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Chapter 2 Theories of Negotiation Theories of negotiation Game theory Equity theory Black-box theory Information theory Game Theory Game we play Chess, poker, tennis/baseball, dating…… Defining the game Defining the Game The strategic environment Who are the playersDecision makers What strategies are availableFeasible actions What are the payoffsObjectives Rules of the game What is the time-frame for decisions? What is the nature of the conflict? What is the nature of interaction? What information is available? About the Game Theory A branch of mathematics researching in the rational behavior in interactive or interdependent situations Created by Von Noreman1944, widely applied to the fields of economics John Nash, Dominant strategy equilibrium 1950 Negotiation explained by Game Theory Framework for thinking about strategic interaction Prisoner’s dilemma Two people are arrested for a crime. If neither suspect confesses both are sentenced to 1 year prison. If both confess then they get sent to jail for 5 years. If one confesses and the other does not, then the confessor gets a light sentence and the other gets a heavy sentence. Non-cooperative Game Nash equilibrium— both confessed and both sentenced to 5 years prison. Pareto Optimal Outcome—both denied and both sentenced to 1 year. Personal interests VS Organizational interests—the self-interested oriented behavior leads to Nash equilibrium, in which none of the players is benefited. Contrary to the “Invisible hand” Theory? Cooperation is a favorable “self-interest” strategy. However, it should comply with the Golden Rule. The Golden Rule Equity Theory Fair or not, just a sense of feeling, a subjective perception Referent is important Responses to Inequity Change Inputs Change Outcomes Adjust Perceptions of Self Adjust Perceptions of Others Choose a Different Referent Leave the Field Equity Theory Equity Theory and Negotiation The criteria for equity [Case 1] How to distribute $200 among the wealth and
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