Four Key Concepts: BATNA, Reservation Price, ZOPA and Value Creation

You can’t always get what you want...so negotiate! A negotiation is worth the try whenever the possible outcome of the exchange is better than any other option you have.

In order to negotiate successfully and not get out of a negotiation empty-handed or feeling you have lost something, you need to know your BATNA – Best Alternative To a Negotiated Agreement. This is a “preferred course of action in the absence of a deal”.

For example, during the two-dollar bargaining game I didn’t clearly have a BATNA and this hindered my negotiation strategy. I just knew I had to get $1.60 but I had no idea what to do if I got a smaller amount, which was what eventually happened. However, there were no stakes. I didn’t really need that money, and the argument I came up with was nonsensical. In the second round, I also hadn’t thought about a BATNA; basically because I didn’t even know such a thing existed.

But upon reading about it, I found myself thinking “Oh yeah, I do this all the time”. You see, I’m a quite pessimistic person and I love being in control, so I usually try to plan for every possible outcome. This leads me to know my BATNA in a certain situation, as when looking for a job or internship: if I have other interviews scheduled I know that if one of them does not go well I will still have options; this makes me relaxed and able to perform better during the desired job interview.

However, when I have a weak BATNA (if I have no job offer, for instance) then I have less power in the negotiation. When this happens, it is necessary to either improve my BATNA, identify the other side’s BATNA or weaken it. These can seem quite straightforward, but they are not as simple to put into practice.

When negotiations involve money, it is also essential to know your reservation price and your ZOPA (Zone of Possible Agreement).

The reservation price is the least you would be willing to take (if you're receiving money) or the most you would be willing to pay (if you’re buying something). Therefore, in the game my reservation price should have been of $1.60 for the first round and $2 for the second round. But in order to come to an agreement I had to settle for less (in the first case) and come up with an exchange (in the second one). 

In the first game, I wanted $1.60 and my partner wanted $2 at first, so we had a ZOPA of $0.40. But, unbeknownst to me, she only needed $0.50. So, in reality the ZOPA was of $0.60. In the second round there was no ZOPA because we both wanted the same amount.

This brings me to our solution: value creation. Since both of us wanted the same amount and because we wanted to reach some sort of deal, my partner suggested an exchange: she would let me sleep at her place if I gave her the $2. This involves “a party getting something it wants in return for something it values much less”.

Out of all the four concepts the one I’m most reluctant about is the BATNA because the techniques to apply it in real life are complicated and still a bit unclear. It is very imprecise sometimes due to uncertainty relating to several variables such as the other person’s bluff or a changing context.

I hope we will be working on it in class.