treatment of auctions (optional);
                     several copies are available in the Anderson library.
          
          Case:  HiLo                
                     Maxco-Gambit Variations (Asymmetric Information);
                    
                     2. Pennies: Common Value Auction (in-class)

WEEK 3: Distributive Bargaining
          After covering some preliminary material in the first two weeks, we now start with bargaining proper.
          Reading: Raiffa, Art & Science of Negotiation, pp. 33-65
                          Schelling, Chapters 2 & 3 of Strategy of Conflict, pp. 21-52 & 53-80.
          
          Case: Lot #21, Sect. Y, Episy
                          (Confidential instructions to be distributed)
                          Episy is one of 2 exercises in which additional information can be obtained prior to the negotiation itself. You are advised
                          to prepare your negotiating strategy far in advance of the negotiation itself because obtaining answers to your request
                          for additional information via the e-mail system may require a number of iterations. This additional information is available
                          ONLY by e-mail by sending questions to ycooprid@anderson.ucla.edu. We will attempt to provide 12 hour turnaround.
                   
                   3. Ultimatum Game #2 (in-class)

WEEK 4: Bargaining Under Uncertainty (1)
          Reading: Raiffa, Art & Science of Negotiation, pp. 108-118 & 235-250
          
          Case: Sloane v. Dependable Insurance Corp.
                          (HBS case in Pulse packet)
                                  You will be assigned to play either the role of Dependable Insurance or Sloane (i.e., the plaintiff's lawyer, Mr. Reiling).
                          If you do not reach an agreement, you will go to trial. (Do not infer from this that the case did go to trial -- I am carefully
                          not telling you whether it did or not.) If you go to trial, your payoff will be determined by the court after the conclusion of
                          the trial. [That is, Judge Lippman has calibrated how to determine the outcome of a trial (if you and your opponent do in
                          fact go to trial).]
                                  Reading and planning your negotiation strategy for this exercise will take at least two hours. There is considerable
                          variation in the time it takes to negotiate this exercise: some pairs may finish in 30 minutes, others may take many hours.
                          Allow ample time to complete this exercise.
                    
                   4. Salty Dog (in-class)

WEEK 5: Integrative Bargaining, Escalation & Stalemate
          Reading: Fisher & Ury, Getting to Yes
         
          Case: CP France vs. MegaMarche
                          (Confidential instructions to be distributed)
                                 For purely pedagogical reasons this exercise is highly structured and your objectives are crystal clear: you want to
                          score as high a payoff as possible. Feelings of malevolence or altruism towards the opponent(s) are irrelevant. The aim of
                          this exercise is not to beat your opponent -- this is not a zero sum situation -- but to do the best you can for yourself.
                          There are elements of cooperation as well as conflict.
                                 Don't consider linkages to other problems, precedents for future rounds of bargaining, etc. Assume that the agenda
                          has been set in preliminary negotiations. The only issues to be resolved are thos explicitly mentioned in your confidential
                          instructions.
                                 You may wish to share information with your counterpart(s). However, the rules of the course do not permit you to
                          show your actual confidential instructions to the other side: in actual negotiations you cannot refer to a set of
                          confidential instructions to authoritatively convince your counterpart about your values and information.
                                 Allow two hours to prepare the exercise and at least two hours for negotiating.
                    
                   5. All pay auction (in-class)

WEEK 6: Bargaining Under Uncertainty (2) and Asymmetric Information                                   Back to the Top
          Reading: Raiffa, Art & Science of Negotiation, pp. 133-166
          
          Case:  Woburton Steel vs. Cryogenic Technologies
                          (Confidential instructions to be distributed.)
                           
                    6. Mergers & Acquisitions (in-class)

WEEK 7: Asymmetric Information; Coalition Analysis & Competition in Very Thin Markets (1)
          Reading: None

          Case: Walkenhorst Chemical vs. Lakeland Industries
                        (Confidential instructions to be distributed.)
                    Three-Way Negotiation: Apple, Berry, Carrot
                           (Confidential instructions to be distributed.)

                          There are two cases to be discussed for this class session. PLAN AHEAD!

WEEK 8: Coalition Analysis & Competition in Very Thin Markets (2)
          Reading: None

          Case: Gulfwing
                           (Confidential instructions to be distributed.)
                                  For some triads, this three-party negotiation may take very little time whereas for other triads it may take several
                           meetings each lasting several hours. Do anticipate some difficulty in getting 3 persons together: PLAN AHEAD!
                                  Additional information is available for Gulfwing, but you must start planning far in advance if you are to receive
                           this information soon enough to be of use. Be aware that the negotiation of Gulfwing may take many more hours than
                           the Three-way Negotiation.

                           Conclusion of California Food Show Case

WEEK 9: Inducing Cooperative Behavior; Public Goods
          Reading: Hofstadter, "Metamagical Themas," Scientific Amer., pp. 14-20 (May 1983)
                           [see Axelrod, The Evolution of Cooperation, 1984 for a complete treatment]
                           Kreps & Wilson, "Reputation and Imperfect Information," J. of Econ. Theory, pp. 253-279, 1982 [OPTIONAL (for the
                           mathematically inclined!!): several copies are available at the Anderson library]

          Case: Finitely Repeated Prisoner's Dilemma

                    7. Investment game (in-class)

WEEK 10: More on Cooperative Behavior, Trust, Equity, Fair Division, & Wrap Up
          Reading: Raiffa, Art & Science of Negotiation, pp. 187-204
                        Additional readings TBA

          Case: A case may be assigned "out-of-class"
                    Exercise from final paper

There is NO final examination, but there is a final paper. Part of the final paper is due at the beginning of class of Week 10. Other questions/exercises are due several days earlier (exact date to be announced).