What negotiation theory can teach us about the fiscal cliff talks

December 21, 2012

In a way, the Obama presidency is the biggest test that the Program on Negotiation at Harvard Law School has ever faced. The program, founded in 1983, has long been a leading source of research on which negotiation methods — and which mediation and arbitration methods — are most effective, and which backfire. It offers courses to law school students and to the general public and frequently lends its services to companies and governments mired in intractable situations.

And perhaps its most famous former student is 1991 law school graduate Barack Obama, who was the head of the student mediation board.

"If we ever had a president who has learned the science of game theory and the practice of problem-solving negotiation, it was Obama," Carrie Menkel-Meadow, a negotiation expert at the University of California at Irvine School of Law, told me

Specifically, Menkel-Meadow says, Obama is very familiar with the concept of "getting to yes," a buzz phrase within negotiation theory that refers to a set of methods developed by the late Harvard law professor Roger Fisher. Fisher's approach — known as "principled negotiation" — focuses on moving away from the stated position that parties have when going into negotiations, and instead addressing the key interests they want satisfied.


Carrie Menkel-Meadow (Source: Southwestern Law School)

For example, Obama's position going into the fiscal cliff talks was that he didn't want to the George W. Bush  tax cuts on income over $250,000  to be extended. But the president's real interest, as my colleague Zachary Goldfarb has argued, is to reduce inequality. Separating those out, Fisher argued, could make it easier for negotiating parties to look at new options that do not necessarily satisfy either party's position but that serve both sides' interests. He called these "options for mutual gain."

Ideally, such an approach is very different from the kind of horse-trading that typically characterizes Washington deal-making. The whole point of principled negotiation is that parties should not make concessions without a reason, without accomplishing something that's good on its merits. You shouldn't patch together a combinations of things such that each thing is good for one side and bad for the other. Typical Congressional deals — "you get tax hikes if I get Medicare cuts" — tend to take the latter tack.

Menkel-Meadow recalls a former student who worked on the Hillary Rodham Clinton's health care negotiations in 1994. "He really wanted to make this principled negotiation thing work," she recalls. "It was wonderful." But he had to quit the approach because the wrangling methods used on the Hill were just so foreign to it. "People were doing trades all the time, it’s unprincipled and it has nothing to do with the merits," Menkel-Meadow says.


Harvard’s Bob Mnookin is also a very skilled arm wrestler.
(Photo: Lance Murphey / Memphis Daily News)

But even in unprincipled situations, negotiation theory — and the game theory it's an application of — can tell us a lot about how the talks are panning out. For one thing, an analysis based on the theory suggests that Obama has the upper hand in the fiscal cliff talks.

The first step in analyzing the talks, says Robert Mnookin, a professor at Harvard Law School and head of the Harvard Negotiation Project, is to figure out what each party's "best alternative to a negotiated agreement" (or BATNA) is.

In this case, both parties' BATNA, Mnookin argues, is going over the cliff, because there isn't an alternative to a negotiated deal. If House Speaker John Boehner and Obama don't reach a deal, nothing passes, and we go over the cliff. But going over the cliff is a lot better for Obama than it is for Boehner.

"After the first of the year, taxes presumably would be going up to the Bush levels, and Congress could then enact what would amount to a tax cut, and that could be done reasonably promptly," Mnookin explains. "Secondly, although the automated cuts are draconian, what it results in is a rather significant cut in defense spending that would otherwise be pretty hard to negotiate, but is probably much more in the direction of what President Obama would want anyhow."


Senate minority leader Mitch McConnell (R-Ky.), whose debt limit proposal is a major part of fiscal cliff negotiations. (Linda Davidson -- The Washington Post)

More to the point, Mnookin argues that House Republicans would be blamed for that failure. Together, he thinks these factors explain why Boehner has already made so many concessions on taxes. But he still guesses that there's a 70 percent chance that a deal will be worked out before Jan. 1, just because that while going over the cliff is better for Obama than for Boehner, it's actually good for no one. In particular, even if holding out on a deal makes Republicans more eager to bargain in January, they could also just wait until February, when Obama needs them to raise the nation's debt ceiling. So the key question, Mnookin says, is what Obama is willing to give up in exchange for taking the debt ceiling off the table as a point of leverage, through something like the "McConnell rule."

Given how important an economic recovery is to both sides, Mnookin argues that both have strong reasons to avoid going off the cliff for too long. He strongly disagreed with the argument, made most prominently by The New Republic's Noam Scheiber, that liberals should want Obama to go off the cliff. "I think that The New Republic may be being a little cavalier about the risks for Obama and for the country of the economy of going over the cliff," Mnookin says.

He is concerned, like Menkel-Meadow, that negotiators are thinking in zero-sum, or "distributive" terms. That's when the point of the negotiations is to figure out who gets what slices of the pie, rather than on how to grow the pie in question by putting things on the table that both sides want, like boosting the economic recovery or bending the long-run health care cost curve. "What is entirely clear here is they’re engaged in some hardcore distributive bargaining," he says. "One of the key learnings of negotiation theory is that through negotiations you can often enlarge the pie… People fall into the fixed-pie fallacy and think it’s purely distributive, and that’s not true. And it’s not true here. All should be concerned with the impacts on the economy."


Really, your seeing this picture of House speaker John Boehner and President Obama negotiating is making a fiscal cliff deal harder. (Getty Images)

So, what can negotiators do to make a deal that really helps both sides? Both Mnookin and Menkel-Meadow emphasize that secrecy is, in Mnookin's words, "absolutely indispensable."  

"What seems counterintuitive for a lot of people who believe in democracy and transparency is that some kinds of really touchy negotiations like this have to take place behind closed doors," Menkel-Meadow says. "Both Boehner and Obama keep making these dramatic statements, which means they have to carry through on them."

Public commitments, like Obama's pledge not to raise taxes on people making under $250,000 a year, rule out options that could make a better deal possible. President Ronald Reagan's negotiations with the air traffic controllers union in 1981 failed for exactly this reason, Menkel-Meadow argues. He pledged that he would break up the union if a deal was not reached in time and then had to follow through.

Negotiation theorists disagree on the value of "commitment mechanisms," like the sequester cuts that are meant to force a deal. Mnookin thinks the sequester has worked very well. "I think it’s working perfectly," he tells me. "I think that it was clear that they couldn’t make a substantive deal [in 2011] with respect to taxes, with respect to entitlements, with respect to spending cuts. It’s possible that the deal now is simply to kick things down the road to some degree, but there are going to be some decisions now."

A good example of a commitment mechanism is throwing out the steering wheel in a game of chicken. Too bad James Dean and Corey Allen didn't think of that in "Rebel Without A Cause." (Warner Bros.)

But Merkel-Meadow thinks deadlines, especially artificially imposed ones like the fiscal cliff, make deal-making harder. She recalls similar methods not working in legal arbitration. "Everyone would sign a memorandum of understanding and when they’d write the full settlement agreement it’d fall apart," she recalls. The fiscal cliff, she claims, is the same way. The deadlines were imposed to avoid making a deal in 2011 but have not actually improved the odds of a real deal today.

The one thing Merkel-Meadow wishes would happen to speed a deal along is that people in either camp would stop criticizing their leaders for coming to the table. When Obama tries to use principle-based negotiation methods, she says, he too often gets called weak by liberals. "When [Obama] tries to do it and tries to practice it, then he gets criticized, saying he’s a wimp…He’s suffering from having to show he’s not a wimp." The best thing liberals and conservatives could do, she says, is to stop attacking the idea of negotiation. Cutting a deal doesn't necessarily have to mean capitulation.

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Brad Plumer | December 21, 2012