Monday, March 29, 2010

Real World Lessons Learned from "Powerless" Mediators

What can an experienced, real-world mediator learn from an ivory tower political science professor? Surprisingly, the answer may be, "Plenty."

I recently met UCLA political science professor Barry O'Neill, who uses game theory to analyze international relations and who also has an interest in mediation. Professor O'Neill has written a paper - still in draft from - entitled "What Can a Powerless Mediator Do for Strategic Negotiators?" O'Neill may underestimate the power that mediators have generally, but even so he demonstrates a number of important points that mediators and negotiators should consider.

O'Neill asks readers to consider a "powerless" mediator who "has no means to coerce or bribe the parties or any special information to give them. Further, the mediator is dealing with negotiators who are foresighted and strategically pursue fixed goals, so that the mediator's problem-solving ability, personal persuasiveness or charisma add nothing."

O'Neill then demonstrates mathematically that such a "powerless" mediator still can add value to a negotiation. Such a mediator can focus the parties' attention on an existing strategy for resolution, or what game theorists call an equilibrium; help the parties resolve issues and save face by initiating compromises that the parties themselves may not want to risk initiating; and reduce each party's risk in exploring common interests.

Here's the rub: good mediators in the real world do in fact perform these functions.

First, experienced negotiators and mediators frequently can tell fairly early in a negotiation where it is going to end. In other words, they can see the best strategy for each side to use given the strategy being used by the other side, and they can see these strategies through to the point of resolution. This may be intuition, or it may be evidence of the mathematical equilibria for which game theorists search.

Good mediators not only can see the solution, but also can lead the parties through the negotiation to that solution. In plain English, good mediators helps the parties discover solutions that are already there.

Second, most if not all parties enter negotiation with the fear that they will give too much or leave value on the table. In litigation, the attorneys frequently have another layer of fears. Not only do they fear that the other side will try to take advantage, but they also fear that their own clients will see them as weak and incompetent if they seem too willing to compromise. For attorneys, negotiation frequently means fighting a war on two fronts.

Of course, good mediators understand this. They do not just act as messengers of the parties' respective positions. Instead, they initiate and advocate for compromises that the parties themselves may not want to initiate, thus allowing the parties to save face when called upon to make concessions. By initiating and advocating for compromise, good mediators also allow the attorneys to save face with their clients. An attorney who wants a case to be resolved but needs to save face with the client can count on a good mediator to read the situation and act accordingly.

Similarly, good mediators help the parties explore their common interests without losing face. In situations where mutual gains can be achieved through cooperation - and not all cases fit this model, as I discussed here - good mediators will work with each party to explore options in private session. Further, good mediators will present such options as mediator's proposals when the parties are not willing to risk presenting such options as their own.

"But all mediators know these things, dont they?"

The most important lesson from O'Niell's paper is one that he does not state explicitly, but that many experienced negotiators will recognize: Far too many of us professional mediators think too highly of our mediation "powers" and would do well to get back to the basics suggested by O'Neill. An example:

Not long ago, I represented one of the parties in a mediation with a very well-known, very successful mediator. As frequently occurs, the parties disagreed on a factual issue. What was unusual was that the mediator insisted that we resolve the issue before we moved forward. I explained repeatedly that my client and I were not particularly interested in the issue and that we wanted to work on getting to a settlement done. He insisted that his mediation "style" was to explore all such issues before talking numbers. He told us that he could not go forward without resolving the issue and asked the parties to return for another session once they had produced evidence to support their positions. Since the mediator would not go forward, we left, and it goes without saying that we did not return for a second session.

What compelled this highly respected mediator to put his mediation "style" ahead of the parties' need to resolve the case? I do not believe that the mediator simply wanted to earn more fees for a second session. I believe that the mediator had become too enamored of his own "style" and his own "power."

Everyone who mediates professionally should consider the lessons learned from O'Neill's hypothetical "powerless" mediator: that good mediators can add value not by imposing their own wills or personalities on the negotiation, but by focusing the parties' attention on existing strategies for resolution, by exploring common interests in separate sessions that the parties may not be willing to explore with each other, and by initiating and advocating for compromises that the parties may not be willing to risk initiating themselves.

Monday, March 22, 2010

Bargaining in the Dark (Part II)

In my last post, I introduced John C. Harsanyi and a paper that he wrote in 1962 on the following question: Given that parties typically do not know each other's "utility functions" (i.e. preferences and risk tolerances), how is it that people manage to reach agreements as frequently as they do? Harsanyi suggests that two mechanisms may be at work:
On the one hand it is conceivable that in a given society with well-established cultural traditions people tend to enter bargaining situations with more or less consistent expectations about each other's utility functions.
Alternatively, we may assume that compatibility between the two parties' final concession points is not the result of their already entering the bargaining situation with mutually consistent expectations, but is rather the result of mutual adjustment of their expectations during the bargaining process itself.
Harsanyi argues that "mecahnism II can operate only if bluffing can be brought under effective control," which he says is not possible. He argues that people do not adjust their bargaining positions in response to anything that they consider to be a bluff. Harsanyi concludes:
[M]echanism II can operate only if bluffing by the parties is brought under control... [T]his condition is rather imperfectly met in most real-life situations, which restricts the usefulness of bargaining for the purpose of testing out the opponent's true attitudes.
I have to disagree with this conclusion. First, Harsanyi discounts the ability of people to test and expose bluffing. It seems to me that people in the real world deal very frequently and effectively with bluffing. People who believe they are being bluffed typically will test the bluff by hardening their own positions. If this does not produce results, they typically will leave the negotiation. Harsanyi considers this a failure, but he ignores the likelihood of iterative bargaining, i.e., returning to the table after a failed initial session. This happens frequently in more complex disputes, whether they involve money or other interests. In fact, it seems to me that iterative bargaining is the predominant model.

Second, while Harsanyi correctly recognizes that penalizing excessive bluffing increases the effectiveness of bargaining, he seems to underestimate the degree to which the real world does in fact penalize excessive bluffing. In a transactional context, a bad bluffer will lose out on good opportunities while trying to make incremental gains on return. In litigation, the bad bluffer not only will lose out on the opportunity to make reasonable settlements, he also will suffer increased costs as litigation continues. These costs include not only the dollar expense of paying for lawyers, expert witnesses, etc., but also the time, attention, and emotional energy that litigation require.

Third, I disagree with Harsanyi's argument that people cannot obtain useful information about each other's utility functions if bluffing is permitted. Because people can and do test each other's bluffs -- such as by walking away from negotiations -- and because the real world does penalize excessive bluffing, there comes a time in every negotiation when all but the most intransigent bluffers will have to "get real."

Friday, March 19, 2010

Bargaining in the Dark

Do you remember the film A Beautiful Mind? It tells the story of John Forbes Nash, Jr., a brilliant but troubled methematician played by Russell Crowe. Unless you're a math geek, you probably don't know that Nash did his mathematical work in game theory. As shown in the film, Nash received the Nobel Prize in Economics in 1994. He received the award along with Reinhard Selten and John C. Harsanyi, and that leads me to the reason for this post.

John Harsanyi was born in Budapest, Hungary, in 1920. He attended the best mathematics school in Hungary and was a student of John Von Neumann, the father of game theory. As a Jew, Harsanyi would have been sent to a concentration camp in 1944, but he escaped from the train station and was given refuge in the basement of a Jesuit monastery. After the war, he left for Australia and, eventually, the United States. He was a professor emeritus of economics at my alma mater, U.C. Berkeley, until he passed in 2000. Harsanyi's autobiography, written on receiving the Nobel Prize, is here.

Harsanyi wrote a paper in 1962 entitled "Bargaining in ignorance of the opponent's utility function." The paper is brilliant and is available here.

Harsanyi begins by noting that most of existing game theory "is based on the assumption that the two parties know each other's utility functions ... [or] each other's preferences as well as each other's attitudes toward risk." Of course, in most real world interactions, we have at best sketchy information about our bargaining opponents, their preferences, and their attitudes about risk. And our opponents usually work very hard to keep this information from us, particularly in competitive situations.

"In bargaining, and more generally in all non-trivial game situations, the behavior of a rational individual will depend on what he expects the other party will do." Harsanyi explains that this dynamic is at play for both sides, so that what A does depends on what he expects B to do, which depends on what he expects A to do, ad infinitum. The result of these intertwined expectations is as follows:
[A] bargaining party faced with a presumably rational opponent cannot rationally expect this opponent to make a concession in a situation that he himself, following his own criteria of rational behavior, would refuse to make a concession. This imposes a strong symmetry requirement on the bargaining strategies that can be rationally chosen by two bargainers who expect each other to act rationally. This symmetry postulate, together with some other very natural postulates of rational behavior, then selects a unique solution (equilibrium agreement point) for each particular bargaining game.
If the parties know each other's preferences and attitudes about risk, the parties easily reach resolution. "This is so because both parties ... will accept, and will also expect each other to accept, the solution point as their agreement point."

The problem, as noted above, is that we normally do not know each other's "utility functions." Despite this, Harsanyi notes that people manage to resolve conflicts "much more often than mere chance would allow." And this is the point of the paper: What is it that allows parties to reach agreement in competitive situations, even though they do not know each other's preferences or attitudes toward risk?

Harsanyi provides an answer, which I will discuss in my next post.

A Critique of "Getting to Yes"

Getting to Yes offers a concise, step-by-step, proven strategy for coming to mutually acceptable agreements in every sort of conflict -- whether it involves parents and children, neighbors, bosses and employees, customers or corporations, tenants or diplomats.
This is from the back cover of the book, and it is largely true. The book, authored in 1981 by Roger Fisher and William Ury and updated in 1991, promotes the theory of "principled negotiation." The principles, which have become part of the negotiation vernacular, are as follows:
  • Separate the people from the problem (don't make it personal);
  • Focus on interests, not positions, which leads to win-win resolutions;
  • Work together to create options that satisfy both parties; and
  • Negotiate with people who are more powerful or refuse to play by the rules of principled negotiation.
The authors do an excellent job of covering this ground. The book is an easy, fast read, and includes lots of good advice and interesting examples.

The problem that I have with the book is that it focuses on situations where win-win solutions are not only possible, but both party gains by finding them. Look at the list of conflicts that the authors say can be resolved with principled negotiation. All of them involve important, ongoing relationships: parents and children, neighbors, bosses and employees, customers or corporations, tenants or diplomats.

In contrast, the cases that I handle -- and I think most of my colleagues would agree -- do not involve ongoing relationships between the parties and do not lend themselves to win-win solutions. My clients typically are former employees who no longer work for the former employers they are suing. In personal injury cases, the parties typically did not know each other before the accident and likely will not vacation together after the litigation ends. In medical or other professional malpractice cases, the plaintiffs will not be going back to the defendants for their next surgery or to do their taxes. Even in business litigation, where the possibility of ongoing relationships may open the opportunity to greater principled negotiation, the negotiations typically boil down to the dollars and cents, and nothing more.

I handled a business litigation matter a number of years ago that illustrates this point. The plaintiff had offered to buy certain goods from the defendant, and a dispute arose as to whether they had created a binding contract of sale. The deal fell through, and the buyer sued. We mediated with Judge John Wagner, a very talented mediator. Judge Wagner dutifully went "below the line" to explore interests (i.e., principles), rather than just positions (i.e. dollars). In caucus, the buyer claimed that he had sued on principle, and that the money didn't even matter to him. Judge Wagner then asked the seller whether he would be willing to apologize, and he said he would, if it would help resolve the case. Judge Wagner took this possibility back to the buyer, who then - quite predictably - became less interested his principles, and more interested in his position. Faced with the option of giving up money to satisfy his principles, the buyer's principles went out the window.

Getting to Yes does address these types of issues - like how to negotiate with hard bargainers- but it does not go far enough in doing so. Principled negotiation is likely to prove most useful in those important, ongoing relationships that require careful attention to principles. But in the types of negotiations that most of us handle on a daily basis as advocates, Getting to Yes falls short.

Thursday, March 18, 2010 - An Excellent Resource on Game Theory

We started "Mediating the Litigated Case" with the Prisoner's Dilemma, a classic exercise in game theory. If you don't know the Prisoner's Dilemma, you can find a brief definition here. This got me interested in reading more on game theory, which I've been doing for the last month or so.

Game theory, generally speaking, is a branch of mathematics that seeks to identify optimal strategies, or solutions, to given problems. For example, in the Prisoner's Dilemma, game theory teaches that each player's dominant strategy is to defect, regardless of the strategy chosen by the other player. This may seem counter-intuitive, since the two players collectively would fare better if neither sought to maximize his own outcome, but it is correct. Game theory may sound exotic and may engender fear in those who say they "don't like math," but it's an incredible analytical tool that has been used in war planning, business and management, economics, law, and sociology. Anyone who is interested in how people interact -- and that means everyone -- should take a little time to understand the basics of game theory.

One tremendous resource for those interested in learning more is It includes links to books, lecture notes from undergraduate, masters, and PhD level courses, and interactive materials that help explain game theory concepts.