The illusion of compromise
Whether you are in a contract negotiation or you are trying to come to a consensus within a group as to a way forward, strategy & tactics often come into play, the so called ‘politics’ of human interaction which waste time but serve to make all the parties feel content (whether to themselves or their stakeholders) in having contributed to an outcome which is more favourable to them than it would otherwise have been.
From early on in life, the ability to compromise is very important in any aspect of life, whether it is the ability to share a toy with a friend, agreeing how to share a car between siblings, or haggling for a price in the market. There is however a side effect which I have over the years found frustrating that encourages strategically extreme views in order to achieve an outcome that is more advantageous to your position.
As a simple example, many traders will mark up the retail prices in the expectation that customers will haggle, and feel they are getting a bargain when they negotiate a discount. When you buy something at 50% off you feel like you’ve achieved something.
In negotiations between multiple parties it is strategically advantageous for each party to make their initial positions further extreme to ensure that the final ground for ‘compromise’ is not lost. Participants often adopt such positions naturally to defend their territory rather than thinking about the game theory behind it.
Let’s assume we have two people, A and B who have a range of views on a particular issue which can be scale from 1 to 10 across a line:
|--------------------A-------x-------B--------------------|
In the above example, the ‘middle ground’ (where presumably A and B will end up if both compromise to the same extent) is marked ‘x’. Now the incentive is for each one to start with a position which is more extreme than their actual desirable outcome.. If B does this (marked ‘B2′ below), the middle ground (after compromise) is marked ‘y’ below:
|--------------------A-------x----y----------B2-----------|
As you can see, the outcome ‘y’ is far closer to B’s original position as a result of B shifting its initial position to B2. Obviously if A moves their position to A2 (by adopting a more extreme position, we’re back to the central point of agreement being in the middle:
|-----------A2-------A-------x-------B-------B2-----------|
This is precisely the same model as haggling on a price if you imagine the scale from zero to infinity. Obviously knowing where true positions lie is part of the art of negotiation (or science as some will argue). Problems can also arise where A and B act differently. In some cultures, negotiation is expected whereas in others it is more of a taboo–If one party takes a more extreme position in preparation of compromising, they may feel the other who is holding out is not playing fair whilst they picked a starting position more tuned to their target outcome rather than strategically positioned to result in the outcome.
Things can be further complicated by bringing in a third party C (and D, E, F, G, etc.) who can influence the position.. If A or B have a greater degree of influence over these additional parties, it can fine tune the resulting compromise into one more aligned with the wishes of the said party.
This is one of the reasons why I don’t like sales people–It’s nothing personal. 