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Full Information

¤ It is still hard to find all of the options.

¤ Need to really understand how the other side sees the world

¤ Engaged in joint problem solving

¤ I call it “Getting to Know”

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Jesse Jumpshot

Package Sal %Merch Profits Bonus

A 2.5 0 0B 2 0 1.5C 1.5 10% 0.5D 1.2 5% 0E 1 10% 1

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Jesse Jumpshot

Package Sal %Merch Profits Bonus

B 2 0 1.5C 1.5 10% 0.5

B is easy to figure out. 1.5 bonus is worth 0.9 to Jesse, costs Sharks 0.15

What is value of merchandise profits?

Case doesn’t state chance of winning absent Jesse (assume 0)

Jesse: 0.6 * Win 10 Sharks: 0.1 * Win 12 = 8 = 3

0.4 * Lose 5 0.9 * Lose 2

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Jesse Jumpshot

Pkg Sal %Merch Bonus Jess / Sharks Profits

A 2.5 0 0 2.5 2.5B 2 0 1.5 2.9 2.15C 1.5 10% 0.5 2.6 1.85D 1.2 5% 0 1.6 1.35E 1 10% 1

Case C: 2.6 = 1.5 + 10%(8) + .3; 1.85 = 1.5 + 10%(3) + .05

Case D: 1.6 = 1.2 + 5%(8); 1.35 = 1.2 +5% (3)

Case E: 2.7 = 1 + 10%(8) + .6; 1.4 = 1 + 10%(3) + .1

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Jesse Jumpshot

Pkg Sal %Merch Bonus Jess / Sharks BATNAs Profits

A 2.5 0 0 2.5 (2.5) 2.1 / (3)B 2 0 1.5 2.9 (2.15)C 1.5 10% 0.5 2.6 (1.85)D 1.2 5% 0 1.6 (1.35)E 1 10% 1 2.4 (1.4)

ZOPA is 2.1 to 3

Case doesn’t state chance of winning absent Jesse!Case C: 2.6 = 1.5 + (.6 + .2) + .3; 1.85 = 1.5 + (.12+.18) + .05Case D: 1.6 = 1.2 + (.3 + .1); 1.35 = 1.2 + (.06+.09)Case E: 2.7 = 1 + (.6 + .2) + .6; 1.4 = 1 + (.12+.18) + .1

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Jesse Jumpshot

What is Jesse’s reservation price?

$2.21 (so that after paying the agent 5%, Jesse still has 2.1)Note that 0.95*2.205 = 2.1

Non-monetary values (winning championship)

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Jesse Jumpshot

What is Jesse’s reservation price?

$2.21 (so that after paying the agent 5%, Jesse still has 2.1)Note that 0.95*2.205 = 2.1

Not quite: What if Jesse gets $1 million salary plus rest in bonus.Then Jesse’s reservation price

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Jesse Jumpshot

Pkg Sal %Merch Bonus Jess / Sharks Jess/Agent Profits

A 2.5 0 0 2.5 (2.5)2.375 / .125

B 2 0 1.5 2.9 (2.15) 2.8 / .1C 1.5 10% 0.5 2.6 (1.85)

2.525 / .075E 1 10% 1 2.4 (1.4) 2.35 / 0.05

BATNA should take into account payment to agent!

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Pareto Optimality

Pkg Sal %Merch Bonus Jess / Sharks Jess/Agent Profits

A 2.5 0 0 2.5 (2.5) 2.375 / .125B 2 0 1.5 2.9 (2.15) 2.8 / .1C 1.5 10% 0.5 2.6 (1.85) 2.525 / .075E 1 10% 1 2.4 (1.4) 2.35 / 0.05

Only B, C, and E.

Say you are at C, any ideas?

Post-settlement settlement

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Creating GainsDifferences

Chance of winning: Jesse 60%, Sharks 10%

Revenues if win: Jesse 10, Sharks 12.

Revenue if lose: Jesse 5, Sharks 2

What is value to Jesse of 10% of revenues up to 10m vs 10% of rev.

Same value, but cost of latter is higher to Sharks

What is cost to Sharks of 10% of revenues if lose vs. 10% of first 2m if lose

Same cost, but value of latter is higher to Jesse

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Pareto OptimalityPkg Sal %Merch Bonus Jess / Sharks Jess/Agent

ProfitsB 2 0 1.5 2.9 (2.15) 2.8 / .1C 1.5 10% 0.5 2.6 (1.85) 2.525 / .075E 1 10% 1 2.4 (1.4) 2.35 / 0.05

But none are Pareto in a larger context.

Sharks get 0--2 in merchandising (“M”) as M is always at least 2Jesse gets 2--5 in M if lose (as Sharks think this has zero probability) -- worth .4*3=1.2Sharks get 10--12 in M if win (as Jesse thinks this has zero chance)

If Jesse gets 100% of 2--10 if Sharks win -- worth .6*8 = 4.8; costs .1*8=.8 to SharksAdd $1 million guarantee and package is worth 7m to Jesse with cost of 1.8 to Sharks (this beats B and

C). If Jesse only gets half of 2--10 M, then Jesse gets 4, Sharks pay 1.4 and so this beats/ties E. Hence none of B, C, and E are Pareto.

What about adding a bonus if win? For each dollar, Jesse goes up .6, Sharks go down 0.1.So add $2 million bonus, and Sharks are at $2 million, Jesse is at $8.2mWhat about first 2m of bonus?

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BettingWhat do you (as Jesse) make of the fact that Sharks think chance of

winning is 10%

Are these joint gains real?

Do you revise your beliefs?

Do you as Sharks or as Jesse reveal your true views? (If so, to whom?)

Jesse is betting $8 million that he will win the championship. How is this different than what Pete Rose did?

Is it better or worse?

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What is the Moral?

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What is the Moral?

AGREEING TO DISAGREE

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Sharing InformationRevealing the right information creates value, revealing wrong

information puts you at a disadvantage

Revealing beliefs

Revealing reservation price

Revealing market comparables

Rug Story

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Incentive Conflicts

Pkg Sal %Merch Bonus Jess / Sharks Jess/Agent Profits

A 2.5 0 0 2.5 (2.5)2.375 / .125

B 2 0 1.5 2.9 (2.15) 2.8 / .1C 1.5 10% 0.5 2.6 (1.85)

2.525 / .075E 1 10% 1 2.4 (1.4) 2.35 / 0.05

F 1 100% of 2--10m 0 7 (1.8) 6.95 / 0.05

F is far best for Jesse, A is far best for Agent!

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Incentives

What do you expect the agent will do that may not be in Jesse’s interest

What is agent getting 5% of Sharks contract but nothing of Five-Ways? (Not very sensible)

How would you redesign the contract?

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Team #1

Interests versus positions

Sharks talk/listen ratio is off

What do you think of Jesse’s agent?

Is it reasonable or not to consider salaries below 2.5m when that was on the table?

Concede at the right price?

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Team #2

Sharks listen

Truthful revelation of Jesse’s probabilities

Shark’s reciprocate

Jesse: I’m that good. Shark’s: Then bet on your yourself

Less upfront and more performance based

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Team #3

What share is reasonable: 50%

Do you have the numbers in place at that point?

Sharks accept principle without accepting 50% anchor.

Well done or not?

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Team #3

What share is reasonable: 50%

Do you have the numbers in place at that point?

Sharks accept principle without accepting 50% anchor.

(But perhaps they should go even more. What fixed salary would you give up to go to 50%? What about 100%?)

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Team #4

Exaggerating value of merchandising

Jesse wants contingency fee

Agent resists

Sharks appeal to Jesse