Chris and Loyd talk about game theory and trust in negotiations.
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Chris and Loyd talk about game theory and trust in negotiations.
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In this episode of the PERColator Podcast, hosts, Chris Casillas, and Loyd Willaford discuss trust and its importance in negotiations. Loyd and Chris talks about trust in general, the negotiator's dilemma, and how game theory can provide insights into how to build trust for your next negotiations. We hope you enjoy the episode.
Chris Casillas:Hello, and welcome to the PERColator Podcast. My name is Chris Casillas with the Washington State Public Employment Relations Commission. And I'm happy to be joined by my colleague and fellow mediator trainer and podcaster extraordinaire, Loyd Willaford. Hey, Loyd, how you doing?
Loyd Willaford:Good. How about you, Chris?
Chris Casillas:I'm doing well. Thanks for asking. Good to be with you here today. I was kind of inspired a little bit Loyd the other day. I was in mediation, you know, things were going okay, but not great. And I was having some issues with the parties kind of being willing to exchange some proposals and, you know, move things along. And, and I could see that there was, you know, progress to be made. But it was harder for the for the parties themselves to do that. And during our conversation with one of the parties, you know, where I was talking to them about getting a proposal exchange, the statement came up by the negotiator there that, something to the effect of, well, "they just can't be trusted." And that was clearly kind of an impediment to making some progress today. And and I thought, well, this is this is a good topic for us to kind of think about and discuss here on the PERColator because trust is really such an important part of the negotiation process. And I think probably like myself, Lloyd, you've been on the side of an advocate, negotiating contracts or deals, you've been a mediator for a number of years, I'm sure you've probably seen a negotiation or two where trust was was an issue. I imagine. Is that right?
Loyd Willaford:Yeah, that's absolutely right. And I think in particular, where I often have seen it, is where both parties are sort of stuck, they might be willing to make a move, but they don't want to be the first person to move because they're worried. Okay, the other side is going to pocket that and not move, and then I'm just going to be taken advantage of. And so that's a pretty common dynamic, I think.
Chris Casillas:Absolutely, absolutely. And in those negotiations, where there seems to be a lack of trust, or trust is broken down, how might you summarize those negotiations in like a word or two? Could you think of a word or two to describe those?
Loyd Willaford:Sure, the first word that comes up is difficult, but could also be painful. It's another word, you could use.
Chris Casillas:Somewhere along that spectrum. Yeah, right. Exactly, to say the least, they make for really challenging situations. And so want to talk a little bit today about this concept of trust in negotiations and kind of think through some different dynamics around it, explore a little bit of the literature in the field and space of of negotiation theory to kind of give us maybe a few more tools to think about this in the context of your next negotiation. And I should start by saying here, when we talk about trust in the context of negotiations, I guess what I mean, there is, you know, some, some willingness, some desire, for a party to kind of accept some degree of vulnerability. Usually, that vulnerability comes through kind of the sharing of some type of information or you know, about their position on something or their underlying needs in a situation. So some willingness to accept that on some level, in the hopes that that will invigorate or encourage positive future behavior or outcomes on the other side, so you, you know you're doing this, you're showing that vulnerability with the expectation or hope that there's going to be some kind of reciprocity from the other side, they'll they'll do something similar, and that will help the parties move forward. Trust in the negotiation space, I think is important for a number of reasons. One being that in negotiations, negotiators often face what we refer to as a situation of information asymmetry. And that's kind of a fancy way of saying that each side has some kind of deficit in understanding kind of the information or positions of the other side. If I'm an employer, for example, I might have more information than the union side about the budget parameters and you know, how much money we can really devote to this particular contract. And conversely, on the other side, you know, the union might have more information about kind of what the true needs are of its membership in this particular negotiation. In any negotiation, and particularly in a labor negotiation, there's going to be this information asymmetry between the two sides, the problem there being is, is when that information is not exchanged, it's not available for the parties to kind of utilize to try and make everybody better, right, if I don't disclose some important piece of information that would be helpful to your side, and you do the same thing, then, you know, it's still possible, we can work out some kind of deal, but we're going to do it without the benefit of that additional knowledge. Trust really becomes important in that context, the exchange of that information, the extension of trust, building of trust, and relationship can help promote creativity, in terms of thinking about different ideas, it can help strengthen that relationship overall, right? This is labor relations. And a lot of what we're doing is building those relationships. And when you have a relationship, like any other relationship in your life, in which that trust between the parties is strong, that really helps kind of reinforced that. And then of course, you know, once you get through the negotiation, you get a deal in place, parties that have built up trust and develop that after the fact that performance kind of enforcing the contract oftentimes becomes that much easier when there's a strong amount of trust between the parties. So we see all of these benefits, right of extending trust and acting in a trustworthy manner in negotiations, the problem is in reality, right, a lot of us have a hard time kind of carrying this out. And the struggle there is what kind of in the field of negotiation theory, in the literature we refer to as the"negotiators dilemma", the dilemma is, is essentially this, it's that tension that the negotiators experience, recognizing the value of sharing information, and extending trust to their counterpart, the person on the other side of the party on the other side, but at the same time, you know, wanting to remain cautious and not sharing too much information or revealing too much detail about your position or your interests out of fear that you're going to be taken advantage of. And so there's this kind of constant push and pull that I think most negotiators feel around this idea of extending trust, because you can see on the one hand, there's value in doing that, potentially quite a bit of value. But you also don't want to go too far or open yourself up to being taken advantage of. And so that kind of pushes on the other end, right? Where you want to kind of withhold information or be guarded with information. That tension is what a lot of negotiators face, and what we refer to as the negotiators dilemma. So let's let's talk about that a little bit more, Lloyd. Because I think that's a really interesting concept. And there's actually kind of quite a bit of theory behind this, this dynamic that I just just described. And maybe you could take our listeners through that a little bit. So we can kind of explore what that means and potentially some ways out of it. For negotiators,
Loyd Willaford:I think the key phrase that you sort of mentioned there is the asymmetry of information, where you're not sure what the other side is going to do. Either you have access to different pieces of information. And at a minimum, you You never know exactly what the other side's gonna do next, because I haven't done it yet. One of the things that some mathematicians started looking at in the late 40s, early 50s was how do you model decision making you know, where you don't know what the next person is going to do. And there's a very classic problem that models this, called the "prisoner's dilemma." And to just summarize it, briefly, imagine that you've got two people who are accused of a crime, they're hauled into the police station, and they're given an option, you can inform on the other person that that we brought in, in which case, if you inform and they don't, you will go free and they're gonna go to prison for three years. The other option you have is you can say nothing. If you say nothing, if you both say nothing, you'll both go to prison for one year. If you both decide to inform on each other, you'll go to prison for two years. So the the issue here is in that scenario, your best thing to do is to inform on the other side, because your maximum upside and your downside is somewhat limited. You can model this and imagine there's four squares. One outcome is Person A decides to defect and we're going to call that informing so Person A defects, there'll be two options for Person B, they'll either also defect or they'll cooperate meaning they'll stay silent. And then then if you go to the next thing if person A defects, then the other person has two options. There's or squares, basically, four options from terms of outcome, what you can do is you can kind of reason backwards. Okay? What's the optimal strategy here to and again, we're assuming that people are rational and that the goal here for each party is that they want to minimize their prison sentence. And that's an assumption. Now, of course, it's a one off deal, right? In real life, maybe there would be other things that you would think about when you're making that decision. And you can imagine in the prisoner's situation, when I think, well, what's going to happen, you know, maybe I'll go, I'll get off scott free. But maybe you know, Joe's associates might find me later that's not taken into account in the prisoner's dilemma. And I think that's important. The basic resolution limit is is what we call as a one shot routine. Of course, collective bargaining is not one shot, in collective bargaining, there is a relationship, there are consequences for it basically taking a maximalist position, like the next time you open up a contract, for example, people are going to remember that, when you're trying to administer the existing contract, people are going to remember how you behaved. And if you essentially try to exploit the other side by doing the thing that maybe benefits you, but isn't cooperative, there can be consequences. And so in the mid 80s, Robert Axelrod did some experiments. And he first published a paper in a book called The Evolution of Cooperation where he took a fresh look at the kind of Prisoner's dilemma in this context of a longer term relationship. Now, it's not about prisoners, it's about you're going to get money. Yeah, he did. Like the game where he said, Okay, same two options cooperate or defect. If you defect, and the other person decides to cooperate, the defector gets $5. The cooperator gets zero. You know, I love Axelrod's descriptions here. That option is called the temptation to defect, you get the maximum amount of money in this game, if you defect. However, if you defect, and the other side decides to cooperate, The Cooperators a reward there was called the suckers payoff. And I think that's actually descriptive. Because when people are taken advantage of, they do feel like suckers, and nobody wants to be a sucker. So he structured this game that however, there is a reward for cooperation. And that is, if both parties decide to cooperate, they both get $3. If they both decide to defect, and they get $1, and actually called this the punishment for mutual defection. So you can see here, if this was a one off deal, the optimal strategy just would be always to defect, because you're getting maximum benefit. And there's really no punishment, effectively for defecting. Because even if if those defects, you still get $1, what he did was he said, Well, okay, well, okay, that's true for one thing, but what if we did, we're going to do multiple games with the same parties. And then we're going to tally up and see how much money. You win the game, not by how you do in any one individual game, but over a multitude of games. And what he did was it this was, I think, kind of innovative, he went out and he, he scoped went to all these computer science people and said, Hey, put together something that you know, as solution to try to get what do you think would be the the optimal solution here to get the most money over a number of games, maybe 100 games. And so he did that, you know, people predictably, their strategy might be, hey, it looks like if you just defect every time, and you're, you're gonna make money every time. And if the other person doesn't defect every time, you're gonna make more money than that. There's no really downside. But if you do that, and the other side picks up on it, what happens is you both lose money, because you're only getting $1 a time. Well, so how do I induce somebody to cooperate? They don't want this, you know, kind of mutual assured destruction. And actually, they this kind of game theory kind of comes into like nuclear brinksmanship. It's a little scary to think that the mutually assured destruction, we're both going to lose money. So how do we get a strategy that doesn't result in that outcome? What Axelrod discovered was of these computer scientists as they came to this strategy, that we've now called "tit for tat." And the strategy is this, on the first round, you cooperate. And then on every subsequent round, you basically mimic what the other side does. So if the other side defects, you defect the next round, and what that does is now the person's not getting their$5, they're only getting $1. And if they go cooperate, the next round, then you cooperate. And eventually what happens is both sides start to see, hey, if I cooperate, I am guaranteed three times per round no matter what, but we both have to cooperate and it's really kind of a conditioning, you're sort of conditioning the other side to see that cooperation is in their best interest by giving them an incentive over time. How does that translate into Negotiations? I think it translates this way, to make a small concession and test the waters right you put out enough to see if you're gonna get cooperation and then you cooperate. And then if the other side does something that is uncooperative takes advantage of you, then you pull it back. That way, you're gonna get the maximum benefit there, you're not going to get completely exploited, some parties will, they'll put their their final position for bargaining on the table right away. And then they won't move because they put their maximum authority and the other side thinks, oh, you're just being obstinate, right? And they don't know that, hey, we were trying to avoid this long term negotiation. And Chris, you mentioned, you know, it used to be, you know, before it came to PERC, I was an advocate. And it used to drive me nuts, these long negotiations, where people take these extreme positions. And you would just kind of nibble, nibble, nibble, nibble and get to the middle, and like, why are we wasting so much time. And after I became a mediator, I realized we're not wasting time, what we're really doing is building trust, ovver time. We're not going to allow ourselves to be exploited. So we move in increments. One famous mediator likes to call this the dance of of negotiation, right? You can try not dancing, but I have seen that strategy too. And it's also painful, right? Because other the other side expects that there's going to be a dance and when there isn't, there's there's issues. So that's kind of 30,000 foot overview, kind of a game theory, prisoner's dilemma. And I think the lessons there, obviously, it's theoretical, but, you know, applied in negotiations. It's interesting to me anyway, and again, I'm I'm kind of a game theory, you know, I like all kinds of games in particular. So it's interesting stuff.
Chris Casillas:Great, awesome Loyd. That was, that was a great description of the whole thing. And really, I liked that bit at the end in terms of kind of your own evolution and thinking, and recognizing kind of the value of that dance, as you call it, because it does have some importance in terms of allowing the parties to build that trust, which, which, as we can see is so important. And I think, you know, that Axelrod study in particular, really highlights two important things for me. And then kind of connecting this back a little bit to the negotiator's dilemma I talked about earlier. But one thing being is, as you point out, you know, a strategy of cooperation between the parties is a value maximizing strategy, right? We, you know, this is kind of the rising tide raises all boats, right, like when when both sides are in that more cooperative frame of mind, and extending trust, you know, it allows for more value creation in the deal. And that's what, as we the term we use there as integrative bargaining, right, it allows for more kind of value enhancing negotiations, because the parties are pushing back past that asymmetry of information. And that prompts new ideas and new ways of kind of bringing things together. And so I think that's such an important concept. But also the other thing, they're just highlighting the fact that we would all kind of be stuck in the trap of the prisoner's dilemma. If the negotiation itself was kind of this one shot deal all the time, right, like we we would be stuck, there is an incentive in that environment to as you put it kind of defect or not cooperate. But fortunately, for us, negotiations are not one shot deals, even in the context of particular negotiation, often it's going to go on for some time, particularly with contract negotiations. But beyond that, and this is kind of gets into the next point I want to make about kind of thinking about how we overcome the problem of establishing and maintaining trust and relationships is that particularly in our world, Lloyd Wright, where were the parties are, you know, kind of encountering and dealing with one another time and time again, you don't just like negotiate a contract with one person and then be like, you know, mic drop, I'm out, the parties are going to continue to work together, because they actually literally work together. And you as negotiators are probably going to run into one another, again, probably many times. And so that ongoing relation and the reputations that we all have kind of change the dynamics of what we do into this kind of multi-round situation as Axelrod would use the term and, and that really is is one of the keys for kind of allowing us to kind of push past that problem.
Loyd Willaford:Well, on that point, I think, Chris, you're absolutely right. This ongoing relationship. And in this gets into the difference between the theoretical and the practical, even in Axelrod's example, each one of these games is a discreet event. And it's really easy in a game to say, Oh, the fact that they defected last time, I'm not going to hold that against them. I'm going to apply my strategy. So when they cooperate now, I am now going to cooperate. But in the real world, people have longer,sometimes have long term memories like I got burned one time, I don't care if you tried to make it up to me. I am still going to continue to just punish you for this transgression that you made last week, you know, and I think that's a real danger, to kind of basically hold grudges. Because tit for tat runs both ways, right? So somebody starts in make amends, they start cooperating, you have to actually start cooperating. And if you resist that, because you're still mad about what they did last week or the week before, you're gonna miss some opportunities. So I think that's a real, I think it's a real danger. Because I do think people, people, sometimes they get dug in, and then even when, even when the other side's behavior changes, they don't want to change.
Chris Casillas:Yeah, and as you point out, you know, many of us have long term memories, we're kind of, we're kind of like elephants like that. Not only do we have long term memories, but we also talk, this is a community that we're in, that all of us are in. You know, that reminds me of another point, there was a study from several years ago, you know, kind of talking about all this, a study by a couple authors named Ernst Ferh, Herbert Gintis, and they talk about communities having these levels of what they refer to as conditional cooperators. And what they mean by that are, there's these people that generally abide by kind of social norms of cooperation and reciprocity. And so when you when you get somebody within that community, that defies those norms, that doesn't act in a kind of a pro social way, that community will, you know, the word will spread, and the community as a whole will kind of punish that kind of person. So it's not as though you know, you can't just like get away with it, so to speak, in terms of, you know, orchestrating some kind of deception or a lie in one negotiation, and expect that to remain isolated, right, that's the word is going to kind of circulate. And that circulation actually helps promote more kind of trust building behavior, because most of us don't want to kind of be in that in that situation. So there are these kinds of ways that we can kind of think of overcoming that problem of the negotiator's dilemma that I mentioned earlier. Do you have any particular thoughts or strategies, or things you've seen out there, Loyd, where people can kind of help build that trust, especially kind of early on in a relationship so that we can get kind of more in that cooperative, at least kind of tit for tat mindset in a negotiation?
Loyd Willaford:Yeah, I think creating sort of a human connection between between people I think, is really important. And you know, in the age of zoom, that that may be a little more difficult, you know, it used to be okay, maybe we would have a, you know, the first session of negotiations is joint, we get to know each other, maybe, you know, icebreaker stuff where we see people as not as competitors. And I think that's a key, he's thinking about cooperation, like you want to cooperate a result, you, if you start off thinking, we are in competition, I have to get all of mine, and that's going to come at the expense of you, that is then going to inform every decision that you make, but if you sit down at the table, as hey, you know, we are we're all in this workplace together, we want to get, you know, solutions that are going to be cooperative in the sense that they're going to work for both of us, again, there's some joint sessions, I think, are one thing. You know, in isolation, people kind of tend to confirm their own biases. So that's just open communication that can be open communication, about not necessarily the substance, like, like I said, these, that's where the icebreakers come in, where you share something personal, that isn't connected to the negotiation, but it's maybe it's somewhat vulnerable, you that then is not punished, okay, I can be vulnerable now without being punished, which means on a personal level, and then when I get into the actual substance of the negotiation, I can be vulnerable. And they're going to take that in, and they're going to react to it not in a way to punish me, but in a way that's hopefully going to be collaborative, that will get us to a solution. And I think back to this small steps, right? You want to, if you're if you really don't trust each other, taking huge leaps is a major, major risk. Because if you take the huge leap, and then that's not reciprocated, now, you've just confirmed your worst fears versus, you know, smaller steps to just kind of test the waters.
Chris Casillas:Absolutely. Yeah. And sometimes just the simplest of things, you know, to your point of, it doesn't always have to be directly pertaining to substance of the negotiation. I mean, it could be as simple as next time for next session, I said, I'd have a proposal ready to go at the beginning of the next meeting. And low and behold, I come to the next meeting with a proposal ready to go or, you know, I said we'll
start at 9:30 and I'm ready to start at 9:30 or I'll follow up on this and here, here's my follow up. And yeah, as you say, it kind of just thinking about the relationship on the whole and ways in which that can be tightened and more connections drawn there. Well, that was a great discussion Loyd, really happy to have a chance to kind of talk about these concepts and also kind of integrate something things that are of personal interest to you with games and kind of talking about game theory. I'm glad you got a little shout out there to nuclear war as well, maybe we'll do like an after hours podcast where we we talked about the mad strategy and how game theory is vital to our cold war strategy but a topic for another time or something but glad you brought that up too. So good chatting with you Loyd. I hope everybody enjoyed it.
Loyd Willaford:Thanks, Chris. Take care all.