Mastery Quiz 1 And 2

Mastery Quiz 1 And 2 >>> Introduction to Negotiation: A Strategic Playbook for Becoming a Principled and Persuasive Negotiator

Question 1

Preamble: This is the first mastery quiz for the course. The questions on this quiz are meant to test whether you have watched all the material and understand the concepts presented in Modules 1 – 2. If you are reading this, I hope that means you’ve had a chance to look over the questions in advance (provided in the Preview of Mastery Quiz 1 – 2) and so you know what to expect.

Q1. What is the pie?

1 / 1 point

The pie is the benefit the negotiating parties could get if they work together.

The pie is the difference between the benefit the negotiating parties could get if they work together and the sum of the benefits each party could get on its own.

The pie is the difference between the benefit one party can get on its own and the benefit the other party can get on its own.

3.14159…

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That’s right. The pie is how much more the two parties can create by working together compared to what they can create without an agreement. Therefore the pie is 12 – (3 + 1) = 8.

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That’s right. If Abe and Bea split the pie (8), Abe will get 3 + 4 = 7.

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Question 4

Andrea and Beth are dining at a fine restaurant. There is a bottle of 2009 Grgich Hills Chardonnay on the menu and the price is $100. To keep things simple, albeit unrealistic, assume the restaurant only sells whole bottles and this is the only wine they carry.

Andrea would be willing to pay $110 to drink the whole bottle.
Andrea would be willing to pay $90 to drink half the bottle.
Beth would be willing to pay $80 to drink the whole bottle.

Beth would be willing to pay $50 to drink half the bottle.

They would like to share a bottle if it makes sense to do so (and if they can agree on how to divide the costs). To see if it makes sense, what is the pie, in dollars?

1 / 1 point

If they don’t reach an agreement, Andrea will get $10 and Beth will get nothing. If they do reach an agreement, they will jointly have created $40 of surplus ($90 + $50 – $100). Thus the pie is $30.

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If they split it evenly, each side will end up with $15 of the pie. Thus Beth pays $50 – $15 = $35 and Andrea pays $90 – ($15 + $10) = $65. Note Andrea starts with the $10 of value that she can create on her own.

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If the software costs $100, the net benefit they would receive together is $200. If they work on their own, Aegean will not buy the software since the cost ($100) cancels out its benefit ($100). Baltic will buy the software for a net benefit of $200 – $100 = $100. Therefore the pie, or the difference between working together and working separately, is $200 – $100 = $100. The pie should be divided equally: $50/$50. Aegean and Baltic will each pay $50. Here it is in tabular form:

	Aegean	Baltic	Total
Net Benefit: Together	——-	——	200
Net Benefit: On Their Own	0	100	100
Pie	——-	——	100
Total benefit each side gets when they split the pie	50	150	200
How much each pays	50	50	100

For each party in the group, it is the amount of pie created by that party joining others in the group, averaged across all possible orderings in which parties join the group.

For each party in the group, it is half of the amount of pie created by that party joining others in the group, averaged across all possible orderings in which parties join the group.

For each party in the group, it is the maximum portion of the pie created by that party joining the group, across all possible orderings in which parties join the group.

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No more

50% more

100% more

The pie gets split in half, not because the Planet and Gazette are equal in size, but because the cooperation of both parties is needed to complete the merger and create the pie.

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Question 9

Recall in the Planet–Gazette merger case, the increased productivity from the Gazette’s know-how was worth $1 million to the Planet. Imagine the Planet could hire a consultant to improve its productivity up to the same level as the Gazette. The cost of the consultant would be $200,000. Of course, with the merger, there is no need for the consultant. When the Planet has the ability to hire a consultant, how much more money should the Planet get in the merger?

1 / 1 point

The same amount as before

$200,000 more

$300,000 more

$400,000 more

$500,000 more

The Planet can get $800k of the savings without any help from the Gazette. The reason to do the merger is to save an additional $200k. The Planet should get half this amount. Thus the total going to the Planet is $800k + $100k = $900k, which is $400k more than the $500k they were getting.

Question 10

Consider a potential merger between two hypothetical beer companies. Prior to the merger, the first, Ann Hy, is worth $150 billion and the second, Czar Bosch, is worth $100 billion. If they merge, they will gain $30 billion in increased value from reduced costs and additional sales (in present discounted value). Thus the combined value of the new entity (called Ann Hy-Czar Bosch) would be $280 billion. How much more could Czar Bosch hope to get by using the theory of the pie instead of proportional division?

1 / 1 point

$1.3 billion

$3 billion

$5 billion

$10 billion

$10.7 billion

That’s right. Under proportional division, Czar Bosch would likely get an amount proportional to their market cap, 40% (2/5th) of the $30 billion, or $12 billion. If they split the pie, then Czar Bosch would get $15 billion, or $3 billion more.

Your reserve price doesn’t change what the other side will offer. Thus anything you turn down is like throwing money away. You may choose to do so out of spite or to enforce a social norm, but doing so will lower your expected payout.

the person making the offer

the person receiving the offer

Remember the old adage: It is better to give than to receive. You would rather be the one making the offer since that person should get more than half of the pie. The advantage of being the one receiving the offer is you can guarantee yourself some money by saying yes to everything.

Yes

If a proportional split leads you to get more than half the pie and the other side is willing to agree, then go ahead.

Question 14

Abe and Bea each have some money to invest in a CD (Certificate of Deposit). Abe has $5,000 and Bea has $20,000. Both are interested in making a 6-month investment at Synchrony Bank. The CD rates for Synchrony Bank (as of July 8, 2015) are as listed below.

With 0.41% interest, Abe would get $5,010 in six months. With 0.50% interest, Bea would get $20,050 at the end of six months.

If they pool their funds, they will be able to purchase a $25,000 CD, which pays a higher interest rate. The 0.60% interest will return $25,075 at the end of six months.

Obviously, Abe gets back his $5,000 principle, and Bea gets back her $20,000 principle. How should the $75 interest be divided between the two of them?

1 / 1 point

Divide up the interest according to the amount invested. Since Bea has 80% of the funds, she should get 80% of the interest, or $60 in total. This is the same as both parties getting 0.60% interest on their funds.

Divide the interest in two, so each gets $37.50.

Abe gets $17.50 and Bea gets $57.50.

If they don’t pool their funds, then Abe will only earn $10 of interest and Bea will earn $50. By coming together, they can earn $75, which is an extra $15 of interest. The two should spit this evenly, $7.50 and $7.50. Thus Abe would get $17.50 and Bea would get $57.50.

Mastery Quiz 1 And 2 >>> Introduction to Negotiation: A Strategic Playbook for Becoming a Principled and Persuasive Negotiator

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