Value of risk information in negotiations with evolving preferences

Abstract

Guidance on negotiation stresses thorough and careful preparation during the pre-negotiation phase leading up to the actual negotiation discussion. One vital aspect of preparation is to evaluate the interests, preferences, and priorities of both yourself and the opposing party. Traditional negotiation models treat preferences as static. However, preferences may be dynamic, and may change as scenarios before, during, or after the negotiation unfold. These scenarios influence preferences and therefore the payoffs associated with possible joint settlements. In this paper, we develop a model which views integrative negotiations through the lens of scenario analysis, in which scenarios influence the preferences of both negotiators. The result of scenario-based preferences is that different Pareto-efficient frontiers exist across multiple scenarios, which has implications for strategy and decision making. We apply the method to an illustrative case study of job choice between an applicant and employer under a number of relevant scenarios. The case study demonstrates the process of assessing the impacts of scenarios on joint payoffs, the identification of the most and least disruptive scenarios, and the utilization of different decision rules to select efficient contracts.