Searching for Pareto-Optimal Settlements in Negotiations: The Extreme Payoffs Method

Decision-making analysts are generally familiar with the maximin and minimax criteria used in the selection of alternative courses of action when payoffs depend on different states of nature. This paper applies these criteria to the collaborative negotiation problem in which two parties negotiate the resolution of several issues each with defined payoffs, and where the alternative choices for each party are qualitative attributes or non-differentiable variables. The proposed method assumes that the negotiators do not know each other’s payoffs and are generally unwilling to disclose information about their preferences. The search procedure for Pareto-optimal settlements and the role of the mediator in assisting the parties to achieve an improved negotiated agreement are analyzed and illustrated through an example.