“What economists call game theory psychologists call the theory of social situations, which is an accurate description of what game theory is about. Although game theory is relevant to parlor games such as poker or bridge, most research in game theory focuses on how groups of people interact.”
-Prof. David K. Levine, Economist
GAME THEORY AND THE LAW (ALTERNATIVE DISPUTE RESOLUTION – MEDIATION)
INTRODUCTION
Game theory, a mathematical model is used in a variety of disputes. The context starts with the premise that the participants, while not knowing fully the position of the other party, are rational and want to achieve the best possible outcomes.
‘Game theory is the science of rational decision making in interactive situations.’ (Source 1)
‘Game theory can be defined as the study of mathematical models of conflict and cooperation between intelligent rational-decision makers.’ (Source 2)
The definitions above focus on the interactive component between the parties. At the heart, there are the twin issues of conflict and cooperation. There is the assumption that decision-makers are rational and have specific objectives in mind, which is to reach a settlement.
Despite the intensity of a legal dispute, both sides ultimately want to achieve the best possible outcome. Each party has to assume that the other party is rational even though they might not know exactly what the other party wants. It is in this situation that the mediation, negotiator’s role, and the lawyer’s role become increasingly important to help move the parties along in the process of information exchange until they come closer to a common understanding as to what the other person wants.
WHY GAME THEORY?
Game theory is the formal study of conflict and cooperation. Game theory concepts apply whenever the actions of several agents are interdependent. These agents can be individuals, groups, firms, or any combination of these. The concepts of game theory provide a language to formulate, structure, analyze, and understand strategic scenarios. (Source 3). Game theory is predicated on the premise that there can be a ‘non-zero sum’ game where simply because one of the parties engaged in the dispute process has won, it doesn’t mean the other has lost.
It is for this reason that only some cases are suitable for Mediation – Alternative Dispute Resolution (“ADR”). The Mediator, in striving to let the parties own the process is, in fact, working for a ‘win-win’ situation— trying to bring the parties as close to a tolerable position as possible.
Game theory provides a new language to think of human behavior and of parties who are in conflict. For instance, negotiation can be used in a comfortable setting to alter the expectations and preferences of the parties. In game theory, one of the dominant models which have been used to explain the behavior of individuals is the Nash Equilibrium. The usefulness of the Nash Equilibrium is that somewhere in the hodgepodge/potboiler of emotions there comes a point where the parties realize that they will need to settle in order to maximize their chance of a positive outcome.
In game theory, the Nash equilibrium explains a solution concept of a non-cooperative game involving two or more players in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy. If each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitutes a Nash equilibrium. For example, X and Y are in Nash Equilibrium if X is making the best decision she can, taking into account Y’s decision, and Y is making the best decision she can, taking into account X’s decision.
THE DYNAMICS: ALTERNATIVE DISPUTE RESOLUTION – MEDIATION
ADR – Mediation offers the parties an opportunity to avoid risks and reduces the likelihood of an unfavorable outcome. It gives the parties in the legal dispute the opportunity to consider the risks involved in litigation. The use of game theory in ADR – Mediation is not meant to assume that within it is the solution to real-life issues. What game theory offers is a model for understanding conflict situations and analyzing how parties can make decisions that result in a positive outcome. There is also no claim to expertise in the use of the game theory model and the approach might in fact be superficial, but game theory might transform disputants into a harmonious non-zero-sum relation which elevates the process of ADR – Mediation into a normative justification for the avoidance of litigation.
In the case of ADR – Mediation, while a mediator is not the decision-maker in the strictest application of the phrase, they are nevertheless the one who manages all the information, especially in a context where and when diplomacy is and can be employed. To this end, the mediator must be able to create an appropriate information model that will work. They will also have to create an atmosphere where each party becomes aware of their options but as they do so, they must consider their preferences and reactions. By acquainting themselves with the expectations of each participant in the dispute process the mediator assumes beyond a supervisory role but a God-like benevolent purpose. In this way they are able to influence the process by deciding which or what part of the information to convey, effectively becoming a decision-maker. Therefore dynamics such as the use of adversarial language must not be spoken in the language of peace.
It is said that the best lawyers, negotiators, and mediators understand the tension and timing of competition and cooperation in achieving deals that are satisfactory to negotiating parties. Game Theory is fundamental to understanding negotiations. Every human interaction can be understood as a game theory dimension and dynamic in which there is both cooperation in creating value and competition to divide it up. Thus, combining these two aspects into one unified behavior, “cooperation” expresses the strategy of effective negotiations. (Source 4). In his recent book on legal negotiations, Harvard Professor Robert Mnookin argues that lawyers who make deals and resolve disputes are at the same time creating values and claiming value for their client(s). (Source 5)
We will now look at the techniques involved while applying game theory during an ADR – Mediation legal process.
A. Understand the other side
A key concept in ADR – Mediation and strategic negotiations is to develop a plan that not only includes a thorough understanding of your side, but also an understanding of the opponent’s position as well. Effective negotiators and lawyers put themselves in the shoes of their opponents and try to evaluate the strengths and weaknesses of the case as viewed from the other side. When a negotiator and lawyer understand their opponent’s perspective, they are better able to anticipate what will be needed at the right moment to address and overcome the objections of their opponent.
B. Start at the Goal Line and work backwards
Effective lawyers and negotiators have an opening, middle, and end game strategy. They think through about where they want to end up and work backwards to develop tactical maneuvers that lead them back to their goal. ADR – Mediation and negotiations within are a dynamic process of human interactions at many levels, perceived and unperceived, played in the shadow of a range of possible (judicial and related) outcomes with each party gambling on the strengths of their prediction. Define your goal – for example, the terms of an acceptable agreement, and work backwards – thereafter developing a proposal and counter proposals that will lead to where you and your representative want to end up.
C. Before and after the negotiation
One should always write out a plan of attack before the negotiation begins. After the negotiation, a summary can be prepared of what happened which shall explain why they believe that the negotiation was successful or not. This would be an excellent way of tracing one’s experience and reviewing what worked and what didn’t.
GAME THEORY AND ALTERNATIVE DISPUTE RESOLUTION – MEDIATION
Playing the ADR – Mediation legal game can be a very challenging task. According to game theory, success depends on knowing how to play the right game. The key to success in any game is to look forward into the game and then reason backward to figure out the best action today considering what your competition might do tomorrow. This perspective requires you as a strategic thinker to get into the head of your competitors and consider how they are likely to play the game.
Game theory enhances one’s strategic understanding of both the opportunities and limitations of legal negotiation and ADR – Mediation. Whereas opportunities for resolving conflicts at all levels abound, many are lost because players are not forthcoming, norms and procedures do not exist or are manipulated, threats are made to undermine trust, and so on. Rather to viewing these problems as pathologies, they are more properly seen as the strategic responses of rational actors in the negotiation games they play.
Because lawyers and negotiators are intrinsically strategic, game theory provides powerful tools for lawyers and negotiators, and their clients to narrow their differences and find common ground. The application of game theory in ADR – Mediation and the law is, therefore, crucial and an understanding of the same is now being widely used by lawyers in the resolution of disputes outside courts.
For further information on Game Theory as well as its application in Law and ADR – Mediation please contact Mr. Nitin Walia at business@tuskh.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
- Source 1 Dixit & Skeath, “Games of Strategy”, 1999, p. 3
- Source 2 Myerson, Roger B. (1991). “Game Theory: Analysis of Conflict”, Harvard University Press, p. 1. Chapter-preview links, pp. vii–xi
- Source 3 Theodore L. Turocy, Bernhard von Stengel, “Game Theory”, CDAM Research Report LSE-CDAM- 2001-09, available at http://www.cdam.lse.ac.uk/Reports/Files/cdam-2001-09.pdf
- Source 4: Barry Nalebuff and Adam Brandenburger, “Cooperation”, 1996.
- Source 5: Scott R. Peppet & Andrew Tulumellow, “Beyond Winning: Negotiating to create value in Deals and Disputes”, Harvard University Press, 2000.
