International Law

What can IndFA's Learn from Harvard?

We have all heard the term "win win", but what does it really mean? Bob Mnookin talks about the Program on Negotiation, an executive training program at Harvard.

"When you're mired in a dispute, it's natural to focus on differences.

But negotiation experts at Harvard University suggest looking for hidden similarities instead.

Identifying shared interests that aren't competitive can pave the way to a solution that benefits all parties, Harvard authorities recommend.

The Harvard Program on Negotiation specializes in win-win solutions to disputes, even ones the parties have written off as intractable.

Success is all in the mindset, Harvard experts say.

Rather than viewing the matter as an "intractable" dispute, view it as a business deal - then pursue it as you would a deal, looking for ways to create value."

More effective communication, in my opinion, is the critical skill set that IndFA's have to obtain in order effectively collaborate with the franchisor. Mnookin , and the entire PON program, has an emphasis on managing the tension between creating and claiming value, or what he calls an undue focus on distributive bargaining.

Mnookin describes the seminar as a practical learning, complete with training and practical applications.

One thing not made clear in this short video, is the range of techniques for dealing with interests that are different and not shared.

But the overall emphasis on focusing on disputes as business deals before they become litigation files is an important emphasis.

It will require different types of skills than transactional or trial lawyers typically have. Bargaining in the shadow of franchising law and contract requires more than simply an understanding of legal cases.

The Program on Negotiation has a website, and there are a number of interesting free resources about effective communication and negotiation. Sign up at the site and get negotiation tips by email.

Here is one of my favourite examples showing why it is hard to create value, when claiming value dominates. The example is the dollar auction game, invented by Professor Martin Shubik. (Keith Murnighan has played this game with executives, always making money.)

Here is the set-up, one of the easier set-ups to analyze.

Mr. Auctioneer proposes to auction off a $20.00 bill to Mr. Clever and Ms. Swift. The winning bid gets the $20.00, but the loser has to throw in the value of his or her bid.

For example, if Mr. Clever bids $5, and Ms. Swift's losing bid was $4, then Mr. Clever gets the $20.00 for $5, but Mr. Auctioneer also gets $4 from Ms. Swift.

Each player has to bid at least once.

So how does the betting go, as between Mr. Clever and Ms. Swift?

Well, suppose Ms. Swift jumps out first with a bid of $2, to which Mr. Clever responds with $2.50.

Ms. Swift, right on the mark, goes to $5.00, but Clever counters with $5.25.

Swift jumps to $10.00; Clever counters with $10.10. Swift takes a pause and jumps to $19.00; Clever takes a longer pause and then cleverly bids $20.00 and grins at Swift.

Swift is now not living up to her name, because after much reflection she realizes that if she passes now, she is out $19.00, whereas if she bids $20.50, and is the winning bid, then she will only be out 50 cents - and so she bids $20.50 for a $20.00 bill.

Mr. Clever realizes, quickly, the strategic situation also and ventures a cautious $21.00 - better to lose $1 than $20.00.

Our heroes eventually end up paying Mr. Auctioneer somewhere between $50 and $60 for a $20.00 bill, sadly vowing never to play this stupid game again, until next time that they are in this situation and don't recognize it, in an expensive lawsuit perhaps where legal costs are thrown away.

This real illusion has been played out many times in experimental games and the conclusion appears to be: don't play this game. You cannot buy a $20.00 bill for less than $50.00? But, that sounds crazy.

Well let's debug this illusion with a bit of game theoretic logic.

First, if the Swift and Clever could act as one person, then Swift could bid 1 cent, Clever bid 2 cents, and Swift could pass, letting Clever obtain $20.00 for a net profit of $19.98.

This is their maximum joint gain- what they could obtain if they could give up control of their actions to some coordination device, something like a stop sign or line-up in real life.

Knowing their maximum joint gain, how can Clever persuade Swift not to bid again, after the 2 cent bid?

Well, what if he pulled out a $10 spot, waved in front of Swift's nose, got her to smell the real coin of the realm, and handed it over to her after her no bid? Or put the $10. on the table and asked Swift for 2 cents? Put 2 cents on the table and asked Swift for a "loan" of $10.00, offering as collateral his 2 cents and promise not to bid if Swift went to 3 cent?

These commitment devices will allow Clever and Swift to share their joint gain.

But, there is no guarantee that once the individuals see what their joint gain could be that they will find the necessary commitment devices that will drive them to their joint goal. Individual caution may overwhelm good collective intentions.

Indeed, game theory's preoccupation with Nash equilibrium solutions has obscured this fact.

But repeat after me:

"We will find joint gains as the result of coordination, then we will look for commitment devices to split the joint gain, because our strategies are probably off the Nash equilibrium path."

Does that do anything for you?

Full post as published by Misleading Advertising Law on June 02, 2009 (boomark / email).