Several years ago, Martin Proulx attended Simon Bennett’s presentation on Game Theory and Contracting.  Martin related with interest the games that Simon used to illustrate the need for better contracting process between parties, specifically three games: The Prisoner’s Dilemma, The Pirate’s Game and The Bidding Game.  I wasn’t able to attend the event so I don’t know exactly how Simon used these game other than through Martin’s explanation, but I was intrigued by the supposition that some people treat contract negotiations as they would the Prisoner’s Dilemma.

To understand my intrigue, we need to start with an understanding of the Prisoner’s Dilemma game.  This game starts with two players, both “accused” of committing a crime together.  They are then separated with no means of communicating with each other.  The only way to “win” the game is for both players to say that their accomplice is innocent. If one person fingers the other for the crime, the innocent one goes free and the guilty one stays in prison.  If both parties accuse the other, both stay in prison.

As Martin explained Simon’s presentation, he states that the “game is interesting and demonstrates why contractual agreement has the potential to results in an optimal deal but leads most of the time to the worst possible scenario.” (italics are mine).

Woah!

[Side note:  I don’t know Simon or his background… nor do I know that Martin’s recollection of the session accurately depicts Simon’s statements.  Everything that follows is merely a response to what was posted on Martin’s blog.]

While I do think that some game theory applies to contract negotiations, I don’t believe the Prisoner’s Dilemma is an accurate game to ever use to show the contracting process.  If you’re closing deals and it feels this way, I’m sorry to tell you but you’re doing it wrong.  Time to start from scratch.  If you have been doing it this way and need to start over, here’s the scoop:

Contractual agreements should NEVER lead to the worst possible scenario.  In any negotiation, you must always remember the Five Fundamental Skills for Effective Negotiation: Information Gathering, Strategic Thinking, Time Management, Perception of Power and Communication.  To counter any potential Dilemma scenario, you only need two of these skills: Information Gathering and Communication (and really, you only need Communication).  Simply talking with your accomplice would create a better outcome.  If you add Information Gathering, you’ll discover the three possible outcomes… and then can obviously choose the best one together with even less discussion.

If, for whatever reason, you haven’t gone through the Five Fundamental Skills and are thus not ready for negotiation, don’t negotiate in the face of ill-preparedness.  Delay the negotiation until you have time to prepare properly.  Lastly, if you’ll never be ready, remember that you can always walk away.