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Oil Pricing Negotiation

In: Business and Management

Submitted By toddmac33
Words 2075
Pages 9
Negotiation/MBA November 18, 2005
CLASS #3
What is Game Theory?
In debriefing Oil Pricing, we will use terms borrowed from Game Theory. Game theory is the study of how people behave in strategic situations. These are situa‐ tions in which each person, when deciding what action(s) to take, must first consider how others might respond to that action.
Decision‐making is a constant activity of managers and business. Strategic decisions have to be made every day. Making the wrong decision can have a negative effect not only on the manager’s career, but also on the company’s survival. Even the most successful executives make mistakes from time to time. This is in many cases due to the way in which executives process information coming from the outside world.
Managers and business students study psychology and negotiation to avoid mind traps. Particular techniques can be used to facilitate the decision‐making process (brainstorming, simulations, etc).
Oil Pricing is a so‐called ʺsocial trapʺ exercise, in which long‐term maximization requires mutual trust where significant short‐term gains are possible by breaking that trust. In most rounds, communication must be implicit, and is hence highly ambiguous and subject to misinterpretation, usually by the pro‐ jection of negative and adversarial intentions that donʹt actually exist. At certain points, the parties are given the opportunity to communicate explicitly, and may choose to reach pricing agreements or not (and subsequently, to honor those agreements or not).
The exercise highlights the frequency with which we make imprecise and inadequately supported assumptions, suggesting the importance of making and keeping assumptions explicit and testing them periodically.
The danger of self‐fulfilling assumptions is also illustrated. Parties can turn cautious competitors into the cut‐throat adversaries they

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