Digital Musings

Either/Or: Leaving money on the table

Have you ever noticed that we have a marked tendency to view bargaining situations as a zero-sum game: What you gain is what I lose and vice-versa. We bargain over positions and hope that our position will dominate at the expense of the position facing us. Just think of divorce settlements, international negotiations (USA and former USSR, Israel and Palestinia), etc...

In their insightful book "Getting to Yes : Negotiating an Agreement without Giving In" (a good summary is here), Roger Fisher and William Ury have a nice way of reminding that we should avoid as much as we can falling into the either/or trap.

The story goes as follows: Two sisters quarrel over an orange. Each of the sister would like to get the full orange. After a painful position bargaining, they end up cutting the orange in two halves. The first sister takes her half, peels the orange, throws the peel away and eat her half. The second sister peels her half, throws the inside away and uses the peel in baking a cake. What a shame: Both have left money on the table! They only thought of dividing the orange, of fighting for the maximum share instead of inventing a new option for mutual gain. The option was obviously to tell each other what the purpose of the orange was before starting to negotiate over it.

Inventing options is indeed usually mutually profitable. As Fisher and Ury put it: " In a complex situation, creative inventing is an absolute necessity. In any negotiation it may open doors and produce a range of potential agreements satisfactory to each side. Therefore, generate many options before selecting among them. Invent first; decide later."

One example from the blogosphere that springs to mind is that of Loïc Le Meur when he sold the company he founded, Rapid Site France, to France Telecom. The full story is here. In a nutshell, Loïc was in a position where he could have sued France Telecom for advertising plagiarism. He did not choose that obvious route and took that unexpected opportunity to discuss business with the Wanadoo guys who ended up buying his firm! Too bad for the litigation lawyers but great for both Loïc and Wanadoo!

So next time you have something to negotiate, think out of the (positions) box and allow you and your partners more room for manoeuvre.

More on "business negotiating" in Cyberlibris:

50 Best (and Worst) Business Deals of All Time, Michael Craig, Career Press, 2000

Game, Set, Match: Winning the Negotiations Game, Henry S. Kramer, ALM, 2001

Only Negotiating Guide You'll Ever Need, Peter B. Stark, Broadway Books, 2003

.

When the Ivory Tower sticks its neck out...

The presidential race between George W. Bush and John Kerry is rather buoyant. The outcome is still highly uncertain. Among the issues that are fiercely debated is the current state of the US economy. President Bush's economic policy has been under attack for a while now. The critics are now joined by a squad of famous and respected scholars who have addressed the following open letter to President Bush:

"Dear Mr. President:
As professors of economics and business, we are concerned that U.S. economic policy has taken a dangerous turn under your stewardship. Nearly every major economic indicator has deteriorated since you took office in January 2001. Real GDP growth during your term is the lowest of any presidential term in recent memory. Total non-farm employment has contracted and the unemployment rate has increased. Bankruptcies are up sharply, as is our dependence on foreign capital to finance an exploding current account deficit. All three major stock indexes are lower now than at the time of your inauguration. The percentage of Americans in poverty has increased, real median income has declined, and income inequality has grown.

The data make clear that your policy of slashing taxes – primarily for those at the upper reaches of the income distribution – has not worked. The fiscal reversal that has taken place under your leadership is so extreme that it would have been unimaginable just a few years ago. The federal budget surplus of over $200 billion that we enjoyed in the year 2000 has disappeared, and we are now facing a massive annual deficit of over $400 billion. In fact, if transfers from the Social Security trust fund are excluded, the federal deficit is even worse – well in excess of a half a trillion dollars this year alone. Although some members of your administration have suggested that the mountain of new debt accumulated on your watch is mainly the consequence of 9-11 and the war on terror, budget experts know that this is simply
false. Your economic policies have played a significant role in driving this fiscal collapse. And the economic proposals you have suggested for a potential second term – from diverting Social Security contributions into private accounts to making the recent tax cuts permanent – only promise to exacerbate the crisis by further narrowing the federal revenue base....

To be continued Download open_letter_to_the_president.pdf

This letter has not been written by some obscure scholars. The list of signers is rather impressive and includes some heavyweights of the academic profession: Robert C. Merton (Harvard and Nobel Prize Winner), John W. Pratt (Harvard), Birgen Wernerfelt (MIT), etc... The Ivory Tower is often criticized for tackling issues that have nothing to do with real life (whatever real life may mean). This time, it sticks its neck out. Interstesting to see whether it is going to be listened too. At least, this letter should make an interesting material for economics classes.

By the way it is interesting to see that there seems to be a longstanding tradition of open letters to US Presidents. One example among others is the open letter John Maynard Keynes, the famous British economist, wrote to President Franklin D. Roosevelt.

I may be wrong on this one but it does not seem that French economists voice their concerns to the President in the same open manner.

Blogging for Darfur

Yes Sudan and Darfur are far away. NO! THEY ARE NOT: THEY ARE JUST A BLOG AWAY FROM YOU.

Thanks, among others, to Harvard Senior Fellow Dr James F. Moore's blog crusade, the level of public awareness about the horrors that are again and again perpetrated in cursed Darfur has significantly increased. But, this is not enough. Jim Moore says that we can do more:

"There are many things we can do. Two come to mind immediately (please invent and share more!)

The first is to do more research on the activities and interests of the Genocide Bloc nations in regard to Sudan. China, Pakistan, Saudi Arabia, and Egypt. For example, I'd like to build on the work of Ingrid Jones and others who have been digging up information about oil interests in Sudan. And I hope to enlist in our process Nobel Peace Prize winner Bobby Muller and his new "this is rumor control" web-based, open source intelligence project, with its network of intelligence agents.

The second is to increase the volume of public outcry. We have already established a reasonable base of awareness in the US and the UK. Newspaper editorials, increasing radio and TV coverage, and the widely noted protests and celebrity arrests at the Sudanese embassy in Washington, D.C. But we are apparently not being heard at the level required to mobilize effective government action."

On the second suggestion, if you're not convinced read this and you'll see how ignorant we can be.

So, let's show that attitude can beat latitude and support Jim Moore's crusade. By the way where is the other Moore (Michael) on this one?: Too busy with George W. Bush I presume.

"The blogosphere needs to help today on Sudan, to counter the latest misinformation campaign by the Sudanese government."

Myopic, did you say myopic?

This entry is a sequel to a previous entry which was arguing that financial markets may not be short-sighted after all. Well, allow me to go one step further. I was watching the news the other day. The journalist was reporting on a jewish student who was agressed against by some unknown fellow. To my surprise, even though nothing more was known, the conclusion was that it was a racist agression perpetrated by some muslim activist. Anti-racist activists, politicians (chasing some more votes) immediately denounced a racist plot and called for action and protestation just to discover a few days later that the culprit was a mentally ill person.

I could quote dozens of examples like this one which all tell us that society has indeed become rather short-sighted. So, when people complain about myopic financial markets, they should first look around them and may be listen to financial markets.

There might indeed be two or three lessons that financial markets could teach them!