Optimal Search in Negotiation Analysis

Abstract

A negotiator's reservation price or “bottom line” depends directly on the value of the no-agreement alternative to a proposed negotiated agreement. Often, one's no-agreement alternatives are uncertain and finding them requires a costly search, as in the case of a seller who must expend effort, time, and money in finding potential buyers. The value of the search should determine the seller's bottom-line or reservation price in dealings with a prospective buyer. Optimal search and stopping theory suggest useful procedures and heuristics for evaluating one's reservation price in negotiation and for searching among alternatives.