Dynamic Outside Options in Alternating-Offers Negotiations

Abstract

We present a model for bilateral negotiations that considers the uncertain and dynamic outside options. Outside options affect the negotiation strategies via their impact on the reservation price. The model is composed of three modules, single-threaded negotiations, synchronized multi-threaded negotiations, and dynamic multi-threaded negotiations. These three models embody increased sophistication and complexity. The single-threaded negotiation model provides negotiation strategies without specifically considering outside options. The model of synchronized multi-threaded negotiations builds on the single-threaded negotiation model and considers the presence of concurrently existing outside options. The model of dynamic multi-threaded negotiations expands the synchronized multi-threaded model by considering the uncertain outside options thatm ay come dynamically in the future. Experimental analysis is provided to characterize the impact of outside options on the reservation price and thus on the negotiation strategy. The results show that the utility of a negotiator improves significantly if she considers outside options, and the average utility is higher when she both considers the concurrent outside options and foresees future options.