Dynamics of negotiations Chapters 8 -12

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Mediation

A form of alternative dispute resolution (ADR) that involves a neutral third-party working with two sides in a dispute (or the negotiators in a negotiation that has reached an impasse) to try to identify common

Intergroup conflict

Conflict that may occur between groups of people caused by shared and different interests and goals.

Which of the following is not included by French and Raven in their study of the five major types of power that influence social relationships?

Physical power

Agents and principals

Principals employ other people, called agents, to represent the principals' interests in a negotiation.

Identify and describe the four types of trust.

Relation-based trust; knowledge-based trust; identity-based trust; institutional-based trust; and calculus-based trust.

Mirroring

Similar to mimicry, mirroring means matching the other negotiator's body language, degree of eye contact and level of passion for a particular issue to establish (or reestablish) rapport.

Because of the cognitive bias of reactive devaluation, a negotiator should generally explain what he or she is giving up when making a concession.

TRUE

In late October 2010, Manchester United soccer star Wayne Rooney announced that he would not agree to extend his contract and play for Manchester United. Several days later, Rooney surprised many of the fans of Manchester United who assumed he would never again play for the team by signing a new five-year contract with Manchester United. When asked about his sudden "change of mind," Rooney said that his previous statement was simply a "negotiations ploy," one to help improve his leverage with Manchester United. Is this type of "negotiations ploy" ethical? Why or why not?

This answer will vary depending on the student's sense of ethics.

Egalitarianism

a philosophy that people should be treated as equals.

Guanxi

a term used in China to represent connections or relations between people. Having a guanxi network is key to getting deals done in China.

Trust dilemmas

are mixed motive situations where there are short-term incentives to compete. To move the other person toward thinking long term you must focus on the future of the relationship, increase communication, focus on joint outcomes and institute accountability.

Monochronic time (M-time)

cultures on M-time prefer do things sequentially and in a linear fashion.

Reactive devaluation

is the tendency to under value the concessions that other negotiators make.

Individualism - Collectivism

one of Hofstede's dimensions - individualists value independence, free will and individual rights. Collectivists value close ties between individuals and an individual's identity is tied to the group.

The best predictor of future trustworthy behavior is probably ________________ trust.

relation-based (correct) knowledge-based identity-based institutional-based calculus-based

Knowledge-based trust

the type of trust that develops when you know the other person and have had psome rior interactions with them such that you can be confident in predicting their behavior.

Availability bias

this bias occurs when people overestimate the frequency of an event or occurrence based on how easily they can recall instances of the event.

Halo effect (and horns effect)

this effect occurs when we only know one good (bad) thing about another person and then generalize this information to other attributes of the person without good reason. If someone is nice (mean) you may also assume they are smart (stupid).

Endowment effect

this is an effect whereby the value of an object can change as a function of whether or not it belongs to you. People tend to "endow" things and ideas that are their own with added value over the same object or idea generated by another person.

Give two examples of how a negotiator can gain leverage in a negotiation situation

A negotiator could gain leverage by improving his or her BATNA or by finding the support of other like-minded people through the use of a coalition of supporters.

__________________ would best explain why many negotiators prefer to make the first offer in a negotiation.

Anchoring (correct) The contrast effect Availability bias The self-fulfilling bias Selective attention

Which of the following statements is false?

Changing an established reputation in negotiations is difficult because people have a tendency to process only data that support their theories/beliefs and discount information that does not. Seeking feedback by asking questions of the other negotiator about your proposals provides a good way to check on his or her perception of the impression you are trying to create during the negotiation. Often times during negotiations between teams a "them versus us" attitude develops which causes both teams to use extremely competitive behavior. a and c None of the above (correct)

Intrapersonal conflict

Conflict a negotiator may feel due to his or her own contradictory feelings or interests.

Interpersonal conflict

Conflict that may arise between people who have different goals and interests.

Intragroup conflict

Conflict that may develop within a group of people due to their different interests and goals.

As a general rule, ethical issues only arise in distributive or "price-only" negotiations.

FALSE

Arbitration award

The decision an arbitrator makes in an arbitration case is called an award. While an arbitrator can give the parties an oral decision, frequently parties want the arbitrator to provide a written justification and analysis for his or her decision.

Which of the following negotiation concepts were illustrated in the case about Republic Windows and Doors Co. (the Chicago company that closed its operations and laid off all of its employees)?

The employees' threat of filing a lawsuit against the company to force payment of severance pay to laid off employees is an example of coercive power. Power and leverage are the same thing. The employees formed coalitions with state and national political leaders to improve their leverage with the company - an example of referent power. a and c (correct)

Shuttle diplomacy

This is a type of mediation when the mediator keeps the two sides of a dispute separated from each other and the mediator goes back and forth with questions and proposals for each side.

What factors motivate people to act unethically?

Though not an exhaustive list, some factors include greed and the profit motive; competition and the desire to win; and justice or redressing unjust behavior.

Top-down and bottom-up agreements

hierarchical cultures tend to dictate agreements from the top down. Egalitarian cultures trust individuals to create agreements from the bottom-up.

Framing effects

these effects occur when a situation is described in terms of what you stand to gain versus what you stand to lose. People are much more sensitive to and influenced by loss frames, and they are more risk-seeking in the domain of losses.

Deception

giving information that implicitly encourages people to draw false conclusions.

High and Low Context Cultures

high context cultures place value on body language, nonverbal cues, and the context in which something is said; low context cultures rely on the spoken word regardless of the context.

Selective disclosure

in negotiation, this means you don't disclose all your information, rather you share only that information that it is in your best interest to share.

The cognitive bias of _________________ may cause an experienced negotiator to think he or she is always right in a negotiation thus failing to understand and appreciate the interests of the other negotiator.

irrational escalation of commitment reactive devaluation overconfidence (correct) anchoring None of the above

An increasing number of companies are negotiating with customers and vendors by e-mail. Using e-mail as the primary method of communication for a negotiation:

is convenient when the parties are located (geographically) far apart. provides a clear record of the different proposals and counter-proposals made during the negotiation. frequently increases the risk of reaching an impasse compared to face-to-face negotiations. a and b a, b and c (correct)

The company you work for has recently decided to implement a dress code for all office staff. The decision to implement this new policy was made by the company's owner and chief executive officer (CEO). You don't want to dress like everyone else in the office; however, you have decided to comply with this policy due to the owner and CEO's ________________ power.

legitimate

Overconfidence

once individuals have generated an answer to a question that has been posed, they are more confident than they should be that their answer is correct. This is especially true when they are asked to make estimates about something that they are aware they really don't know the answer to.

Uncertainty avoidance

one of Hofstede's cultural dimensions - the level of comfort a society's members have with unstructured situations. Those high on this construct are more rule-bound and controlling whereas those low are more tolerant of diverse perspectives and less troubled by ambiguity.

Long-term orientation

one of Hofstede's dimensions. Those high on this dimension value tradition and hard work and do not expect immediate rewards. Those low on this dimension seek immediate gratification and are concerned with looking good to others.

You are scheduled to negotiate with another person who, like you, graduated from the same university. Because of your common experience at the university, you believe that the other negotiator will be fair and someone you can trust. The assumptions you are making about the other negotiator:

reflects the notion of identity-based trust. are the product of a selective attention process. will prove to be true as research demonstrates that a shared experience, like attending the same university, is a good predictor of future behavior. a and b (correct) a, b and c

Communication channels

the different ways in which people can communicate and therefore negotiate. These channels include face-to-face, over the telephone, over email, using texting, using Skype or other video conferencing. Communication channels vary in the richness of what can be communicated.

Cultural sensitivity

the extent to which individuals are aware of the cultural norms, and belief systems of the individuals with whom they are interacting.

In the movie Boiler Room, Vin Diesel plays a stock broker who convinces a doctor - over the telephone - to purchase 2,000 shares in an unknown pharmaceutical company because of the claimed income potential of one of the drugs the pharmaceutical company was preparing to sell on the market. The stock broker tells the doctor that if he does not invest in the company "right now" that he will "watch his colleagues get rich." In convincing the doctor to buy the 2,000 shares, the stock broker used negotiations technique/tactic of ______________ to "make the deal" with this doctor.

the scarcity effect

Ethnocentrism

the tendency to believe that one's own culture, belief system, ideas etc. are centrally important and correct andt all other groups are measured in relation to one's own.

Selective attention

the tendency to focus only on information in our environment that is consistent with what we already believe or know. This can lead to biased information processing where decision makers ignore information that is inconsistent with prior beliefs and only attend to self-confirming evidence.

Essential competition

the type of competition where there can only be one winner. In business it can be when there is a very small niche market and there is not room for two competitors, thus it is essential that one must "win." Some will be tempted to use unethical tactics when there is essential competition.

Institutional-based trust

the type of trust you have in someone because you know the institution or organization they represent has structures or policies in place that require their members to act in trust-worthy ways.

Irrational escalation of commitment

this bias occurs when people get into bidding wars and end up paying more for something than it is worth. Additionally, people may honor sunk costs and continue to throw "good money after bad" even when the evidence suggests it is a losing cause.

Identity-based trust

trust in another person that is based on a shared identity.- like same religion or same sorority. You do not actually know or have personal experience with the individual, but you trust them due to your shared identity.trust in another person that is based on a shared identity.- like same religion or same sorority. You do not actually know or have personal experience with the individual, but you trust them due to your shared identity.

Arbitration

A form of alternative dispute resolution (ADR) that involves a neutral third-party hearing evidence from the two sides to a dispute and making a decision as to which party is right and which party to the dispute is wrong. The parties in arbitration generally select the arbitrator themselves and create the procedural rules the arbitrator must follow in hearing the evidence and making his or her decision.

Defend-attack cycle

At a point of impasse in a negotiation, or where negotiations break down due to lack of progress or communication between the negotiators, negotiators frequently spend time during negotiations defending their last proposals and criticizing the other negotiator's proposals. This negative "back-and-forth" exchange frequently leads both negotiators to become angry and more adamant in demanding that the other negotiator change his or her last proposals.

How can a negotiator develop a reputation for being honest, trustworthy and fair during the rapport-building stage of the negotiation process?

Be consistent in what you say at the bargaining table; clearly communicate the issues on which you will be firm and those issues for which there may be some flexibility; use bluffing and threats in a limited way; ask for feedback from the other negotiator ("What do you think of that proposal," "If you were me, what suggestions would you have to deal with this problem,") to make sure their perception of your negotiations approach is consistent with how you want your reputation portrayed

Which of the following steps would not be consistent with Cialdini's authority principle?

Be the first to give concessions. Emphasize the unique features of what you are promoting. Admit weaknesses of what you are promoting first. (correct) Point out the similarities between yourself and the audience. Show that others are in agreement with what you are promoting.

What strategies can a negotiator use to deal with trust dilemmas in situations that involve a mixed-motive structure where both negotiators have the incentive to compete and cooperate?

Focus on the future and the benefits of a long-term relationship; increase the amount of communication with the other negotiator to build trust through establishing rapport; emphasize the benefits of joint outcomes; and discuss the importance of maintaining good reputations. (See Box 8.1)

The temptation to act unethically may be stronger in a situation both negotiators view as zero-sum.

TRUE

Yifei's family has owned and operated a restaurant for nearly 30 years. Now that Yifei's parents have decided to retire, Yifei (who has no interest in managing the restaurant) is looking to sell the business. Several realtors have suggested that the market value for the restaurant is approximately $500,000. When Yifei shared this information with her parents, both became extremely upset. Yifei's father said, "We built that restaurant from the ground up. You and your brother grew up working in the restaurant. We can't sell the business for anything less than one million dollars." The $1 million value Yifei's father places on the restaurant, when the market value for the restaurant is half that amount, is most likely motivated by the:

anchor and adjustment effect. availability bias. endowment effect. (correct) norm of reciprocity. fixed pie perception.

During a job interview, the company's human resources director tells you that you are "lucky to get an interview" because "200 people applied for this job." She adds, "If you are lucky enough to get a job offer from us, I hope you don't think we will negotiate with you over the starting salary. If you try to negotiate salary, we will rescind the job offer and give it to another candidate who would be happy to accept the offer." Based on her comments, the human resources director is attempting to demonstrate her perceived _____________ power in your negotiation.

coercive

Polychronic time (P-time)

cultures on P-time are comfortable with focusing on the big picture and are less concerned with the process. They can skip from one thing to another without being concerned about sequence.

Direct and indirect communications

cultures with direct communications communicate in a straightforward way with action oriented words; culture who communicate indirectly used a more nuanced approach and expect the other to interpret the meaning.

Choose the appropriate letter below to fill in the two blanks in the following sentence. "Power and rights are used to _______________; interests are used to ______________."

distribute; integrate

A negotiator can improve his or her _______________ power by preparing to be knowledgeable about the specific issues being negotiated.

expert

Ethics of purpose

is an absolutist approach to ethics that views people as basically good and suggests they will use a good means to reach a good end

A negotiator maximizes his or her _______________ leverage when the standards, norms, and themes the negotiator uses to justify his or her proposals are the ones the other negotiator views as legitimate and relevant to the resolution of the parties' differences.

normative

Labor negotiations between Mott's Apple Juice and its unionized employees primarily illustrated the use of _________________ leverage.

normative

Loss aversion

people are much more sensitive to losses than they are to gains of the same size. Loss aversion can be explained by the subjective utility curve in Prospect Theory.

GLOBE study

the Global Leadership and Organizational Behavior Effectiveness study examined the effect of cultural variables on business practices. This study used nine dimensions to categorize cultures.

Emotionalism

the extent to which different cultures are comfortable with showing emotion in social interactions. Cultures who value rationality and thoughtful discourse are less likely to show emotion.

Relation-based trust

when you have a strong pre-existing relationship with the other person you can predict their trustworthy behavior with accuracy. In this type of relationship you can freely share information and assume the other will not exploit you.

You rent an apartment in College Town from a landlord named Betty Page. Ms. Page has demanded that you pay for damage to the lobby area of the apartment building that she believes was caused by several of your friends. You believe that the damage was caused by other tenants in the apartment building. Ms. Page has threatened to withhold the amount of the damage ($250) from your security deposit. Your uncle, a lawyer, has offered to sue Ms. Page on your behalf if she does not return your entire security deposit when your lease ends in two weeks. You need to get the full amount of your security back as you are moving from College Town to Portland, Oregon (and will likely never see Ms. Page again) and need the money to help pay for your moving expenses. You have a meeting with Ms. Page later today to try to work things out with her - and to get your full security deposit back. Based on these facts:

your Best Alternative to a Negotiated Agreement (BATNA) is to pay Ms. Page for the damage to the lobby area of the apartment building. you can use the threat of going to court as negative leverage during your negotiation with Ms. Page. the negotiation situation with Ms. Page will likely require an avoidance strategy. a and b (correct) a, b and c

Which of the following statements would best be described as a "two-sided" message that both captures the attention of the other negotiator and emphasizes one of the negotiator's key points?

"If you increase your offer on price by $5 per unit, then I could provide you with an additional one year full warranty." "If you can't increase your salary offer to $45,000, I have no other choice than to take the other job offer." "Don't you understand? If we can't reach an agreement today, we will be involved in a very costly lawsuit." "I understand your proposal to be that you don't intend to pay any more than $10 per widget and that both price and product quality are very important to you. Let me tell you how our proposal would satisfy those interests." (correct) "Let's just cut to the chase. How much are you looking to spend today on a new car?"

Define the following terms: consistent preference structure; preference reversal; and loss aversion.

A consistent preference means that in a choice problem you have the same preference for different options and are not affected by framing effects. Preference reversal occurs in a choice problem framed as a choice between a sure gain or a 50/50 chance of no further gain; most people select the sure gain. However, when these same people are faced with a choice problem framed as a sure loss and 50/50 chance of no further loss, people select the 50/50 chance. Although both choice problems effectively involve the same thing, people select a seemingly irrational preference reversal. Loss aversion reflects the tendency that most people have to avoid loss and are influenced by situations framed as a choice between gains and losses.

Which of the following statements is true?

A shared common identity, such as same home town, same college, same business fraternity, etc., provides the basis for identity-based trust. A negotiation will likely take on a distributive tone if both negotiators fail to establish the degree of trust necessary to share critical information. As a general rule, knowledge-based and relation-based trust are both equally effective predictors of future trustworthy behavior. a and b (correct) a, b and c

What steps can you take to best deal with a negotiator who is known for using "unethical" tactics?

Ask questions of the other negotiator about his or her proposals in order to determine if the negotiator's answers are consistent. Use "fairness" and "accountability" as authoritative standards in the negotiation. "Fight back" by using your own unethical tactics. a and b (correct) a, b and c

Court trial/litigation

Disputes in the American legal system are resolved through court trials, where evidence and testimony is presented to a judge or to a jury. The judge or jury uses this evidence and testimony to decide who wins the court trial and what the winning party should receive for a remedy. Litigation is a general phrase used to describe the process by which lawsuits are filed and ultimately decided.

Research suggests that group stereotypes, both positive and negative, are good predictors of how a specific person from that group might behave at the bargaining table.

FALSE

Which of the following communication channels is the richest in terms of the type and completeness of information being communicated?

Face-to-face (correct) Telephone E-mail Text messaging Video conferencing

You belong to a homeowners association in your neighborhood. The EBC Construction Company is building a condominium complex in two vacant lots adjacent to your neighborhood. Since there is no fence around the construction site, many families in the neighborhood are concerned about the safety of their children who see the construction site, and the large hole where the foundation for the condominiums is being constructed, as a "neat place" to play. The owner of the EBC Construction Company told you two weeks ago that a fence would be installed around the construction site "ASAP" (As Soon As Possible). You are scheduled to meet with the construction company's owner this afternoon to convince him to install the fence within the next two days. What type of power can you use to persuade the owner to install the fence? Explain why it might be effective.

In order to convince the EBC Construction Company owner to see things your way, you will need to base your proposal to install the fence within the next two days on authoritative standards or objective information. Your authoritative standard in this regard could be based on his promise to build the fence ASAP (the norm is that people in business should "keep their word"); or a shared interest in protecting the safety of the children living near the construction site; or the fact that installing a fence may be required by local building codes and would not be expensive compared to the cost of injuries suffered by children who are attracted to play at the construction site. The power you would use would be based on coercive power - the threat of negative publicity and lawsuits. If you had knowledge about local building codes, or about "industry standards" for protecting children around construction sites, you would have expert power.

Ury

Negotiation expert and mediator William Ury has developed a breakthrough strategy to help negotiators work through an impasse in their negotiations. Ury's breakthrough strategy consists of the following steps: Don't React - go to the balcony; Don't Argue - Step to the Other's Side; Don't Reject - Reframe; Don't Push - Build Them a Golden Bridge; Don't Escalate - Use Power to Educate.

N.I.C.E. approach

Negotiation experts Ron Shapiro and Mark Jankowski propose an approach to working effectively with an angry or "difficult" negotiator. They use the acronym of N.I.C.E to explain this approach: Neutralize your emotions; Identify the type of difficult negotiator you are dealing with; Control the encounter; and Explore the options.

Caucuses

Parties to a negotiation or to mediation may take a "time out" during the negotiation or mediation when they can meet with the members of their own team to review proposals made during the negotiation or mediation or to consider a proposal made by the other side that requires additional time to review.

Identify and discuss Cialdini's six principles of influence.

Reciprocity - Be the First to Give; Scarcity - The Rule of the Rare; Authority - Showing Knowing; Commitment - The Starting Point; Liking - Making Friends to Influence People; and Consensus - People Proof, People Power.

Sam (an avid hunter) has a dispute with his neighbor Sunny because Sunny leaves her dog out late at night and the dog barks a lot. Sam knows one reason Sunny does so because she works late at night and does not get home until after 11:00 P.M. Sunny worries if she leaves her dog inside of her house it will "go" (i.e., make a mess) in the house. Sam has a son (Donnie) who likes Sunny's dog and plays with it sometimes. Donnie, however, needs to be in bed each night by 9:00 P.M. Also, there is a city ordinance that forbids disturbing noise after 10:00 P.M. on week nights. Sam is considering which approach to take with Sunny to resolve this dispute. Give an example of an interest-based approach that Sam could use for resolving this dispute with Sunny.

Sam and Sunny both have interests in being "good neighbors" and likely both care for the dog. Sam may offer to do some "dog sitting" since his son currently plays with the dog and Sam may be in need of a hunting dog on occasion.

Sam (an avid hunter) has a dispute with his neighbor Sunny because Sunny leaves her dog out late at night and the dog barks a lot. Sam knows one reason Sunny does so because she works late at night and does not get home until after 11:00 P.M. Sunny worries if she leaves her dog inside of her house it will "go" (i.e., make a mess) in the house. Sam has a son (Donnie) who likes Sunny's dog and plays with it sometimes. Donnie, however, needs to be in bed each night by 9:00 P.M. Also, there is a city ordinance that forbids disturbing noise after 10:00 P.M. on week nights. Sam is considering which approach to take with Sunny to resolve this dispute. Give an example of a rights-based approach that Sam could use for resolving this dispute with Sunny.

Sam has a property right to be able to enjoy his home without the disruption of a barking dog. He may be able to file a police complaint against Sunny due to her barking dog as it violates the city ordinance. (correct)

Sam (an avid hunter) has a dispute with his neighbor Sunny because Sunny leaves her dog out late at night and the dog barks a lot. Sam knows one reason Sunny does so because she works late at night and does not get home until after 11:00 P.M. Sunny worries if she leaves her dog inside of her house it will "go" (i.e., make a mess) in the house. Sam has a son (Donnie) who likes Sunny's dog and plays with it sometimes. Donnie, however, needs to be in bed each night by 9:00 P.M. Also, there is a city ordinance that forbids disturbing noise after 10:00 P.M. on week nights. Sam is considering which approach to take with Sunny to resolve this dispute. Give an example of a power-based approach that Sam could use for resolving this dispute with Sunny.

Sam may use coercive power by threatening to shoot the dog if Sunny cannot keep it from barking. He might also find other neighbors equally annoyed by the dog's barking (referent power).

What steps can a negotiator take to repair or restore the level of trust in a negotiation?

Set up face-to-face meetings; focus on the relationship and not on who is "right" or "wrong"; apologize if necessary; let the other person vent or discuss why they are upset/frustrated; don't get defensive as the person is venting; ask for clarifying information; ask the other person what he or she is fair, or what they would need to continue the negotiation; and think about ways to prevent future problems (i.e., trust dilemmas) from occurring.

You determine during negotiations that the other negotiator is concerned about finding a new parts supplier for her company (the XYZ Company). Your company (you believe) would be a perfect parts supplier for the other negotiator's company given your company's on-time delivery record and relative close geographic proximity to XYZ. What could you say to the other negotiator that would emphasize how much XYZ could lose if she is unable to make a deal with your company? Explain how you could use the scarcity effect and the notion of loss aversion to persuade the other negotiator to reach an agreement with you.

Since loss aversion assumes that people are more sensitive to losses then they are to gains of the same size, you would want to emphasize that XYZ will be missing out on a good business partner if they cannot reach an agreement with your company. To play upon the scarcity effect ("People want what they cannot have"), you could emphasize (assuming this is true) that many companies are partners with your company and several others are interested in working with you because of your company's reputation.

Musician Dave Carroll was unable to convince United Airlines to pay for the replacement cost of his guitar, which had been damaged by United baggage handlers at Chicago's O'Hare Airport. Carroll created a video called "United Breaks Guitars," and posted the video on YouTube. He also told his story on several television programs including the "Today Show." Due to the amount of negative attention it was receiving, United quickly offered to reimburse Carroll for the cost of his guitar. Which negotiation concepts/principles are illustrated by this situation?

The misconception that leverage is constant and does not change. A negotiator's Best Alternative to a Negotiated Agreement (BATNA) can change. A negotiator's leverage can be improved through the use of coalitions. Hardball tactics and negative or "threat-based" leverage are frequently used in distributive bargaining situations. All of the above (correct)

Sam realizes that there are four criteria for evaluating the process and outcomes obtained by using interests vs. rights vs. power approaches in his dispute with Sunny. Which of the following is not one of these four criteria for evaluation?

Transaction costs. Likelihood of reoccurrence. Satisfaction with the outcomes. Size of the pie claimed. (correct) Effect on the relationship.

Hierarchy

a belief system that accepts unequal distribution of status and power.

Anchoring and adjustment

a decision bias where in uncertain situations people will be influenced by an "anchor" to make their decision, and even if they know the anchor may not be accurate, they do not adjust away from the anchor sufficiently.

Representativeness heuristic

a decision heuristic where judgments about persons or events are made based on how well the person or event fits into a prototypical or stereotypical category. If enough features of the person or event fits the category, we tend to over generalize and assume all the characteristics of the category fit the person.

Foreign Corrupt Practices Act

a law that details what is acceptable behavior in international negotiations and trade. It includes anti-bribery provisions that prohibit bribes to foreign official or political parties in order to establish trade.

Ethics of principle

a relativist approach to ethics that is grounded in the prevalent culture. It assumes that people are rational and will do the right thing to produce an outcome that is consistent with the culture. A "do unto others" approach.

Prospect theory

a subjective utility theory that shows individuals' psychological value for money is not linear. Most people have a utility curve that is concave in the domain of gains and convex in the domain of losses, and the slope is steeper in the domain of losses, which can account for loss aversion.

Ethics of consequence

a utilitarian or pragmatic approach to ethics. It assumes the individual will choose the action that produces an outcome that does the least harm and the most good.

The Golden Rule, "do unto others as you would have them do to you," is consistent with a/an __________________ approach to ethics.

absolutist relativist (correct) pragmatist

Barbarians at the Gate was a movie (based on a best-selling book) that portrayed the bidding war in the 1980s between F. Ross Johnson and Henry Kravis for the leveraged buyout of RJR Nabisco. Johnson and Kravis continued to bid to take control of RJR Nabisco even though many thought the ultimate deal cost the "winner" (Johnson) more than what the transaction was worth. This type of behavior best illustrates the cognitive bias of:

anchoring. the endowment effect. irrational escalation of commitment. (correct) overconfidence. reactive devaluation.

Preference reversals

are related to framing effects in that people will give responses that are intransitive depending on how the question is framed. That is, they will reverse their preference as a function of whether the question is posed in terms of possible gains or possible losses.


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