MBUS 830 — Session 1 Reference

Core Negotiation Science

Session 1 — Preparation · Positional Bargaining · Human Behavior

Prof. Dubey's Core Premise Negotiation is a science. Apply its principles in a timely and systematic manner. Deals are 50% emotion and 50% economics — master both.

The Pre-Negotiation Framework

Assess Your BATNA Best Alternative To a Negotiated Agreement — what you do if talks fail. Not what's fair. Not your aspiration. Your real alternative.

Calculate Your Reservation Value (RV) Your walk-away point. You should be indifferent between the deal at RV and taking your BATNA. Risk-averse? Shade conservative.

Assess Their BATNA More important than your own. Weak BATNA on their side = you can claim more. Roosevelt's photographer: focus on their weak BATNA.

Calculate Their Reservation Value Upper bound they'd pay (buyer) or lower bound they'd accept (seller). Underestimate this and you leave money on the table.

Evaluate the ZOPA Zone of Possible Agreement = space between both RVs. Positive ZOPA → deal is possible; fight for your end. No ZOPA → improve BATNA, create value, or walk away.

Anchoring

When to Go First

Only when you know enough about the ZOPA to anchor without capping yourself below their RV. When uncertain, elicit their offer first.

Precise beats round. $98,500 signals more expertise than $100,000. Counterparties respond more aggressively to round numbers.

How Aggressive

Anchor outside the ZOPA. Ask yourself: "What is the most aggressive offer I can justify?"

Always pair anchor with justification
High but realistic aspirations → higher outcomes (self-fulfilling)
Keep the entire ZOPA in play

Responding to Their Anchor

Ignore it — redirect to a different topic entirely
Separate information from influence — what does it tell you vs. how it tries to move you?
Don't dwell on it (discussion strengthens anchors)
Counter aggressively, then propose moderation
Give them room to retract without losing face

Positional (Distributive) Bargaining

When Positional Bargaining Applies One issue in dispute · Parties' interests genuinely conflict on that issue · Relationship doesn't matter. In most business negotiations, these conditions don't apply — but many people bargain positionally anyway.

Haggling Principles

Never make unilateral concessions — always demand reciprocity
Label your concessions: "This is costly for me"
Define what reciprocity means: "I expect similar magnitude in return"
Use contingent concessions: "I can do X if you do Y"
Watch diminishing concession rates — are they signaling their limit or bluffing?
Leave room for concessions — don't anchor at your RV
Be comfortable with silence
Negotiation is not a race — those who rush, lose

Managing Satisfaction

Don't accept their offer too quickly — they'll feel they left value on the table
Sometimes negotiate even if you love their offer
Pursue two goals simultaneously: get a good deal AND strengthen the relationship

Bargaining Power

Testing Power Assumptions

Before accepting a power disadvantage, ask: How good is their BATNA, really?

Reframe: "What will they do without me?" — not "What will I do without them?" This shifts focus from fear to leverage.

When Genuinely Weak

Use objective criteria to anchor fairness
Strengthen your BATNA (create alternatives)
Protect information — reveal strategically
Be prepared to walk away and signal it credibly
Build coalitions; use process power (agenda, sequencing)

Biases of the Mind (Ch. 4)

Fixed-Pie Bias

Assuming zero-sum when it isn't. Leads to reactive devaluation ("if they offered it, it must be bad for me").

Enter every negotiation assuming you CAN enlarge the pie.

Vividness Bias

Overweighting salient info (salary, brand name) and ignoring harder-to-see value.

Build a weighted scoring system before you sit down.

Escalation of Commitment

Continuing a losing course to justify sunk costs. Co-op window bars: $909 dispute → $100K legal fees.

Preplanned exit threshold. Devil's advocate. Avoid public commitments.

Framing Effects

Gain frame → risk-averse. Loss frame → risk-seeking. Identical choices feel different.

Evaluate under multiple reference points. Stress-test by switching frames.

Biases of the Heart (Ch. 5)

Overconfidence

Believing your outcomes will be better than rational analysis suggests.

Outsider lens. Use base rates. Bring in someone not immersed.

Egocentrism

Perceiving fairness through a self-serving lens; believing you contribute more than you do.

Rawls' veil of ignorance — what's fair if you don't know your role?

Conflicting Motivations

Want-self (emotional) dominates should-self (rational) in the heat of negotiation.

Resolve the conflict before you sit down. Pre-commit to limits.

Regret Aversion

Holding out or rejecting offers to avoid "what might have been."

Focus on what hindsight teaches for future decisions, not avoiding regret.

Illusion of Superiority

Viewing yourself as more competent/ethical than your counterpart.

Accurate assessment of both sides. Learn from skilled opponents.

De-Biasing (Ch. 6)

System 2 Thinking

Slow, deliberate, conscious — vs. System 1 (fast, intuitive, emotional).

Flag high-stakes negotiations in advance
Don't negotiate under artificial time pressure
Partition negotiations across sessions to process new info

Outsider Lens

What advice would you give a friend in this exact situation? That's your answer.

Also: Analogical reasoning — compare multiple negotiations simultaneously for transferable structure, not surface details.

Framing in Negotiations

Dubey · 10 Types of Frames — the largely unconscious lenses that drive behavior

The Core Idea A frame is how a negotiator views what the situation is really about. Frames are mostly unconscious — they drive behavior without the negotiator knowing. Your task: discern their frame, know your own, and reframe where necessary.

Substantive

What does the negotiator think the negotiation is fundamentally about? E.g., employee appeals a promotion → manager sees it as a challenge to authority. Mismatched substantive frames create talking-past-each-other dynamics.

Outcome

Entire approach dominated by fixation on one specific outcome (a dollar amount, a title, a clause). Rigid. Leaves value on the table because alternatives aren't explored.

Aspiration

Negotiator believes value creation is vital — focused on understanding interests and satisfying as many as possible. Leads to integrative outcomes. The frame you want to operate from.

Process

More concerned with how the dispute is resolved than what the outcome is. Common in legal contexts, unions. Can frustrate counterparts who care about outcome.

Identity

Negotiator's group membership (company, country, profession, culture) shapes thinking. Usually reflects positively on their own side. Can make positions feel non-negotiable.

Characterization

Opposite of identity — negative characterization of the other side distorts perception. Synergy with identity = "we are righteous, they are wrong." Creates Sebenius's "skewed vision."

Loss-Gain

Gain frame → risk-averse (prefer certain outcome). Loss frame → risk-seeking (prefer gamble). Dangerous: changes risk tolerance without the negotiator realizing it. Loss frame → hold out longer → risk the deal.

Interests

Negotiator focuses on satisfying underlying interests, not positions. Sees negotiation as creating value AND competing for it. The Harvard Model / integrative bargaining frame.

Rights

Behavior driven by what is "correct," "fair," or legally/policy-entitled. Hardest to move. People don't bend on what they feel entitled to. Watch for this in legal disputes and unionized contexts.

Power

Frame based on coercive power over the other side. "We'll settle this my way or I'll fire you." Forces compliance but damages relationships and invites escalation.

How to Use Frames in Practice

Diagnosing Their Frame

What do they keep coming back to? (Substantive frame)
Are they repeating a fixed number? (Outcome frame)
Are they citing rights or rules? (Rights frame)
Is there pride or group identity wrapped up in this? (Identity frame)
Are they framing your offer as a loss? (Loss-Gain frame)

Reframing Tactics

Shift from positions to interests: "Help me understand what's most important to you here"
Reframe loss as gain: present the same terms differently
Widen the substantive frame: "What else matters beyond price?"
Neutralize rights frames with objective criteria
A certain amount of reframing happens naturally as information flows — create that flow early

Erin-Northover

In-class simulation · Session 1 · Your role: Jamie Spencer, VP Manufacturing, Northover Precision Tool

The Setup Pat Callaghan (President, Erin Foundries) needs 150 specialized super-hardened, corrosion-resistant brake couplings on a one-time basis. Your firm can produce them — and you need the work. You're meeting Callaghan tonight at the Royal York Hotel, Library Bar.

Your Situation (Northover)

Factor	Detail
Production Cost	$450/unit (labour, materials, machine, overhead) — confirmed by management accounting
Previous Comparable Sale	$750/unit for a similar component — but that was before CAD/CAM upgrades that lower costs
Materials	Already in inventory (overlap with Ajax parts, bought at volume discount)
Setup Costs	Near zero — CAD capabilities make machine setup trivial
Capacity Context	Ajax delayed delivery 1 month, creating idle capacity for 8 skilled machinists + precision machines
Why You Want This	Fills capacity gap from Ajax delay; manufacturing is a profit centre; your comp is tied to its performance
Constraint	One-time deal only — your CEO's valued customer hates Callaghan (personal issue). No future business possible.
Callaghan's Ask	150 units, on a timeline that fits your idle capacity window

BATNA / RV / ZOPA Analysis

Your Side (Spencer / Northover)

BATNA Redeploy machinists to other jobs, send one on a course, allow vacation. Partial mitigation — but no revenue gain. Essentially idle capacity with no external deal.

RV Any price above $450/unit is a net gain vs. idle capacity. Your walk-away is $450 — but you should anchor FAR above this.

Aspiration Fill the full Ajax profit gap — $500/unit was your expected margin. So targeting $950+/unit makes sense, ideally $1,200–$1,500 to anchor high.

Their Side (Callaghan / Erin Foundries)

BATNA Find another precision manufacturer. Given the specialty (super-hardened, corrosion-resistant), their alternatives are likely limited and expensive.

RV (Estimated) Unknown — but comparable precision work in this category likely runs $750–$1,200+/unit. Their urgency and specialization suggest they can pay well above $450.

Key Insight Callaghan called YOU. They have a need, a timeline, and limited alternatives. This is a weak BATNA situation for them.

Estimated ZOPA — Erin-Northover (price / unit)

Their RV (est.) ~$750

Your anchor $1,300

ZOPA

$450$650$850$1,050$1,250

Your Anchor

$1,300

First offer

Their Likely Opening

~$600–750

Their first bid

Target Settlement

$900–1,000

Walk-away at $450

▲

Accommodating (76%) Will feel uncomfortable anchoring $1,300 when cost is $450 — instinct says it looks greedy. Reframe: $1,300 reflects their urgency and your idle-capacity window. Discomfort is not a reason to soften the anchor.

▲

Competing (10%) If Callaghan reacts with displeasure, Low Competing will trigger a panicked $200–300 drop. Practice holding silence. Emotion is not a legitimate counter-offer.

✓

Pre-commitment "I will not move below $950 unless Callaghan makes a reciprocal concession first. Every concession I make gets labeled: 'This is a real stretch for me.'"

Strategy

Your Power Position You appear weak (they're your customer's competitor, one-time deal only) but you're actually not — Callaghan came to you, has an urgent timeline, and needs a specialist. Focus on their weak BATNA, not your constraints.

First Offer Decision

You should make the first offer here. You have good information (cost = $450, previous sale = $750), you know you can anchor high, and letting Callaghan anchor first risks low-balling you given they know precision work is expensive.

Anchor Recommendation

Open at $1,200–$1,400/unit with justification: specialty materials, limited production window, precision tolerances, urgency. Frame it as the market rate for this class of precision component, not your cost. Never reveal your cost.

Investigative Questions to Ask

What's your timeline for delivery? (reveals urgency, shapes their BATNA)
Have you spoken to other precision manufacturers about this? (probes BATNA)
What are these couplings being used for? (reveals how critical this is to their operations)
Is there any flexibility on quantity — could you use more than 150 if we could offer a better rate? (opens logrolling)

Concession Plan

$1,300–$1,400

→

Opening anchor. Justify with market rate for specialty precision work.

$1,100–$1,200

→

First concession — only after they move. Label it: "I'm stretching here given our capacity situation."

$900–$1,000

→

Final landing zone target. Stop conceding. Hold.

$450

→

Your RV. Do not go here. Any deal above this is technically profitable but a poor outcome.

Bias Watch — This Simulation

Vividness Risk

The Ajax penalty story and the capacity gap are vivid and stressful. Don't let your visible need drag your anchor down. Callaghan doesn't know your situation.

Fixed-Pie Risk

This looks like a single-issue price negotiation. Is it? Explore: payment terms, delivery schedule, specs flexibility, volume. More issues = more currency.

Conflicting Motivations

Your should-self says "maximize margin." Your want-self, feeling the pressure of idle capacity, might cave too early. Pre-commit: $950+ or you walk away.

Overconfidence

You don't know Callaghan's budget or their BATNA. Don't assume you know where their ceiling is. Stay curious — ask.

Miracle Plant

Outside-class simulation · Complete before Session 2 · Your role: Dr. Huguet, CSO, Virus Research Lab, Merrick Laboratories

The Setup You've developed a promising anti-viral drug for the Zika virus. You need 500 mature "miracle plants" from Ecuadorian exporter B.V. Marquez to run your clinical trial. Dr. Turner (Cancer Research Lab, same company) also needs plants and has found Marquez. You've agreed to meet and negotiate a joint purchase — but you need ALL 500 plants to run your trial.

Key Facts

Factor	Your Side (Dr. Huguet)	Other Side (Dr. Turner)
Plants needed	Minimum 500 (need all of Marquez's inventory)	Unknown — cancer research application
Total available	~1,000 mature plants this year (globally); Marquez has 500
Budget	Authorized for 500 plants; prefer <$1,500/plant; max $2,000/plant / $1,000,000 total	Unknown
Previous price paid	$5,000/plant (6 months ago, 2 plants) — this is your anchor point for comparison	Unknown
BATNA vs. Marquez	Bidding war — both want to avoid it, hence this negotiation
Company breeding	Merrick has a plantation but plants won't mature for another year

The Negotiation Dynamics

This Is NOT a Simple Zero-Sum Split The obvious framing: 500 plants, two parties, split 250/250. But that gives you 250 plants — 250 short of your minimum. The real question is whether there's a value-creating solution.

The Hidden Opportunity

There are ~1,000 mature plants globally. Marquez has 500. The other 500 are available elsewhere.

Logrolling solution: You take all 500 from Marquez (you need them for your timeline). Turner pursues the other 500 from alternative sources. You help Turner find those sources — or offer something else Turner values (resources, co-authorship, internal allocation).

Your Leverage

Zika drug has a patent + clinical trial ready → clear commercial and humanitarian value
You need all of Marquez's inventory — Turner splitting it is a deal-breaker for you
Turner also wants to avoid a bidding war → shared interest in cooperation
As lab chiefs, you compete for resources — a hostile outcome benefits neither

BATNA / RV Analysis

Your Position

BATNA Bidding war with Turner → risk driving up price to Marquez. Or delay clinical trial a year until plantation matures. Both are bad.

RV (price) $2,000/plant maximum ($1M total). Preferred: <$1,500/plant. $5,000 historical price suggests they can be expensive — negotiate hard.

RV (plants) Need all 500. Anything less fails your clinical trial. This is your true walk-away condition.

Turner's Likely Position

Interests Needs plants for cancer research. Application is different from yours — the quantity they need may be less than 500.

BATNA Bidding war (also unattractive). Alternative plant sources (same 1,000 global pool).

Key Q How many plants does Turner actually need? This determines whether a trade is even possible.

Estimated ZOPA — Miracle Plant (price/plant, joint bid to Marquez)

Marquez floor (est.) ~$1,500

Your ceiling $2,000

ZOPA

$500$1,000$1,500$2,000$2,500

Your Anchor

$800–1,000

Joint opening bid to Marquez

Marquez Likely Ask

~$4,000–5,000

Historical rate (2 plants)

Target Price

$1,000–1,500

Walk-away at $2,000/plant

▲

Accommodating (76%) Risk of accepting a 250/250 split with Turner to avoid confrontation. Your need for ALL 500 plants is a hard constraint, not a preference. Do not yield this under social pressure from a peer.

▲

Competing (10%) Risk of being vague about your quantity requirement to seem collaborative. Being pleasant ≠ being unclear. Lead with your position: all 500 must come to you from Marquez's inventory.

✓

Pre-commitment "I will not accept fewer than 500 plants from Marquez. I will offer to help Turner access the other 500 globally — but that offer comes after I have secured my full allocation, not instead of it."

Strategy

Lead with the humanitarian/urgency frame Zika harms unborn children, clinical trial is ready, patent is held — this is time-sensitive. Turner's cancer research may have more flexibility on timeline.

Investigate Turner's actual need Ask how many plants they need and why. If Turner only needs 200, there's no conflict. The key question: "What's your minimum viable quantity for the research you're planning?"

Propose the integrative deal You take all 500 from Marquez. You help Turner access the other 500 plants through your network or company resources. Offer to co-fund sourcing costs, share research data, or give Turner internal resource priority in exchange.

Negotiate price jointly with Marquez Once the split is agreed, negotiate together — joint purchase of all 500 gives you more leverage with Marquez than competing. Push the price toward $1,000–$1,500/plant.

Investigative Questions for Turner

What is your cancer research specifically using these plants for — and how many do you actually need?
How flexible is your research timeline compared to my clinical trial deadline?
Have you looked at any other sources for these plants, or is Marquez your only lead?
What would it take for you to get what you need without coming from Marquez's inventory?

Bias Watch — This Simulation

Fixed-Pie Risk

The obvious frame: 500 plants, split them. Don't accept this. There are 1,000 globally — the pie is bigger than it looks.

Identity / Characterization

You and Turner compete for resources — this frames Turner as an adversary. In reality, you share a BATNA (bidding war) and Turner may be an ally.

Escalation Risk

If the negotiation gets competitive, the bidding war emerges. The conversation where both of you agreed to meet is evidence you both want to avoid this — hold that frame.

D-Loyal

In-class simulation · Session 2 · Your role: Chief Strategic Innovations Officer, Regal Fashion

Coming Up in Session 2 This simulation is for Session 2 (interest-based / principled negotiation). Review and prep before that session.

The Setup You are the Chief Strategic Innovations Officer at Regal Fashion — 100-year-old luxury fashion brand, best-known in Europe and Asia. Your mandate: digitize the business. Primary objective: revamp the customer loyalty program using ML and data analytics. You've identified D-Loyal as the top startup for acquisition.

Key Facts

Factor	Detail
Your Role	Chief Strategic Innovations Officer — building a digital & innovation team, CEO-backed mandate
Problem to Solve	Existing loyalty program outdated; large portion of customer base unexploited; need ML/data analytics
Why D-Loyal	Most mature tech startup of 3 candidates; strong founder track record; 15K+ LinkedIn following; positioned with luxury brands
Valuation	Team valued D-Loyal at €1,200,000 — this is also the CEO's authorized maximum
Integration Cost	Additional IT consulting cost on top of acquisition price (unquantified but significant)

BATNA Analysis

Your BATNAs (Ranked)

Hire Accenture/Tata to build fully custom solution: €2,500,000 over 1–2 years. Fully differentiated but expensive and slow.
Buy branded solution with light customization: €1,600,000 total. Faster but less differentiated — team not enthusiastic. Poor fit for Regal's upscale brand image.

Best BATNA value €1,600,000 (branded solution) — but quality-adjusted, custom build at €2.5M may be preferred.

D-Loyal's Situation

Has been prospecting buyers for months
Strong interest to sell to a premium brand like Regal
Positioned exclusively with luxury brands — Regal is the ideal acquirer
Experts suggest Regal's brand recognition makes it likely the only acquirer in its category
D-Loyal's BATNA: sell to a different type of buyer (mass market) — against their positioning

Their weak BATNA = your leverage

Estimated ZOPA — D-Loyal (acquisition price)

D-Loyal RV (est.) ~€400K

Your ceiling €1.2M

ZOPA

€200K€500K€800K€1.1M€1.4M

Your Anchor

€700–800K

First offer

D-Loyal Likely Ask

€1.2M+

Their opening bid

Target Settlement

€1,000–1,100K

Walk-away at €1.2M

▲

Accommodating (76%) Risk of jumping to €1.0M+ early to signal goodwill. The first offer should be €700–800K with justification (integration cost, market comparables). Hold it regardless of their reaction.

▲

Competing (10%) Risk of revealing the €1.2M ceiling under pressure. Never disclose your maximum. If they say "our minimum is €1.2M," treat it as a position, not a fact.

✓

Pre-commitment "Every concession on price must be matched by a non-price concession from D-Loyal (founder role, earnout terms, IP rights). I do not move on price alone."

Strategy Preview (Session 2)

Key Tension Your ceiling is €1.2M (CEO-authorized). Your BATNA is €1.6M (branded solution). Any acquisition under €1.6M is technically better than your BATNA. But your team values D-Loyal at €1.2M — don't lead with your ceiling. Anchor well below it.

Anchor low: start at €700–800K and justify based on integration risk and unquantified IT consulting costs
Explore non-price issues: earnout terms, founder retention, integration support, IP warranties, exclusivity
D-Loyal wants prestige (Regal's brand) — offer that in exchange for a lower price
Never reveal your €1.2M ceiling or your €1.6M BATNA

Investigative Questions to Prepare

What's driving your timeline for a transaction — are you under any pressure to close?
What does success look like for you post-acquisition — do you want to stay involved?
Have you had other acquisition conversations, and where did those land?
What parts of the integration process are you most concerned about?

Journal — Session 1

Capture material for your reflective journal during and after class

Prof's Rule Use theory to analyze, don't lecture about theory. The grader can read the textbook — show them you can think with it.

What Makes a Good Entry

Brief context (1–2 sentences) → analysis (the bulk) → personal implication
Link causes and effects: why did this happen?
Candid recognition of personal strengths and weaknesses
Prediction: "If I applied X differently, what would have changed — and why?"
Specific moments, not summaries

What to Capture from Session 1

During Erin-Northover

What did you anchor at — and why that number?
Did you feel tempted to reveal your cost or urgency? When?
Who made the first concession — and what triggered it?
Did you ask investigative questions or jump to haggling?
Final deal: $/unit × 150 units = total. How does it compare to $450 and $1,200?
What surprised you about Callaghan's behavior?

After the Debrief

What was the range of outcomes across the class?
Which biases showed up for you — actually, not theoretically?
Did framing affect anything — did Callaghan frame your capacity gap as their favor?
What would you do differently?
Which course concept best explains the outcome you got?

Strong Theory Connections for Session 1

Concept	Where It Might Appear
Anchoring (Ch. 1)	Your first offer and its effect on the final outcome
BATNA focus (Ch. 1 + slides)	Did you focus on their BATNA or obsess over your own vulnerability?
Loss-Gain frame (Dubey / Ch. 4)	Did you frame the idle capacity as a loss? Did that make you more risk-seeking?
Conflicting motivations (Ch. 5)	The pull between closing the deal (want-self) and holding firm (should-self)
Positional bargaining dynamics	How concessions were traded, the pace of convergence
Managing satisfaction	Did you accept too quickly? Did Callaghan seem satisfied or suspicious?

Journal Grading (Remind Yourself)

Criteria	Weight	What It Means
Insight, reflection, analysis	60%	Did you understand why things happened? Did you turn experience into learning?
Creativity	20%	Surprising connections, unexpected angles, non-obvious analogies
Writing quality	20%	Clear, concise, no padding, grammar — not MBA-speak

Avoid These Journal Mistakes Describing events without analyzing them · Listing theory definitions without applying them · Generic insights that could apply to any negotiation · No predictions or "what I'd do differently" · Theory not integrated with facts