Question

In: Economics

In the bargaining of two people, we tend to think that the more patient one would...

In the bargaining of two people, we tend to think that the more patient one would obtain more gain from the bargaining. Use game theory to support this idea.

Solutions

Expert Solution

Yes, the statement given in the question is completely true.

Some negotiations seem to believe that hard-bargaining tactics are the key to success. In such a case, they resort to threats, extreme demands and even unethical behaviour to try to get the upper hand in a negotiation. In fact, negotiators who fall back to hard- bargaining strategies in negotiation are typically betraying a lack of understanding about the gains that can be achieved in most business negotiations.

When negotiators resort to hard-bargaining techniques, they convey that they view negotiation as a win-lose enterprise. A small percentage of business negotiations that concern only one issue, such as price, can indeed be viewed as win-lose negotiations, or distributive negotiations.

However, business negotiations involve multiple issues. These so-called integrative negotiations give parties the potential to create win-win outcomes or mutually beneficial agreements. Business negotiators can negotiate by transforming creative solutions, identifying differences in preferences that can be ripe for tradeoffs, and building trust.

Unfortunately, when parties resort to hard bargaining tactics in negotiations with integrative potential, they risk missing out on these benefits. It's important to build a relationship in negotiation by asking questions, then listening carefully. Even if you have decided to make the first offer and are ready with a number of alternatives, you should always open by asking and listening to assess your counterpart's interest.

A relationship in a negotiation is a perceived connection that can be psychological, economic, political, or personal; whatever its basis, wise leaders, like skilled negotiators, work to foster a strong connection because of effective leadership truly depends on it.

In order to create a double relationship in a negotiation, there are four basic building blocks that can help you create effective partnerships with the people you lead :

(1) Two -way communication

(2) A strong commitment from the leader to the interests of those he leads.

(3) Reliability

(4) Respect for the contributions followers makes to the organization.

Bargaining has been one of the most elusive areas in economics. Many great economists have declared that standard tools of economics cannot predict a unique outcome to bargaining situations because the outcome is likely to be determined by many non - economic factors, such as psychology, culture, history, political power, etc.

Cooperative game theory assumes that players can sign binding contracts, whereas non- cooperative game theory rules out this possibility. Nash has assumed that two people are bargaining over a set of possible outcomes, denoted by S if the individuals fail to reach an agreement they both receive an outcome (0,0), called the disagreement point.

Bargaining is ubiquitous. Married couples are almost constantly negotiating over a variety of matters, such as who will do what domestic chores, who will take the kids to the local park on a wet Sunday afternoon and whether or not the wife should take a part-time job, now that the kids are grown up.

So, it is completely true to say that, the person who is more patient in bargaining will obtain more benefit from it.


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