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It is important to know the difference between starting, aspiration and reservation price, since an understanding of them is necessary for an appreciation of the dynamics that shape the bargaining zone, and BATNAs (Best Alternative To a Negotiated Agreement) (L. Thompson & Leonardelli, 2004). All negotiations start with some initial positions (or prices), which will offer the first approximation of the bargaining zone. It is common to have a cautiously optimistic aspiration price as well, and a reservation price signifying maximum pain threshold: knowing the counterparts reservation price is particularly important. These different prices sets the coordinates for the bargaining zone. Since every party in the negotiation influence where the bargaining zone is, it becomes increasingly nebulous as number of parties and amount of information increase. An interesting finding is that how people think of a transaction depends on when and how they will use the purchased item, e.g. an advanced payment is treated as an investment (Shafir & Thaler, 2006). You should carefully consider how you frame a negotiation.
Due to these different and conflicting prices, concessions become a necessary part of negotiations (Hüffmeier, Freund, Zerres, Backhaus, & Hertel, 2014; Zerres, Freund, Hüffmeier, Backhaus, & Hertel, 2013). Good timing of concessions is imperative, since poor timing or stubbornness can lead to an impasse. More, size of concessions signal flexibility to other party, with diminishing size communicating approaching agreement or impasse. Social norms also dictate that people expect reciprocated concessions. It is important to consider the validity of the options during a negotiation and think creatively, because we often use mental shortcuts (Daniel Kahneman, 2011), which in turn, can create and/or sustain illusory defaults (D. G. Goldstein, Johnson, Herrmann, & Heitmann, 2008; Johnson & Goldstein, 2011). A relevant concept in this instance is something called “anchoring”, which is a bias in which one gets fixated on initial information (Caputo, 2013). Another key concept to keep in mind during negotiations is the BATNA, which represent the option negotiators must choose if negotiation fails, in other words, what is plan B? The most powerful party in a negotiation is the one with best BATNA.
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