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

Cooperate

Defect

Cooperate

3, 3 0, 5

Defect 5, 0 1, 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.)Roun

dMy partner My

DecisionMy Reward

1

2

3

4

5

My name: Total 2-5:

CooperateDefect

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 2-5 Frequency

0-2

3-6

7-9

10

11-12

13-19

20

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”.

Round

My partner My Decision

My Reward

6

7

8

9

10

11

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 6-11 Frequency

0-2

3-6

7-9

10

11-12

13-19

20

21-24

25

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 6-11 Frequency

12-14

15-17

18-19

20

21-24

25-29

30-35

36

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

Cooperate

Defect

Cooperate

3, 3 0, 20

Defect 20, 0 1, 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

Trial My partner My Decision My Reward

12

13

14

15

16

17

18

19

20

21

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