Go to the Prior Tip "The Last Days on Earth
Go to the Next Tip How to Measure Anything by Doug Hubbard
Go to a Related Tip Our Final Hour by Martin Rees
Return to MaxValue Home Page
2-hour special, aired on ABC TV, August 30, 2006
John Kettelle has written an engaging, lucid article about a tool for solving negotiation problems, from peace treaties to labor contracts.
In most any negotiation, each party has private information he is unwilling to share with the other party. For example, a seller would surely like to know the lowest acceptable price to the buyer. Also, where there are decision variables in the transaction, each party would like to know the preferences of the other party.
The overarching issue: Is there room to deal?
A common, efficient solution is to engage a third party person as an intermediary. However, human third parties (HTPs) have four well-known problems:
To avoid these problems, Kettelle proposes a computer third party (CTP) process.
Is there room for a deal? Both parties disclose their value function to the CTP. This includes the factors of importance and weights. Each party also includes the minimum acceptable value they would accept. The computer derives a Pareto frontier: a map relating the payoffs to one side with the largest possible payoff for the other side. If there is a gap in which both parties benefit, then there is room to deal.
The value gap means a win-win solution is possible. The parties then enter a "collaborative phase" in which they gradually share information with each other. Kettelle likens this to a mating dance. The article provides insightful examples about the process and issues in how agreement comes together.
Especially interesting are the examples in international negotiation. Leading off is a discussion of how the boundary and other conditions of a settlement of the Israeli-Palestinian problem can be approached with CTP. Additionally, using references to military history, Kettelle describes how WWI and WWII (each of the three surrenders) might have been ended earlier.
In labor-management contracts, negotiation points include wages, work conditions, health benefits, and retirement benefits. Different work groups (e.g., flight attendants, pilots, and aircraft mechanics) make this a many-sided negotiation.
Acquisitions and Mergers is another important area of potential CTP application: How much stock or cash? What happens to executives of the acquired company? What are the efficiencies expected in the combination, and what will be the workforce reduction?
This is a fascinating article, which I recommend if you've read this far. You can obtain a copy through your library or by contacting Lionheart Publishing: http://www.lionhrtpub.com/orms/ormsreprints.html
—John Schuyler, October 2006.
Copyright © 2006 by John R. Schuyler. All rights reserved. Permission to copy with reproduction of this notice.