Negotiation Games: Applying Game Theory to Bargaining and Arbitration

Negotiation Games: Applying Game Theory to Bargaining and Arbitration

Negotiation Games: Applying Game Theory to Bargaining and Arbitration

Negotiation Games: Applying Game Theory to Bargaining and Arbitration

Synopsis

This title, now in a revised edition, discusses the concept of negotiation, and uses game theory to illustrate how this concept is critical in coping with the everyday strategic problems which arise in interpersonal and interorganizational relationships.

Excerpt

The 1990 edition of Negotiation Games was written partly in response to a dearth of literature on applications of game theory to bargaining and arbitration. Additionally, I sought to synthesize and interpret theoretical results in the negotiation literature that offered insights into why some negotiations succeeded and some failed.

Thus, for example, in chapter 2 I analyzed the problem of honesty in bargaining and showed that there was no free lunch: No bargaining procedure can induce the bargainers to be honest without extracting a price. Specifically, either a third party would have to add a bonus, or there would have to be a penalty-in the form of negotiations failing on occasion or not delivering their full potential-to induce two bargainers to be truthful. As a case in point, I argued that these features induced Menachem Begin and Anwar Sadat, under the prodding of Jimmy Carter, to reach an agreement after ten days of difficult negotiation at Camp David in 1978.

Likewise in chapter 3, I showed that the presence of an arbitrator, who can force a resolution if the two bargainers do not reach an agreement, does not promote their convergence under final-offer arbitration (FOA). The use of FOA in major-league baseball and public-employee disputes illustrates this proposition.

But there are arbitration procedures that induce convergence or partial convergence. For example, the multistage procedure analyzed in Brams, Kilgour, and Weber (1991) models, at least informally, Henry Kissinger's successful shuttle diplomacy in the Middle East in 1973-75.

In other chapters in Negotiation Games, I used different game-theoretic models to analyze bargaining processes and outcomes, from biblical times to the present. For each model, I gave real or hypothetical examples of situations, most involving political conflict, that the model illuminated.

These models, in my opinion, remain relevant today, even if there are more recent examples to illustrate them. Of course, new models of

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