An Exploration-Exploitation Model of Negotiation

An Exploration-Exploitation Model of Negotiation
Author(s): Prietula, Michael and Weingart, Laurie R.
Year: 2005
Paper Number: GBS-DIA-2005-002
Goizueta Department: Decision and Information Analysis

Abstract

We propose a model of negotiation that may better explain how the specific progression of offer traces emerge in a dyadic negotiation and how those traces converge to a solution. Negotiation is viewed as a type of ill-structured collaborative problem that negotiators attempt to resolve by jointly searching the offer space, which is an abstract representation of the entire set of potential solutions to the problem. We suggest that boundedly rational negotiators simplify the task by systematically coordinating searches of small subsets of the offer space. These coordinated searches define a common ground of understanding of the regions of the space that may contain a solution. Furthermore, these regions are defined more by their structural (rather than value) properties of offers. Consequently, we propose that the early phase of negotiation is described by search processes that explore the offer space to discover regions of potential (joint) interest. When a promising region is found, a second “final path” phase of search begins whereby that region is exploited in order to achieve a final solution. Both phases are revealed by examining sequential offers which afford a trace of the paths taken to an agreement. We describe a method of representing sequences of offers that categorizes exploration and exploitation patterns. We argue that by incorporating these concepts in analyses, insight into the underlying dynamics of negotiation can be better understood. To illustrate, we apply these concepts to an illustrative set of dyadic negotiation data.