By Carolina EderAnnalena Koehler

Anton Hristov Vilhelm Öhrn

Everyone uses negotiation in day to day life. Negotiation is a process in which a group or

involved parties resolve matters, by discussing and coming to an agreement.

To analyze negotiation rationally the negotiator has to understand the psychological forces which have a big impact on the negotiator´s effectiveness.

Structure problems Processes information Frame the situation

Situation adapted from Russo and Schoemaker

Difference between the two situations Actually for both it should be worth it to

invest the same amount of time First Scenario – Very Good deal Second Scenario – Not that attractive

◦ Frame represents percentage of discount

Situation Richard Thaler Content In both versions, the result is the same. No negotiation with the seller Percentage of elasticity of the demand of

the product Frame – high cost is expected at hotel

High cost is considered “rip-off” in the store

Those two examples show how importantframing is to solve problems and makeDecisions

Framing potential gains or potential losses Framed either as “gains” or “losses”

◦ Gains of similar value – prefer certainty over lottery

◦ Losses of sim. Value – prefer lottery over certainty

Example : $3500 gain considered a loss◦ Personal goal was a $5000 increase◦ Frame based on available information

(info not known – average raise = $2000)

Crucial in forming the Frame

◦ Basis for evaluating if option is a gain or loss

◦ Determine our willingness to accept/reject an option

◦ It is a result of our expectations

◦ Usually what we own is our automatic reference point

“Buyer” and “Seller” have different reference points◦ Seller – personal attachment to the object he owns◦ Values this attachment, therefore puts higher value◦ Buyer is not attached, he estimates a lower value

for an object

Ex: Coffee Mug priced from $.50 to $.9.50◦ Sellers - $7.12◦ Buyer – $2.88 (closer to market value)◦ Chooser - $3.12 (get $ or mug, no buying/selling)

Strategically manipulate framing to direct negotiation performance

Framing the options in terms of potential gain

◦ Situation perceived as more favorable

Same option Framed in terms of losses

◦ Lower chance of a favorable perception