Negotiating Wisely: Considerations Based on MCDM/MAUT

Abstract:     
Negotiation, both an art and a science, is important in business and in personal life. To negotiate intelligently, we need a strategy to help identify when, for what, and how we should negotiate. The availability of technology has streamlined the information-gathering process necessary for negotiation. We consider a one-to-many negotiation problem such as a house-purchase process in which there is one buyer and many sellers. The alternatives are evaluated using multiple criteria, but we assume that only one issue (such as price) is to be settled by negotiation, and we develop a general quantitative framework for negotiations. We use two metrics: a Tchebycheff metric and an additive function to help the negotiator explore alternatives and negotiate. In the process we help the party determine a Best Alternative to a Negotiated Agreement (BATNA) as well as reservation prices. We also consider the situation in which the negotiator simply chooses an alternative. In such a situation, no value function is explicitly assumed. In that case we propose a heuristic negotiation procedure. The proposed negotiation framework will help a negotiator achieve a good, hopefully an optimal, result effectively.

Keywords: Negotiation, Best Alternative To a Negotiated Agreement (BATNA), Filtering, Multi-Criteria Decision Making (MCDM), Multi-Attribute Utility Theory (MAUT)

Working Paper Series