INTRODUCTION
Much of the political news
is about negotiations. American
politicians, in both domestic and foreign disputes, don’t seem to know much
about negotiation strategy. Maybe a
little applied game theory would help.
IS NEGOTIATION POSSIBLE?
The first question is
whether or not negotiation is possible or just a waste of time and effort.
Negotiations will be
fruitless if at least one party believes there are no possible outcomes that are
better than not negotiating. Compromise
is impossible. Fanatics, true believers,
proponents of “Victory at any cost” or “Give me victory or give me death” or
parties who believe their opponents are evil are not likely to negotiate.
Sometimes leaders act to
limit their options or those of their followers. The famous historical example is when Cortes
burned his boats that brought him and his men to Mexico. Returning to Cuba was no longer an
option. Cortes forced his men to make
the “credible” commitment to conquer the Aztecs. By their past actions, Israel’s policy of
never negotiating with airplane hijackers is credible.
Bashar al-Assad of Syria has
put himself and his regime in this situation through the brutality of their
past actions. He has eliminated any
option for himself except being dictator or being killed. At this point, there is nothing to be gained
by negotiating a political settlement.
In business and other types of negotiations, there are two stages. Both sides of a potential agreement must believe that they will benefit from an agreement – increased sales, reduced costs, increased profit. This is the “win-win” or “positive sum” stage. The second stage is how the increased benefits are to be split. This is a “zero-sum” negotiation.
THE LIMITS OF NEGOTIATION
There are limits to what a
party to a negotiation will accept.
These limits are set mostly by a party’s perception of the consequences
if no agreement is reached. When
President Obama negotiated budget reductions in 2011 under House Republicans’
threats to shut down the Federal government, he was facing reelection and felt
pressure to compromise. In 2013, after
winning reelection, he felt he was in a stronger position to resist Republican
demands. The consequence of losing an
election had disappeared.
Knowing this, why did the
Republicans again threaten to close down the government? Because they perceived that the consequences
of not challenging the president were greater than challenging the president
and losing. The Republican Party was
becoming increasingly conservative. The
vast majority of House Republicans knew they came from safe districts. The major threat to reelection in 2014 was
losing to a more conservative Republican in the primary. By again threatening the extreme action of
shutting down the government they eliminated the main argument of a potential
Republican primary rival.
In addition, although
circumstances had changed, President Obama’s compromises in 2011, seen as a
victory by many Republicans, cast doubt on the credibility of his threat not to
negotiate.
INCREASING THE CHANCES TO
NEGOTIATE
One way to increase the
chances the other party will negotiate is to change the “payoff matrix” or
cost/benefit of analysis of the other party, preferably before negotiations
begin. The idea is to raise the cost of
not negotiating or increasing the options of the other party in negotiations.
Iran is a recent
example. For years, Iran went through
the motions of negotiating a moratorium on enriching uranium to develop an
atomic bomb. As long as the rest of the
world thought there might be a chance of Iran slowing or stopping its atomic
bomb project, there were no consequences to Iran of continuing the program. They were even able to buy thousands of
centrifuges from a West German company.
It was only after the United States and Western Europe finally imposed
economic and financial sanctions that Iran was willing to seriously
negotiate. The sanctions had wrecked the
economy and threatened the ayatollahs’ rule.
THE ULTIMATUM GAME
This has become one of the
most famous games in game theory. It has
been played many times by different groups in different countries.
There are two players. One player is given an amount of money. He has to offer part of the amount to a
second player. If the second player
accepts, they split the gain. If the
second player refuses, neither player gets any money. This puts a limit on the number of possible
outcomes. One party maybe be better off
accepting a proposal than refusing to negotiate but may decline the proposal
because it is not “fair.”
To an economist, the offer
is obvious. If the amount is $1, the
first player offers the second player the minimum, one cent. The second player is better off accepting
than refusing, so he accepts. But that’s
not what happens when the game is actually played. For almost all groups and across different
cultures, the second player typically rejects offers below 25-30% of the
total. There is an almost universal
sense of “fairness.” Even worse, the
second party may feel insulted by the offer, making future and better offers
more likely to be refused.
MORE THAN TWO PLAYERS
In general, the more players
there are in a game, the more difficult it is to reach an agreement. Even a relatively weak or unimportant player
can threaten to “hold up” an agreement at the last minute unless they get a
better payoff. This is true of global
trade agreements and close votes in Congress.
This is also one reason that
the Assad regime in Syria has a good chance of surviving. There are at least 20 anti-government
organizations fighting the regime. They
have different sponsors and different visions of what a post-Assad Syria should
be like. Recently, they have been
fighting among themselves. In addition,
the Syrian regime can count on financial and military support from Iran and
military assistance from Hezbollah. The
regime also has some military support and diplomatic cover from Russia.
CONCLUSION
While much of the discussion
about negotiation is about how to negotiate, assumptions about the players are
important. Negotiations have a greater
chance of succeeding if all the players share some basic assumptions, see a
noticeable advantage of negotiating versus not negotiating, see the game as
fair, and intend to actually abide by the agreement. Even when negotiations lead to a treaty or
agreement, they are often only a ploy by one side to buy time, to temporarily
ward off sanctions or conflict.
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