International Business Negotiation

Professor Kuochung Chang

Department of International Business

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CHAPTER ONE

The Nature of Negotiation

Negotiations

Negotiations occur for several reasons:

• To agree on how to share or divide a limited resource

• To create something new that neither party could attain on his or her own

• To resolve a problem or dispute between the parties

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Characteristics of a Negotiation Situation

• There are two or more parties• There is a conflict of needs and desires between

two or more parties• Parties negotiate because they think they can

get a better deal than by simply accepting what the other side offers them

• Parties expect a “give-and-take” process

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Negotiation is something that everyone does, almost daily

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Relationship Types

When the parties depend on each other to achieve their own preferred outcome they are interdependent; they are characterized by interlocking goals.

• Independent parties are able to meet their own needs without the help and assistance of others.

• Dependent parties must rely on others for what they need; the dependent party must accept and accommodate to that provider’s whims and idiosyncrasies.

Interdependence

In negotiation, parties need each other to achieve their preferred outcomes or objectives

• This mutual dependency is called interdependence

• Interdependent goals are an important aspect of negotiation

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Interdependence

• Interdependent parties are characterized by interlocking goals

• Having interdependent goals does not mean that everyone wants or needs exactly the same thing

• A mix of convergent and conflicting goals characterizes many interdependent relationships

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Alternatives Shape Interdependence

• Evaluating interdependence depends heavily on the alternatives to working together

• The desirability to work together is better for outcomes

• Best available alternative: BATNA

( Best Alternative to a Negotiated Agreement)

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Mutual Adjustment

• Continues throughout the negotiation as both parties act to influence the other

• The effective negotiator needs to understand how people will adjust and readjust and how the negotiations might twist and turn, based on one’s own moves and the other’s responses

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Concession Making

• When one party agrees to make a change in his/her position, a concession has been made

• Concessions restrict the range of options• When a concession is made, the bargaining range

is further constrained

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Two Dilemmas in Mutual Adjustment

• Dilemma of honesty– Concern about how much of the truth to tell the other

party

• Dilemma of trust– Concern about how much should negotiators believe

what the other party tells them

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Game theory

Not confessNot confess ConfessConfess

Not confessNot confess EachEach

One YearOne Year

AA 10 Years10 Years

BB 3 Months 3 Months

ConfessConfess B B 10 Years10 Years

AA 3 Months 3 Months

Each Each

8 Years8 Years

Suspect BSuspect B

AA

GAMBLING

Four students gamble with professor in the negotiation class. Students are asked to puts their money into an envelope. Professor Chang claims if the total amount is grater than or equal to 500 NT$ dollars, then everyone can get 150 back, otherwise the money will belong to Professor.

• How much money will you put into?

• Everyone does own decision, communication is not allowed.

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Value Claiming and Value Creation

• Opportunities to “win” or share resources– Claiming value: result of zero-sum or distributive

situations where the object is to gain largest piece of resource

– Creating value: result of non-zero-sum or integrative situation where the object is to have both parties do well

– Most actual negotiations are a combination of claiming and creating value processes

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Conflict

"sharp disagreement or opposition" and includes "the perceived divergence of interest, or a belief that the parties' current aspirations cannot be achieved simultaneously"

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Levels of Conflict

• Intrapersonal or intrapsychic conflict  – Conflict that occurs within an individual

• We want an ice cream cone badly, but we know that ice cream is very fattening

• Interpersonal conflict  – Conflict is between individuals

• Conflict between bosses and subordinates, spouses, siblings, roommates, etc.

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Levels of Conflict• Intragroup Conflict  

– Conflict is within a group• Among team and committee members, within families,

classes etc.

• Intergroup Conflict  – Conflict can occur between organizations, warring nations,

feuding families, or within splintered, fragmented communities– These negotiations are the most complex

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Dysfunctions of Conflict

1. Competitive, win-lose goals2. Misperception and bias3. Emotionality4. Decreased communication5. Blurred issues6. Rigid commitments7. Magnified differences, minimized similarities8. Escalation of conflict

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Functions of Conflict1. Makes organizational members more aware and able to

cope with problems through discussion.2. Promises organizational change and adaptation.3. Strengthens relationships and heightens morale.4. Promotes awareness of self and others.5. Enhances personal development.6. Encourages psychological development—it helps people

become more accurate and realistic in their self-appraisals.

7. Can be stimulating and fun.

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The Dual Concerns Model

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CHAPTER TWO

Strategy and Tactics of Distributive Bargaining

The Distributive Bargaining Situation

• Goals of one party are in fundamental, direct conflict to another party

• Resources are fixed and limited

• Maximizing one’s own share of resources is the goal for both parties

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The Distributive Bargaining Situation

Preparation—set a

• Target point, aspiration point

• Walkaway, resistance point

• Asking price, initial offer

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The Distributive Bargaining Situation

Party B - Buyer

Party A - Seller

Walkaway Point Target Point Asking Price

Initial Offer Target Point Walkaway Point

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Role of Alternatives to a Negotiated Agreement

• Alternatives give the negotiator power to walk away from the negotiation – If alternatives are attractive, negotiators can:

• Set their goals higher• Make fewer concessions

– If there are no attractive alternatives:

• Negotiators have much less bargaining power

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The Distributive Bargaining Situation

Party B - Buyer

Party A - Seller

Walk away Point Target Point Asking Price

Initial Offer Target Point Walk away PointAlternative

Alternative

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Fundamental Strategies

• Push for settlement near opponent’s resistance point

• Get the other party to change their resistance point

• Convince the other party that the settlement is the best possible

• If settlement range is negative, either:– Get the other side to change their resistance point– Modify your own resistance point

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Keys to the Strategies

The keys to implementing any of the four strategies are:

• Discovering the other party’s resistance point

• Influencing the other party’s resistance point

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Review & Question

• Describe the what kinds of strategies which sales used in the film?

• How do you define the relationship types with your course instructors? And your classmates?

Positions Taken During Negotiations

• Opening offer can anchor a negotiation – Where will you start?

• Opening stance--- is the attitude the negotiator will adopt during a negotiation – What is your attitude?

• Competitive? Moderate?

• Initial concessions– Should any be made? If so, how large?

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Positions Taken During Negotiations

• The role of concessions– Without them, there is either capitulation or deadlock

• Patterns of concession making– The pattern contains valuable information

• Final offers (making a commitment)---there is no further room for movement. – “This is all I can do”

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Ways to Create a Commitment

• Public pronouncement

• Linking with an outside base

• Increase the prominence of demands

• Reinforce the threat or promise

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Closing the Deal

• Provide alternatives (2 or 3 packages)

• Assume the close

• Split the difference--- used when an agreement is close,

suggesting that the parties split the difference.

• Exploding offers--- An offer that contains an extremely tight

deadline in order to pressure the other party to agree quickly.

• Deal sweeteners

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Typical Hardball Tactics

• Good Cop/Bad Cop

• Lowball/Highball

• Bogey

Negotiators use this tactic to pretend that an issue is of little or no

importance to them, when it actually is quite important.

The Nibble (asking for a number of small concessions to)

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Typical Hardball Tactics

• Chicken---using threat

• Intimidation---An attempt to force the other party to agree by

means of an emotional ploy.

• Aggressive Behavior---asking other party to justify• Snow Job (overwhelm the other party with

information) that he/she has trouble determining which facts are real or important, and which are distractions

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Summary

Negotiators need to:

• Set a clear target and resistance points

• Understand and work to improve their BATNA

• Start with good opening offer

• Make appropriate concessions

• Manage the commitment process

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• The film is a dramatization of the true story of Erin Brockovich, played by Julia Roberts, who fought against the US West Coast energy corporation Pacific Gas and Electric Company (PG&E). It turned into a massive box office hit, and critical reviews are highly positive.

Question

What kind of negotiation tactics or skills have bee used in both parties? And do you think it is helpful to achieve goals?

CHAPTER THREE

Strategy and Tactics of Integrative Negotiation

What Makes Integrative Negotiation Different?

negotiators must practice these requisite behaviors and perspectives

• Focus on commonalties rather than differences

• Address needs and interests, not positions

• Commit to meeting the needs of all involved parties

• Exchange information and ideas

• Invent options for mutual gain

• Use objective criteria to set standards

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Integrative Negotiation Process

• Create a free flow of information ----to reveal their true objectives and to listen to each other carefully.

• Attempt to understand the other negotiator’s real needs and objectives

• Emphasize the commonalties between the parties and minimize the differences

• Search for solutions that meet the goals and objectives of both sides

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Key Steps in the Integrative Negotiation Process

• Identify and define the problem

• Understand the problem fully– identify interests and needs on both sides

• Generate alternative solutions

• Evaluate and select among alternatives

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Identify and Define the Problem

• Define the problem in a way that is mutually acceptable to both sides

• State the problem with an eye toward practicality and comprehensiveness

• State the problem as a goal and identify the obstacles in attaining this goal

• Depersonalize the problem• Separate the problem definition from the search for

solutions

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Understand the Problem Fully— Identify Interests and Needs

• Interests: the underlying concerns, needs, desires, or fears that motivate a negotiator

– Substantive interests relate to key issues in the negotiation--- economic and financial issues.

– Process interests are related to the way the dispute is settled intrinsic or instrumenta ?

– Relationship interests indicate that one or both parties value their relationship

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Observations on Interests• There is almost always more than one type of interest

underlying a negotiation

• Parties can have different interests at stake

• Often stem from deeply rooted human needs or values

• Interests can change

• Surfacing interests

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Generate Alternative Solutions

• Invent options by redefining the problem set:

– Expand or modify the pie--- add resources

– Use nonspecific compensation – allow one person to obtain his objectives and pay off the other person for accommodating his interests.

– Cut the costs for compliance – one party achieves her objectives and the other’s costs are minimized if he agrees to go along.

– Find a bridge solution --- invent new options by reformulating of the problem so that the parties are not discussing their positions but disclosing information that will satisfy needs.

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Generate options to the problem

• Brainstorminggenerating as many solutions to the problem as possible

• Surveysasking a large number of people to list all possible solutions they can imagine.

Evaluate and Select Alternatives

• Narrow the range of solution options– focus on those that one or more negotiators strongly support.

• Agree to evaluation criteria in advance • Be willing to justify personal preferences• Take time to “cool off”• Keep decisions tentative and conditional until a

final proposal is complete

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Factors That Facilitate Successful Integrative Negotiation

• Some common objective or goal— to reach common goal or shared goal?

• Faith in one’s own problem-solving ability----parties who believe they can work together are more likely to do so

• A belief in the validity of one’s own position and the other’s perspective-- to accept both their own and the other’s attitudes, interests, and desires as valid.

• The motivation and commitment to work together ---the parties must be motivated to collaborate rather than compete.

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Factors That Facilitate Successful Integrative Negotiation

• Trust---each negotiator must believe that both he/she and the other party

choose to behave in a cooperative manner. • Clear and accurate communication --negotiators must be willing

to share information about themselves, for example, revealing what they want and why.

• An understanding of the dynamics of integrative negotiation ---training in integrative negotiation enhances the ability

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Why Integrative Negotiation is Difficult to Achieve

• The history of the relationship between the two parties

• A belief that an issue can only be resolved distributively

• The mixed-motive nature of most negotiation situations

CHAPTER FOUR

Negotiation Strategy and Planning

Goals – The Focus That Drives Negotiation Strategy

• Determining goals is the first step in the negotiation process

• Negotiators should specify goals and objectives clearly The criteria used to determine goals depend on your specific objectives and

your priorities among multiple objectives

• The goals set have direct and indirect effects on the negotiator’s strategy

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Goals, Strategy and Planning

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Direct and Indirect Effects of Goals on Strategy

• Direct effects– Wishes are not goals– Goals are often linked to the other party’s goals– There are limits to what goals can be– Effective goals must be concrete/specific

• Indirect effects– Short-term thinking affects our choice of strategy

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Strategy versus Tactics

• Strategy: The overall plan to achieve one’s goals in a negotiation

• Tactics: Short-term, adaptive moves designed to enact or pursue broad strategies– Tactics are subordinate to strategy– Tactics are driven by strategy

• Planning: The “action” component of the strategy process; i.e. how will I implement the strategy?

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Strategic Options

• Per the Dual Concerns Model, choice of strategy is reflected in the answers to two questions:

– How much concern do I have in achieving my desired outcomes at stake in the negotiation?

– How much concern do I have for the current and future quality of the relationship with the other party?

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The Dual Concerns Model

Avoidance: Don’t negotiateCompetition: I gain, ignore relationshipCollaboration: I gain, you gain, enhance relationshipAccommodation: I let you win, enhance relationship

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The Nonengagement Strategy: Avoidance

• If one is able to meet one’s needs without negotiating at all, it may make sense to use an avoidance strategy

• It simply may not be worth the time and effort to negotiate

• The decision to negotiate is closely related to the desirability of available alternatives

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Active-Engagement Strategies

• Competition – distributive, win-lose bargaining

• Collaboration – integrative, win-win negotiation

• Accommodation – involves an imbalance of outcomes (“I lose, you win”)

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The Flow of Negotiations: Stages and Phases

Negotiation proceeds through distinct phases or stages

• Beginning phase (initiation)

• Middle phase (problem solving)

• Ending phase (resolution)

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Key Steps to an Ideal Negotiation Process

• Preparation– What are the goals?– How will I work with the other party?

• Relationship building– Understanding differences and similarities– Building commitment toward a mutually beneficial set of

outcomes• Information gathering

– Learn what you need to know about the issues

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Key Steps to an Ideal Negotiation Process

• Information using– Assemble your case Determine which issues are most important and which are less important

and determine whether the issues are linked together or are separate.• Bidding

– Each party states their “opening offer”

– Each party engages in “give and take”• Closing the deal

– Build commitment

• Implementing the agreement

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Key Steps to an Ideal Negotiation Process

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planning is the most critically important activity in negotiation.

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Getting Ready to Implement the Strategy: The Planning Process

• Define the issues: -- begins with an analysis of what is to be discussed in the

negotiation

• Assemble the issues and define the bargaining mix– The bargaining mix is the combined list of issues

• Define your interests– Why you want what you want

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The Planning Process

• Know your limits and alternatives• Set your objectives (targets) and opening bids

– Target is the outcome realistically expected– Opening is the best that can be achieved

• Assess constituents and the social context of the negotiation

constituents who will evaluate and critique them. social system of laws, customs, common business practices,

cultural norms, and political cross-pressures

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The Planning Process

• Analyze the other party– Why do they want what they want?

– How can I present my case clearly and refute the other party’s arguments?

• Present the issues to the other party What facts support my point of view? Whom may I consult or talk with to help me elaborate or clarify

the facts?

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Information Needed to Prepare Effectively

• Resources, issues, and bargaining mix• Interests and needs• Walkaway point and alternative(s),Targets and opening

bids• Reputation and negotiation style• Likely strategy and tactics• Define the protocol to be followed in the negotiation

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What protocol needs to be followed in this negotiation?

• The agenda

• The location of negotiation

• The time period of negotiation

• Other parties who might be involved in the negotiation

• What might be done if negotiation fails?

• How will we keep track of what is agreed to?

• How do we know whether we have a good agreement?

CHAPTER FIVE

Communication

Communication in Negotiation

Communication processes, both verbal and nonverbal, are critical to achieving negotiation goals and to resolving conflicts.

• Negotiation is a process of interaction

• Negotiation is a context for communication subtleties that influence processes and outcomes

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Basic Models of CommunicationCommunication is an activity that occurs

between two people: a sender and a receiver• A sender has a meaning in mind and

encodes this meaning into a message that is transmitted to a receiver

• A receiver provides information about how the message was received and by becoming a sender and responding to, building on, or rebutting the original message (feedback)

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Distortion in Communication

1. Senders and receivers (individual communicators)– The more diverse their goals, the greater the likelihood

that distortions and errors in communication will occur2. Messages

– The symbolic forms by which information is communicated

– The more we use symbolic communication, the more likely the symbols may not accurately communicate the meaning we intend

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Distortion in Communication

3. Encoding– The process by which messages are put into symbolic form – Senders are likely to encode messages in a form which

receivers may not prefer

4. Channels and media– The conduits by which messages are carried from one party to

another – Messages are subject to distortion from channel noise or

various forms of interference

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Distortion in Communication

5. Reception– The process of comprehension by receiving messages and decoding

them into an understandable form– It might not be possible to capture fully the other’s meaning, tone or

words

6. Interpretation– Process of ascertaining the meaning and significance of decoded

messages for the situation to go forward– An important way to avoid problems is by giving the other party

feedback

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Distortion in Communication

7. Feedback – The process by which the receiver reacts to the

sender’s message– Can be used strategically to induce

concessions, changes in strategy, or alter assessments of process and outcomes

– Absence of feedback can contribute to significant distortions by influencing the offers negotiators make

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What is Communicated during Negotiation?

• Offers, counteroffers, and motives

• Information about alternatives

• Information about outcomes

• Communication about process

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How People Communicate in Negotiation

• Use of language– Logical level (proposals, offers)– Pragmatic level (semantics, syntax, style)

• Use of nonverbal communication– Making eye contact– Adjusting body position– Nonverbally encouraging or discouraging what the

other says

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How People Communicate in Negotiation

• Selection of a communication channel– Communication is experienced differently when it

occurs through different channels– People negotiate through a variety of communication

media – by phone, in writing and increasingly through electronic channels or virtual negotiations

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Four Biases that Threaten E-mail Negotiations

1. Temporal synchrony bias– Tendency for negotiators to behave as if they are in a synchronous

situation when they are not

2. Burned bridge bias– Tendency to do risky things during e-mail that would not be used in a

face-to-face encounter

3. Squeaky wheel bias– Tendency to use a negative emotional style

4. Sinister attribution bias– Overlooking the role of situational factors

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How to ImproveCommunication in Negotiation

• Manageable questions• cause attention or prepare the other person’s thinking for

further questions:– “May I ask you a question?”

• getting information – “How much will this cost?”

• generating thoughts– “Do you have any suggestions for improving this?”

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How to ImproveCommunication in Negotiation

• Unmanageable questions• cause difficulty

– “Where did you get that dumb idea?”• give information

– “Didn’t you know we couldn’t afford this?”• bring the discussion to a false conclusion

– “Don’t you think we have talked about this enough?”

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How to Improve Communication in Negotiation

• Listening: three major forms1. Passive listening: Receiving the message while providing no

feedback to the sender2. Acknowledgment: Receivers nod their heads, maintain eye

contact, or interject responses 3. Active listening: Receivers restate or paraphrase the sender’s

message in their own language• Role reversal

– Negotiators understand the other party’s positions by actively arguing these positions until the other party is convinced that he or she is understood

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Perceptual Distortion

• Four major perceptual errors:– Stereotyping– Halo effects– Selective perception– Projection

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Stereotyping and Halo Effects

• Stereotyping: – Occurs when an individual assigns attributes to

another solely on the basis of the other’s membership in a particular social or demographic category

• Halo effects: – Occur when an individual generalizes about a variety

of attributes based on the knowledge of one attribute of an individual

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Selective Perceptionand Projection

• Selective perception: – The perceiver singles out information that supports a

prior belief but filters out contrary information• Projection:

– People assign to others the characteristics or feelings that they possess themselves

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Good Will Hunting is a 1997 drama film directed by Gus Van Sant and starring Matt Damon, Robin Williams, Ben Affleck, Minnie Driver and Stellan Skarsgård. Written by Affleck and Damon, and with Damon in the title role, the film follows 20-year-old South Boston laborer Will Hunting, a genius who is forced to see a therapist (Williams) and study advanced mathematics with a renowned professor (Skarsgård) in order to avoid jail time. Through his therapy sessions, Will re-evaluates his relationships with his best friend (Affleck) and his girlfriend (Driver) while confronting his emotional issues and making decisions about his future.