case: the problem of buyer and sellernegotiation.aalto.fi/cases/commercemid.pdf · ÿ pareto...

eLearning / NASystems Analysis LaboratoryHelsinki University of Technology

Case:The problem of buyer and seller

eLearning resources / NA team

Director prof. Harri EhtamoHelsinki University of Technology

Systems Analysis Laboratory

http://www.negotiation.hut.fi/


Contents

ÿ About the case

ÿ The basic conceptsÿ The problem of buyer and seller

ÿ The method of improving directions:ÿ Evaluating an alternativeÿ Finding a compromising directionÿ Finding the most preferred alternative on the directionÿ Choosing a new jointly preferred alternative


About the case

ÿ This is a brief introduction to the method ofimproving directions by using a case of buyerand seller as an illustrative example

ÿ After reading this you should understandÿ the basic concepts of a negotiation problemÿ how does the method end up to a jointly improving

agreementÿ how to use Joint Gains software that implements

the method


Basic concepts

Partiesÿ are the negotiatorsÿ for example: buyer and seller

Issuesÿ are to be decided in the negotiationÿ for example: time and money


Alternatives

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ÿ The set of alternatives is the set of possibleactions the parties can takeÿ for example: time=7 days, price=200ÿ is an

alternative

ÿ The parties try to agree on a particular elementin the set of possible alternatives


Values of a party


ÿ Each party has its own values.

ÿ By understanding their values the parties

ÿ understand which are desirable outcomes andwhich are not

ÿ can evaluate the desirability of alternatives


Agreement


Reference agreementÿ It is the result of the negotiation if the negotiations

break off without an agreement

Tentative agreementÿ It is a proposal that the parties want to improve

upon


Evaluation of a tentative agreement

ÿ Evaluation describes how a party would like tochange the tentative agreement

ÿ A party finds it by1. drawing a circle around the tentative agreement A2. selecting the best alternative B on that circle3. evaluation is the direction starting from A and going through B


issue 1

issue 2

Evaluation of A

AB


Resolution parameters

ÿ The parties can search for the best alternativeon an ellipse, instead of a circle

ÿ The axis of the ellipse, r1 and r2, are calledresolution parameters


issue 1

issue 2r2

r1


Jointly improving direction

ÿ Direction is called jointly improving if thereexists an alternative C on the direction, that allparties prefer to the tentative agreement A

issue 1

issue 2


A

C



Pareto optimality

ÿ An alternative is called Pareto optimal if thereis no other alternative that is preferred by allthe parties

ÿ Pareto optimal alternative is sometimes calledefficient



Mediator

ÿ is a neutral 3rd party that assists the parties tofind a jointly accepted agreement

ÿ gathers some confidential information form theparties

ÿ makes proposals to the parties, which theymay agree or disagree



The method of improving directions

ÿ In the method there is a mediator thatÿ helps the parties to evaluate the tentative

agreementÿ generates a jointly improving directionÿ helps the parties to find a jointly preferred

alternative on that direction

ÿ The method is implemented by Joint Gainsapplet that is freely available athttp://www.jointgains.hut.fi/



The problem

ÿ You want to buy twenty brand new shirts froma tailor

ÿ You want to have them as soon as possible atlow price

ÿ Your tailor wants to have much money anddelay the time of delivery as much as possible


Issues

ÿ The negotiation covers two issues:

time and money.

ÿ You as a client negotiate about the price andthe time of delivery with your tailor.

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Reference agreement

ÿ Last year, you agreed that you got your shirtsin six days at 200ÿ.

ÿ You both still agree it, so it is the referenceagreement.

ÿ Denote it by A=(6d, 200ÿ) and take it as aninitial tentative agreement to be jointlyimproved.

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Mediator

ÿ You have conflicting views, but you both canachieve joint gain

ÿ Joint Gains comes to help you and acts as amediator.

Video clip:Setting up a negotiation casein Joint Gains, 3:45 mins

with sound (avi 3067kb)no sound (avi 600 kb)animation (gif 362 kb)

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Evaluating the tentative agreement

B A C

time

price

ÿ You should select the best agreement on thecircle around Aÿ it may be difficult directlyÿ the mediator elicits your evaluation by pairwise

comparison tasks


The mediator asks:

time

price

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“Which one do you prefer?”


You answer:


time

price

“I prefer this one.”


The mediator asks:


“Which one do you prefer?”

You answer:“I prefer this one”

time

price


The mediator concludes

that You prefer to smaller price and fasterdelivery.

time

price

Approximation ofevaluation



Finding more accurate evaluation

time

price


The mediator asks again:“Which one do you prefer?”



Approximation of the evaluation

The mediator concludes that your evaluation issomewhere between B and C.


time

price

BC


Repeating the comparisons


time

price

The mediator asks again:“Which one do you prefer?”



Approximation of the evaluation


time

price

The mediator concludes that your evaluation issomewhere between B and F:

BF


Stopping the evaluation

The mediator asks you to compare new pairs ofalternatives until you are unable to comparethem, i.e., you are indifferent.


Video clip:Evaluating the tentative agreementby Joint Gains, 1:31 mins

with sound (avi 1323 kb)no sound (avi 318 kb)animation (gif 212 kb)

time

price

The mediator asks:“Which one do you prefer?”

You answer:“They are so close to eachother, I am indifferent”


Finding a jointly improving direction

time

Tailor’s evaluation

Your evaluation

A


price

ÿ After eliciting your evaluations, the mediatorchooses a compromising direction by bisectingthe angle between your evaluations


The most preferred alternative onthe compromising direction

time

price

A Direction of increasingpreference

Most preferredagreement

ÿ Now, you select your most preferred alternativeon the directionÿ In practice, it is not easy to find it directlyÿ So, the mediator helps you again


Starting the search

A

A’

time

price

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ÿ The mediator fixes an agreement A’ÿ The mediator helps you to find your most

preferred agreement on the line segment AA’


The mediator asks:

time

A

price

A’

“Which onedo you prefer?”



You answer:

time

A

price

A’





time

A

price

A’

that your most preferred agreementlies between these agreements



The search continues

time

A

price

A’

Mediator asks:“Which one do you prefer?”





time

A

price

A’

that your most preferred agreementlies between these agreements



Now you are indifferent

time

A

price

A’

Mediator asks:“Which one do you prefer?”

You answer:“I can’t answer,I am indifferent”



Approximation ofthe most preferred alternative

time

A

price

A’

The mediator concludes thatyour most preferred alternative liesbetween these agreements

an approximation ofthe most preferred alternativeon the direction



The most preferred alternatives onthe direction

ÿ The mediator approximates thatÿ you prefer H andÿ your tailor prefers K on the jointly improving

direction.

time

K

priceA

H



Choosing next tentative agreement

ÿ The mediator selects H because it is is closerto A than K and proposes it to youÿ this should guarantee that you both prefer the

proposal

time

priceA

H K


Ensuring thatthe proposal is jointly improving

ÿ The mediator asks: “Do you prefer H to A?”

ÿ If you both prefer H to A then H is selected asthe new tentative agreementÿ otherwise the procedure stops

time

priceA

H K

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Stopping the procedure

ÿ Possibly, the new tentative agreement can stillbe jointly improved

ÿ If no jointly improving alternative can be found,then your views are completely conflicting andthe tentative agreement is Pareto optimal:

time

price

Yourevaluation

Tailor’s evaluation

case: the problem of buyer and sellernegotiation.aalto.fi/cases/commercemid.pdf · ÿ pareto...

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