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University of Maryland The Issue of Bargaining Discussion Response
This week we begin with a look at bargaining, another area where strategy is an important component. Along with the usual give and take that is associated with bargaining, successful participants in the process have a good understanding of what the other side wants and how to give them a suitable amount of that while receiving enough in return to make the bargaining process a worthwhile process to invest in.
Because none of us can predict the future, making decisions under conditions of uncertainty is not constant. In decision making, we must make predictions about possible future costs and benefits and assign probabilities to them. The accuracy of the probabilities and the decisions that follow depend on the accuracy of the limited information available and our ability to understand and apply it. Though we can consider different scenarios and run simulations etc., the fact is that we often cannot account for every possible outcome, and reality is in the habit of throwing curves. So not only is it important to make the best possible predictions at a certain point in time, but it is also vital to update these as new information and understanding present themselves.
We all know that in auctions, the item being auctioned off goes to the highest bidder. But how do we know what the ideal amount is to bid and how to present outbidding behaviors in ways that do not give away our true valuations or intentions? The goal here is not just to “win” the auction, for that leaves us prone to the Winner’s Curse, a condition where we paid too much and our worse off as a result. Rather, the goals are to succeed by paying no more than the item being bid on is worth to us – and hopefully less.
Discussion post
This week’s assigned readings emphasize defining the importance of a strategic view of bargaining and a nonstrategic view of bargaining and accepting arrangements. This paper also emphasizes examining the attributes of expected value with random variables, probability, and uncertainty, and clarifies pricing with the uncertainty of pricing options.
Bargaining can be divided into two approaches – strategic and non-strategic view. Strategic view studies bargaining using the tools of game theory. Bargaining can be perceived as either a simultaneous-move game with two equilibria or a sequential-move game, where one player gains an advantage by committing to a position. Similarly, the non-strategic view acknowledges that real-life negotiations don’t have fixed rules as formal games do. This view postulates that the alternatives to agreement determine the terms of the agreement, regardless of the rules of the negotiating game (Froeb et al., 2017).
Difference-in-difference estimators are a good way to gather information about the benefits and costs of a decision. The first difference is before versus after the decision or event. The second difference is the difference between a control and an experimental group. A random variable is simply a way of representing numerical outcomes that occur with different probabilities. To represent uncertain values, we need to list the possible values the variable could take, assign a probability to each value, and compute the expected values (average outcomes) by calculating a weighted average using the probabilities as the weights.
The merger between American Airlines and British airways would depend on how the labor union of the two companies reacts. The politics of labor unions also need to be understood and reconciled with. Sometimes, the employees are not happy with the proposed merger, which could threaten to disrupt the operations of the company. It may lead to an increase in cost.
It must also be made sure that labor is not exploited under the new administration, which can be done by paying a fair wage, providing safe working conditions and health insurance.
Therefore, the solution is to call the representative of two unions and have a discussion with the team. It is for sure that none of them would agree to accept weaker terms than before, and it is also not possible to give different terms to two workers. Hence the highest probability is that the cost of labor will increase.
