Game theory: Negotiation

Résumé du document

Investigate the use of game theory in negotiation. What are some of the ways it might be used? How is it a more effective method for producing a good outcome for a negotiator than more traditional methods?
In our case, we have to imagine a negotiation situation. It is just to imagine two parts meeting for the first time where both sides can win potential gains. The point is that none of these parts knows anything about the other, but they both have to discuss and to make decision on the belief (or nit) of the opposite part behavior. We want to know how those parties deal with that situation and how they can analyze and/or anticipate the opposite reaction.

Extraits

[...] But referring to what is written in the specialised press on the topic and according to the said and beliefs of consultants (John Stuckey & David White for McKinsey Sydney) and business leaders: for the firms that want to get their hands on a sliver of the airwaves, their best bet is to go out first and hire themselves a good game theorist.” The Economist, July p “Game Theory, long an intellectual pastime, came into its own as a business tool.” Forbes, July p “Game theory is hot.” The Wall Street Journal February 1995, p. A14 Bell Atlantic, we've found that the lessons of game theory give us a wider view of our business situation and provide us a more nimble approach to corporate planning. We call this system, quite simply, the ‘manage the business' process.” Raymond W. Smith (Bell Atlantic Chairman during 1990) The point is that knowing game theory does not guarantee winning Bibliography Articles Let Game Theory Begin: Anticipating Your Rival, Investor's Business Daily, Gerald A. [...]

[...] First the player must anticipate other's behaviour. On that purpose, the player can adopt four strategies/positions to achieve that goal: Evolution: If non-strategic and adaptive, play repeatedly (or observe past play) Dominance: If never play a strategy that is always worse than another Rationalizability: If play optimal given some beliefs about what others play (and what others believe) Equilibrium: If play optimal given correct beliefs about other The prisoner's dilemma concept: two suspects are charged for a major crime. They are held in two separate cells. [...]

[...] This statement is also true in a negotiation situation. An actor who strikes first on the belief that the opposite part will realise an exchange will be in a bad position if that trust is not reciprocated. The key to a successful exchange (and by extension a successful negotiation) is choosing a trustworthy partner. Cooperation can be a good option in order to find the cheaters. But this statement has one limit: none of the parts involved should lie about their position our betrayal the trust existing between those parts. [...]

[...] In other words, it is to involve two or more participants, each trying to influence, to outguess, or to adapt to the decisions of line behaviour that others have just adopted or are expected to adopt. Let's take the most popular example of a game to illustrate this notion of game theory: the prisoner dilemma. Before exposing it, let's briefly summarize what is vital in a game. It is important to define de key elements of the game. Those elements are: The players: Who is interacting? How many players are involved? Does nature/chance play a role? The strategies: What are their options? [...]

[...] The situation is: The players: two prisoners The strategies: the both had the same scheme of action. Prisoner one: confess or don't confess Prisoner two: confess or don't confess The payoffs and information: the prisoners decide at the same moment without knowing what the other does The payoff consequence is measured by the number of years in jail. Thus, game theory can be classified in two branches. The first one is the non-cooperative strategy where both parts (players) work without taking into account what others are doing. The other one is the cooperative strategy. [...]