1 Lecture 1: Negotiating Strategy Professor Keith Chen.

1

Lecture 1:Negotiating Strategy

Professor Keith Chen

2

A note on formal analysis in this course:

We will avoid most formal notation and proofs.

3

Economics

SociologyPsychology

Negotiations & Social-Science

Rules

Preferences Outcomes

Game-theoretic optimality a relationship between human factors

4

Strength of this Approach:

• Use as a guide:– a Normative Science

• How should you negotiate?

– a Predictive Science.

• Limits of this Approach:– Assuming we know the rules can mislead.– If we recognize biases and irrationalities,

tells us little about how to take account of them, for that we need behavioral econ.

Rules

Preferences Outcomes

5

Introduction

• Myself:– Game Theorist and Behavioral Economist

• Research on Negotiations: Two Examples– The game theory of Integrative Bargaining– The Evolutionary and Psychological basis of

cooperation (collusion), and reference point effects by looking at monkeys.

6

Research: Integrative Bargaining

• I study how why and how agendas form.

7

Research on Monkeys

Cotton-top Tamarins: cooperative breeder

8

barrier

actor

receiver

tray

tool

food

Experimental Setup:

9

Training & Solo Conditions

w. barrier

Condition 1 Condition 2

Condition 3 & 4 Condition 5

no barrier

10

Intentionality?

11

First GameA Simple Reciprocation Game

Experiment 1 tests for: (i) Contingent cooperation (ii) Recognition of reputationSetup: trained vs untrained actors

S1S2 S1S2

12

SH: 100% Altruist JG: 100% Defector

0

0.1

0.2

0.3

0.4

0.5

0.6

1 2 3 4

Session

Fre

qu

en

cy o

f P

ulls

Pulls for Alt.

Pulls for Def.

13Tufted Capuchin: an extractive forager

Subjects:

14

Capuchin Purchasing: Gambles

15

MovieCapuchin Purchasing Behavior

16

Experiment 2Experiment Two

E1 shows 1 and E2 shows 2, then both give 1 or 2 (w. prob. ½).

1399911Sessions till stable:

78%70%70%70%68%Percent of trials E1 chosen:

5: NN4: MD3: JM2: HG1: FLSubject (name):

Second Question:Do capuchins care about gains and losses?

17

Course Description

• Grades– Class participation 1/2 grade

• Assign days when you lead discussion of readings

– Final Exam 1/2 grade• Short essay questions

• Study groups / Case preparation• Office Hours – 55 Hillhouse Rm. 204

– Thursday mornings, 10:00 to 11:30 or by appointment.

18

Syllabus

• All course materials on the course site

• Expectations– Read articles and chapters for next class– Ask questions, but think when and whom– My question and nametag policy– Other class policies:

19

Next Time

• Introduction to Alternating offers Bargaining

• Readings: – Introduction to Issues in Bargaining,

required• Raiffa, pages 7-25

– Optional: Introduction to bargaining and notation in game theory

• Osborne & Rubinstein, Chapter 1.