# Reflection Report

Topics: Risk, Decision theory, Decision making Pages: 2 (367 words) Published: October 11, 2012
1.
a. In negotiating with Condor, what is Jewel’s BATNA?

Because 35+5=40>38
So Jewel’s BATNA is ‘buy Z-1 CPUs from Beta for \$38/unit’.

b. In negotiating with Condor, what is Jewel’s reservation price, i.e., the most it will pay for Condor’s Z-2 CPU?

38-5=33
So Jewel’s reservation price for Condor’s Z-2 CPU is \$33/unit

c. How has Jewel’s BATNA changed?

Jewel’s BATNA changed to ‘negotiate a 20% reduction from Acme, if it can reach a deal then buy Z-2 CPUs from Acme for \$28/unit, otherwise buy from Z-1 CPUs from Beta for \$38/unit’

d. What is Jewel’s new reservation price, i.e., the most it will pay for Condor’s Z-2 CPU? Assume that Jewel makes decisions on the basis of Expected Monetary Value (EMV).

RP=0.5*28+0.5*33=30.5
So Jewel’s new reservation price for Condor’s Z-2 CPU is \$30.5/unit

e. What is Condor’s BATNA?

Condor’s BATNA is ‘Sell the CPUs to Jewel’s competitors for \$30/CPU if it can, otherwise liquidate the stock for \$15/CPU’.

f. What is Condor’s reservation price? Assume that Condor makes decisions on the basis of EMV.

RP=0.2*30+0.8*15=18
So Condor’s reservation price is \$18/unit.

g. Assuming Jewel’s reservation price from Question 1d, what is the Zone of Possible Agreement?

30.5-18=12.5
So Jewel’s ZOPA is between \$18/unit and \$30.5/unit.

h. A decision maker is risk averse if he or she always prefers the EMV of an uncertain event to the uncertain event. For example, a risk averse decision maker would prefer \$50 for sure to a 50-50 chance at \$100 or \$0 respectively. Moreover, he or she would prefer \$100p for sure to a p chance at \$100 and a 1pchance at \$0. Now suppose that Condor is risk averse. How would Condor’s reservation price change?

Condor’s reservation price would be lower than \$18/unit but higher than \$15/unit, the exact RP would depend on how much Condor value the uncertainty of its BATNA. RP=18 - uncertainty risk value of BATNA