How Negotiations Work
The article cited below goes more in depth into the subject of negotiations. It places emphasis on a term coined “Best Alternative to Negotiated Agreement.” In lecture, we simply referred to this as an outside alternative or option but the concepts are identical. The outcome of a negotiation lies largely in the size of one’s outside options and may consequentially give one of the negotiators a better advantage in the negotiation. The size of the “pie” corresponds to the surplus and the outcome of the negotiation also lies largely in how this pie is shared; I’m not going to go through the hassle of bargaining for a single slice if I can get two slices elsewhere.
Relating bargaining to game theory, the article states that theorists use computer models to come up with the best practical solutions. “However, some people take issue with this strategy, saying it should be used only in the absence of misperceptions and fear [source: Tenbergen].” The scenarios in which negotiators agree to deals in which they get small payoffs does not take into account that people don’t always think like computers. Real people are emotional and if they perceive that they are being cheated, will refuse a deal even if it makes no sense logically.
http://money.howstuffworks.com/personal-finance/budgeting/negotiation2.htm