The Power of Finding and Using a BATNA & WATNA (Part 2 of 3)

The Power of Finding and Using a BATNA & WATNA

The Power of Finding and Using a BATNA & WATNA

…Continued from Part 1:

Back to discovering and using what the negotiation world calls a BATNA and WATNA, this article will continue to move through an analysis to help the parties discover the alternatives that will drive how they negotiate and settle a dispute.  The previous article discussed the importance of moving through a BATNA/WATNA analysis to discover the true interests at the center of a dispute. It also began an analysis by providing a list of possible alternatives that the parties may consider as they begin to evaluate their position.  The next steps will be outlined bellowed, and then this article will discuss an example of an analysis to help demonstrate how this analysis can produce negotiation power.

Two Formats:

Two different analysis approaches may be helpful for parties to use when determining their BATNA and WATNA.  The first analysis is a decision-tree analysis, which is the standard analysis but is more in-depth, especially with complex problems.  The second is a results/costs analysis and was described by Jessica Notini.[1]  These two approaches will essentially produce the same results but use different paths to achieve this result.  The approach a party or a neutral may choose can depend on factors such as the complexity of the negotiation, the ability of the parties to conceptualize alternatives, and the time allowed to complete the analysis.  Some parties will feel more comfortable doing an in-depth analysis to determine their BATNA and WATNA, while others would like to move quickly to help the negotiation move forward. This article will discuss both options for analysis and help parties and mediators to choose the best option for their specific dispute.

 

Decision-Tree Analysis:  

A common approach to determining a BATNA and a WATNA is called a decision tree analysis.  This analysis will first look at the alternatives that a party could reasonably use, then will look at the reactions that the opposing party may have to that alternative, and finally will evaluate each alternative that they could use to counteract that reaction.  After identifying all of these possibilities, the parties will evaluate each of the final possible actions to determine which one would produce the best results and the worst results.  When the litigation involves a cause of action that is complex and includes many elements that may need to be proved, some people will run a decision tree for every element, so that they are prepared if a party will admit to certain elements. However, not all decision-tree analyses will be as complicated. A standard decision-tree analysis will move through these steps:

  1. A party must list every action that they may take if an agreement is not made between the parties.
  2. For every one of these actions, the party will need to anticipate all of the possible reactions that the other party may have to the action.
  3. For each of these reactions, the party must decide what actions they could take in response.
  4. This back and forth may continue until each branch reaches a reasonable conclusion.
  5. Figure out what the party will receive (the payoff) for each of the branches.
  6. Rank the possible payoffs from best to worst.
  7. Remove the lowest-ranked options that stem from each main strategy.
  8. Find the highest of the low options remaining.
  9. Follow the branch found in step 8 back to the main strategy. This strategy will be the one with the lowest chance of loss.
  10. If the remaining WATNAs are equal and you cannot find a branch to minimize loss that way, you can divide the total number of points awarded to the options in a branch by the number of options generated by a starting strategy. The highest value will generate a response that will maximize profits and minimize loss.
  11. The starting strategy with the highest results will be the BATNA and the starting strategy with the lowest average will be the WATNA.

 

Running an Example through the Decision-Tree Analysis:

Running an example through the decision-tree analysis will help to demonstrate how a party may find their BATNA and WATNA through this analysis.  Let’s imagine that Carl, a tenant, is living in an apartment that he rents from Amanda.  Amanda is not doing a great job of keeping up with repairs in the apartment and many repairs need to be completed—only one burner on the stove works, the water heater goes out sporadically, there are some cracks in the windows, and the binds only work on half of the windows.  Carl is annoyed by the lack of repairs to the apartment and has asked Amanda to make the repairs as required in the lease.  When Amanda refuses to make the repairs, Carl threatens to withhold rent and sue.  Amanda suggests that they talk about a way to settle this, and Carl agrees but wants to be prepared to go into the discussion.  Using this example and the decision-tree analysis, Carl could make the following table:

 

StrategyReactionActionRankAverage
Carl could demand that Amanda makes the repairs or he will move out.(a) Amanda could make the repairs.

 

(b) Amanda could refuse to make the repairs.

(1) Carl could stay.

 

(1) Carl could stay.

(2) Carl could leave.

3

 

 

0

 

2

5/3

 

1.33

Carl could make the repairs himself.(a) Amanda could pay Carl back.

 

 

 

 

 

 

 

(b) Amanda could refuse to pay for the repairs.

(1) Carl could deduct the cost from his rent.

(2) Carl could stay with a repaired home and the money for repairs.

 

(1) Carl could deduct the cost from his rent.

(2) Carl can stay and not be paid.

2

 

 

 

3

 

 

 

 

 

1

 

 

0

6/4

 

 

 

1.5

Carl could file a rent escrow action to force repairs.(a) Amanda could make the repairs.

 

 

 

(b) Amanda could still refuse to make the repairs.

(1) Carl could stay with a repaired home.

 

 

(1) Carl could stay and stop paying rent.

(2) Carl could ask the court to enforce the order.

3

 

 

 

 

 

1

 

 

2

6/3

 

 

2

 

            In this case, Carl’s BATNA would be to file a rent escrow action, because it produces the most beneficial results without a great risk of loss.  His WATNA would be to make a second demand of Amanda to make the repairs. This would be the case whether Carl found the BATNA through the highest of the WATNAs or through the averages. This table is not fully developed, and there are other options for Carl that I have not explored, but to demonstrate how to build a decision tree, this table demonstrates how to build and evaluate options for a decision-tree analysis.

Results/Cost Analysis:

The other option for determining a BATNA and a WATNA is a results/costs analysis. This formula will take the initial result that would happen from an alternative a party could take, subtract the costs of pursuing that option, and then see the result of this outcome as the final outcome of that alternative.   This is a more streamlined version of the decision tree analysis and would work in most simple disputes without many moving parts.  While this process is a simpler analysis, it requires a party to carefully analyze the outcomes that would result from an alternative solution and to carefully and systematically identify the costs, both monetary and nonmonetary, that would result.  A BATNA will be the alternative that results in the highest final outcome, and the WATNA will be the alternative with the lowest final outcome.

 

Running an Example through A Results/Costs Analysis:

             Running the earlier example through a results/costs analysis, we would likely end up with a similar conclusion.  Each option would produce a somewhat similar result;

  • Demanding she fix or leave. If Carl demanded that she repair the apartment or leave, he could face the costs of finding a new apartment, paying rent at the new apartment, and possibly a penalty for leaving Amanda’s apartment early. While Amanda may fix the apartment, there is not much that he could do to force her. Therefore, this option would be hard to use.
  • Make the repairs himself. If Carl made the repairs himself, he would have the costs of repairs and any costs that may arise from any decisions he makes as a result of Amanda’s willingness to pay. While he could wind up even or in a better position, he could also end up at a loss if Amanda refuses to pay him back. This one has a greater risk of loss and would not be the best option.
  • File rent escrow. If Carl files a rent escrow action, the court could abate his rent for the time that he had lived in an apartment with disrepair and the court could give him other costs. However, Carl may have to pay for a lawyer and court fees.  However, because the home is obviously in disrepair, Carl’s odds of winning in court would be high.  Therefore, this would likely b the best option.

 

Benefits of a BATNA/WATNA Analysis:

 Moving through a BATNA/WATNA analysis can be beneficial for a few reasons other than just to determine a BATNA and WATNA.  These benefits include:

  • Enhancing a BATNA: By looking closely at a BATNA and the other alternatives, a party may be able to identify ways to remove their WATNA and make their BATNA a sure thing should the negotiations not work.
  • Understanding the Possible Routes: By moving through the alternatives and continually asking what should happen at the next branch, a party can see what could be the course of the dispute and could better anticipate what is coming next. This can help the parties prepare for the entire course of action.
  • Assessing Risk Tolerance: By moving through the possible outcomes, a party will be able to decide what choices they would feel comfortable making. If a party writes out a possible option and then decides that it is too risky for them to take, they can eliminate the possibility and not consider the risk.

 

Conclusion:

             Both of these analyses will help a party find their BATNA and WATNA and be prepared with this knowledge as they move into a negotiation.  A decision-tree will help a party move through and think of all of the possible outcomes that may result from an alternative.  A results/costs analysis may help a party move through an analysis quickly and evaluate their position.  Now that the parties have identified their alternatives and found their BATNA and WATNA, the final article will focus on using the BATNA and WATNA to their advantage in the negotiation.

Continued in Part 3…

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Emily Holland
Emily Holland is a Contributing Editor at ADR Times. She is also a recent graduate of Pepperdine Caruso Law. While in law school, Emily served as an executive editor on the Pepperdine Dispute Resolution Law Journal and had the opportunity to learn about ADR from world-class professors of the Straus Institute for Dispute Resolution. She calls the city of Minneapolis home, and spends her free time running through the parks or searching for the best matcha from local coffee shops. Emily can be reached via email at [email protected]

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