Possibilities, Probability, Payoff and People Series: Negotiated Possibilities - the Options:
We can easily be overwhelmed with worrying about negotiation and think we have to be someone we are not when the way to be ourselves is to have a good decision process and using knowledge of human emotion to communicate.
A decision process starts with knowing possible outcomes, the possibilities. A transaction, dispute, or strategic direction, requires a method to ensure the options are thought about, evaluated, tabulated and acted upon.
This method is not intended for every transaction, only the ones in which we find ourselves overwhelmed with the choices. The tool we use is powerful but basic. And it can be applied later to game theory analysis. Game theory is a branch of mathematics that helps us decide in competitive situations.
Game theory itself rests on the notion that interactions can be complex, especially when my action, or “move” influences another’s action – the other party changes their move based on what we do. Much like a game of chess. Once we know the people, possibilities, probabilities, and payoffs (or what I like to call P^4), we can better assess the logic in our decision making. What is likely to happen when I enter a new market, take a position on a contract clause or release information in a press release?
Game theory attempts to mathematically analyze behavior in tactical and strategic situations in which an individual’s success in making choices depends on the choices of others and reactions to those choices.
If one is influenced by a competitor in a price competition or auction, then game theory comes into play. Von Neumann and Morgenstern pioneered this theory in 1944 and outlined so-called “forms.” These forms can help us understand outcomes in a negotiation.
Before getting into the “game” of game theory, equilibrium, prisoners and stag hunts, we need to look at option tabulation. But consider the simple example of a three-element licensing negotiation for a streaming show. The outcome formula may be represented by:
C=number of possible outcomes
R=number of resolutions (simplified here as accepted or rejected)
I=issues to be negotiated
For example, if there are 2 resolutions and 3 issues to negotiate there are 23 or 8 possible outcomes (e.g., contract versions).
Applying this to a streaming license negotiation where there are three issues: royalties, episodes, and seasons, we can tabulate the outcomes to allow our thoughts to coalesce. What are our needs?
Two possible resolutions: (1) accepted or agreeable (indicated as a “+”) and (2) unaccepted or disagreeable (indicated as a “-“). In our example we can place this in tabular form:
Issues Royalty Episodes Season
1 + + +
2 + + -
3 + - -
4 + - +
5 - - -
6 - - +
7 - + +
8 - + -
Table 1.1: Outcome Tabulation
If we decide that our royalty number and episodes are “non-negotiable” or “must-haves”, there are only two outcomes to negotiate with: Solution 1 and Solution 2. The rest can be eliminated immediately. Even if your team gets to this stage, the negotiation is easier because the universe of options is limited.
Did you notice what just happened? We eliminated six potential outcomes, leaving two that we really want. We can now spend time and effort on the two using negotiation strategies.
You may say to yourself, “fine Martin, but does this scale?” We worked with a major telecommunication deal that our team identified 70 elements for a Fortune 500 company. Yes, it took time. The result: over 20% savings from initial bids and sanity in focusing the procurement team’s efforts - this was an eight-figure number.
In a mediation in U.S. Federal Court, we were able to take public data on the probability of the cause of action coming our way at trial for seven, multi-element causes of action, each with three or more elements that required evidence.
Past performance is not predictive of future outcomes, and nothing in this blog should be considered legal advice - that said, if we know the options and can focus we can greatly increase our focus and efforts.
Option tabulation as outlined above is the blunt instrument to winnow many options down to the ones you care about most.
 Morgenstern, Oskar, and John Von Neumann. Theory of Games and Economic Behavior. Princeton University Press, 1980.