Topic 7


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  • Advertising is sometimes cited as a real life example of the prisoner’s dilemma. When cigarette advertising was legal in the United States, competing cigarette manufacturers had to decide how much money to spend on advertising. The effectiveness of Firm A’s advertising was partially determined by the advertising conducted by Firm B. Likewise, the profit derived from advertising for Firm B is affected by the advertising conducted by Firm A. If both Firm A and Firm B chose to advertise during a given period the advertising cancels out, receipts remain constant, and expenses increase due to the cost of advertising. Both firms would benefit from a reduction in advertising. However, should Firm B choose not to advertise, Firm A could benefit greatly by advertising. Nevertheless, the optimal amount of advertising by one firm depends on how much advertising the other undertakes. As the best strategy is dependent on what the other firm chooses there is no dominant strategy and this is not a prisoner's dilemma but rather is an example of a stag hunt. The outcome is similar, though, in that both firms would be better off were they to advertise less than in the equilibrium. Sometimes cooperative behaviors do emerge in business situations. For instance, cigarette manufacturers endorsed the creation of laws banning cigarette advertising, understanding that this would reduce costs and increase profits across the industry. [8] This analysis is likely to be pertinent in many other business situations involving advertising.
  • Topic 7

    1. 1. Tacit Negotiations and SocialDilemmasPresenters:Ahmed IbrahimFaten AttiaNourhane Abdel RahmanOssama Abdel Razek
    2. 2. By end of this presentation, we will be able to learn• Tacit Negotiations• Difference Between Tacit and Explicit Negotiations• Social Dilemma• Rational Analysis• Tragedy of The Common• Escalation of Commitment
    3. 3. Tacit Negotiations
    4. 4. Tacit NegotiationsOriginally, The word Tacit comes fromLatin word (Tacitus) which means“Silent”In other words: it means “indirect”
    5. 5. Kyoto Protocol 1997
    6. 6. Difference betweenExplicit & Tacit negotiations
    7. 7. John Nash, AmericanMathematician who wonNoble Award ForEconomic Sciences in1994In Early 50s, Nash made the distinctionbetween Cooperative & Non-CooperativeNegotiations
    8. 8. Cooperative Vs Noncooperative• Contract is explicit • Contract is tacit• Mutual understanding • People often do not know what others will do• People negotiate via proposals • People negotiate through their and counterproposals and can behaviors and actions rather use words to justify their offers than promises• People usually come to the • People are often pulled into table voluntarily negotiations without wanting to be involved
    9. 9. Example of Tacit Negotiation: US Policy Vs The Egyptian RevolutionUS Policy was blessing Mubarak system as he and his regime had been paving the way to American interests in the region over 30 years
    10. 10. Demonstrations Swept everywhere in Egypt on 25 of January 2011 th
    11. 11. On Jan 27th, Clinton stated : “Egyptian Governmentseeks ways to implement political and social reform.and we will support the government to reach its goal”
    12. 12. The US Government Waited to See How and Wherethings are going to be settled
    13. 13. By early February,Obama Started askingMubarak to Leaveinstead of US usualsupport
    14. 14. After Mubarak Steppingdown, Obama stated:“Egyptian People havemade it clear, they needclean fair elections,Revised Constitution andreal democracy. US willstill be friend and partnerto Egypt”
    15. 15. As a conclusion to this type ofnegotiations:> Negotiation was Interdependent (will dothis action when other party does a certainaction)> Outcomes are determined by actions
    16. 16. In Alain Plantey’s book : InternationalNegotiation in the twenty-first century about “Silence” in Tacit Negotiations
    17. 17. The Prisoner’s Dilemma
    18. 18. 2 Person Dilemma Thelma Do not Confess Confess (Remains Silent) Do not Confess A B (Remains Silent) Thelma: 1 Year Thelma: 0 Year Louise: 1 Year Louise: 15 YearsLouise C D Thelma:15 Thelma:10 Years Louise: 0 Louise: 10 Years Confess
    19. 19. example of “Prisoner’s Dilemma”• The two companies have 2 choices:a. "cooperate" (each one not advertise its products)b. "defect" (each one advertises its products)• Best Choice for Company 1 or Company 2 is to: DEFECT! 
    20. 20. Another Example of Prisoner’s Dilemma• Consider two competing athletes: Alice and Bob. Both Alice and Bob have to individually decide if they are going to take drugs or not.• Alice thinking:"If Bob doesnt take any drugs," she thinks, "then it will be in my best interest to take them. They will give me a performance edge against Bob. I have a better chance of winning."Similarly, if Bob takes drugs, its also in my interest to agree to take them. At least that way Bob wont have an advantage over me."So even though I have no control over what Bob chooses to do, taking drugs gives me the better outcome, regardless of his action."• This DILEMMA will force each to take “drugs” as it is after all an “individual choice”, no trust of the other’s behavior
    21. 21. Rational Analysis
    22. 22. Case 1: One Shot Decision• Dominance • Equilibrium Detection: Outcome: Negotiator seizes mutual defection No opportunity no matter Player improves his/her what’s the other party’s outcome by making decision : different choice (both know to confess that this decision “confession” is the best or dominant strategy. Important rule in this case: no communication between the 2 parties. Conclusion: it is a single choice and living with the consequences
    23. 23. Case 2: Repeated Interaction over a fixed number of trials• The iterated prisoners dilemma thus to permit the influence of one party on another and give them a mechanism to coordinate their actions.• If two players play prisoners dilemma more than once in succession and they remember previous actions of their opponent and change their strategy accordingly, the game is called iterated prisoners dilemma using the Backward Induction Technique where Negotiator decides what to do in a repeated game situation by looking backward from the last stage of the game• Conclusion: defection remains the dominant strategy even in repeated trial case
    24. 24. Case for “Iterated prisoner’s dilemma”• 2 political candidates doing their campaigning.• Terms limits in their state dictate that they can run and hold office for a maximum of 5 years.• Elections are held every year.• Start analysis from Election number 5: For sure: each candidate will campaign as it is the last chance (same as case 1: one shot case)So why cooperating in Election number 4 by not campaigning? if Election number 5 is doomed to be “noncooperative”?It leads to “PARETO INFERIOR”: optimal outcomes are those of minimally effective cooperation
    25. 25. Case 3: Repeated Interaction for an Infinite or Indefinite amount of time• We can’t apply the backward induction as there is no “endpoint”.• Forward Thinking logic: parties reason that they might influence others behavior with their own behavior by time.• If “cooperate”, parties signal that choice in early trials. But not taking it a general strategy as it might lead to exploitation. 
    26. 26. Tit for TatTit for Tat: An English Saying means “equivalent retaliation” Tit-For-Tat Strategy: Start by cooperating. Then do whatever your partner did on the previous iteration.Most of Tit-for-tat can do is to earn as much as its opponents “For every action, there’s an equal and opposing reaction”
    27. 27. Case 1: Tit for Tat Iran vs. UK
    28. 28. • Gordon Brown, the PM of UK:• As response to Iran’s action:
    29. 29. Why Tit for Tat is Effective?• Not Envious: It never aims to beat its opponent rather than maximizing its own gain in the long run.• Nice: tit for tat always begins the interaction by cooperating.• Tough: tit for tat can be provoked. It will defect if the opponent invites competition.• Forgiving: as it reciprocates defection, it also reciprocates cooperation.• Simple: people can quickly figure out what to expect from a player who follows it.• Stable: negotiators who use this technique often induce their opponents cooperate. Tit for tat strategy is not the only stable one, solid defection is a stable strategy as well. (once someone has defected it is difficult to renew cooperation)
    30. 30. How to Recover from Defection?• Make Situational Attributions: see other side’s behavior as a response to our own actions.• One Step at a time: trust is not rebuilt in a day. GRIT strategy calls for parties in conflict to offer small concessions.• Getting even and Catching up: getting even to rebuild trust. It generates future cooperation.• Make your Decision at the same time: to understand that making decisions at the same time cannot influence the behavior of others.
    31. 31. Superrationality• People, when taking a decision tend to believe that others will do the same (they are as rational as them)
    32. 32. Social Dilemma vs. Prisoner’s Dilemma• Involves several people • Two persons are involved• Competitiveness is high • Competitiveness is lower than social dilemma • Cost is concentrated upon one person• Cost of defection is spread out among the group• Riskier than Prisoner’s Dilemma (difficult to • The minimal payoff can be anticipated in advance anticipate people’s behavior) • Anonymity is impossible!• Provides anonymity (people can hide among the group) • People can directly shape and modify the behavior• People have “less control over the situation”. of the other person. (choosing defection: punishes (OPEC example) the other, while choosing cooperation rewards the other) • Defection leads to better personal outcomes• Universal defection leads to poorer outcomes for everyone than the universal cooperation. If no limits are placed on the pursuit of personal goals, the entire society may suffer
    33. 33. Different Types of Social Dilemma• Volunteer Dilemma: it is a situation in which at least one person in a group must sacrifice his or her own interests to better the group. Benefits: this volunteering action strengthens group ties.• Ultimatum Dilemma: one person makes a final offer – an ultimatum- to another person. If the other person accepts the offer, then the first player receives the demand that he/she made. And the other player agrees to accept what was offered to him/her. If the offer is refused, then no settlement is reached and negotiators receive their respective reservation points. “take it, or leave it” offer. It introduces the concept of “ Subgame Perfect Equilibrium”: to offer to the other the minimum knowing that /she would accept even if the game had additional periods or repeated again. “to win even 1 cent is better than nothing”. That is the game theory but not always realized in reality, people tend to reject this offer if they don’t know the size of the pie. The acceptance rates are driven by how much information the responder has about the size of the total pie, comparing their outcomes to others.
    34. 34. Tragedy of the commons• Tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource , even when it is clear that it is not in anyones long-term interest for this to happen
    35. 35. Tragedy of the commons• What if many people share the same resource? And all of them misused it?• Example: environment pollution and desertification• Reasons that drive people to do so:1. Maximize their own gain2. Thinking that their action alone won’t have a measurable impact on others.Results: if everyone thinks the same, the collective outcome will be disastrous.
    36. 36. Forms of Social Dilemma• There are 2 forms of social dilemmas:1. Resource Conservation Dilemma (collective traps): people collect or harvest resources from a common pool. The defection choice occurs when people consume too much. Overconsumption leads to disasters. Keyword: they “take”2. Public Goods Dilemmas (Collective fences): people contribute or give resources to a common pool or community. Example: Donations, taxes, voting. The defection choice is to not contribute. Those who do not contribute are called “defectors” or “free riders”.Example: Positive voters Vs Couchists Keyword: they “contribute”
    37. 37. Negative Competitive Advertising• It is also called “attack ad”• Concentrates on comparing the company’s products with the competitors, showing the advantages of its own, and the negative side of the others’ products.• Results:1. if in business and marketing world: it keeps the price low and quality high due to competitiveness in the market.2. But can also lead to the resentment of the consumer toward certain companies.3. As for the producers: they can run each other OUT of the business 
    38. 38. Example of Negative competitive advertising• One of the earliest and most famous television attack ads, known as Daisy Girl, was used by Lyndon Johnson against Barry Goldwater in the 1964 presidential election. The ad opened with a young girl innocently picking petals from a daisy, while a mans voice (which may have had somewhat of a southwestern accent similar to Goldwaters) performed a countdown to zero. It then zoomed in to an extreme close up to her eye, then cut to an image of a nuclear explosion. The ad was shocking and disturbing, but also very effective. It convinced many that Goldwaters more aggressive approach to fighting the Cold War could result in a nuclear conflict.• Let’s watch it together
    39. 39. Explicit Comparative Advertising• Comparative advertising, as a special form of advertising, is a sales promotion device that compares the products or services of one undertaking with those of another, or with those of other competitors. All comparative advertising is designed to highlight the advantages of the goods or services offered by the advertiser as compared to those of a competitor. In order to achieve this objective, the message of the advertisement must necessarily underline the differences between the goods or services compared by describing their main characteristics.• It enables consumers to make well-founded and more informed decisions relating to the choice between competing products/services by demonstrating the merits of various comparable products. Based on this information, consumers may make informed and therefore efficient choices.• Example: Coke vs. Pepsi ad
    40. 40. How to build Cooperation in Social Dilemma?Structural PsychologicalStrategies Strategies
    41. 41. Structural Strategies• Align Incentives• Monitor Behavior• Regulation• Privatization• Tradable Permits
    42. 42. Psychological Strategies• Psychological Contracts• Superordinate Goals• Communication Perception• Personalize Others• Social Sanctions• Focus on benefits of Cooperation
    43. 43. The 3 V Study VERBAL 7% VISUAL VOCAL VISUAL VOCAL 38% 55% VERBALHow we Convey message not what we say
    44. 44. How to encourage Cooperation in social Dilemma• Keep your strategy simple: the simpler your strategy, the easier it is for your competitors to predict your behavior. Trying to minimize uncertainty for your competitors , thus reduce the competitive behavior.• Signal via actions: actions and not just words• Do not be the first to defect: difficult to recover from escalating loops of defection• Focus on your own payoffs, not your payoffs relative to others: focus on your profits rather than beating the others.• Be sensitive to egocentric bias: consider the fact that your competitors will see you less favorably than you perceive yourself. Just as you see yourself more ethical and more cooperative than others.
    45. 45. Escalation of commitment• the escalation of commitment refers to the unfortunate tendency of negotiators to persist with a losing course of action, even in the face of clear evidence that their behaviors are not working and the negotiation situation is quickly deteriorating
    46. 46. Escalation of commitment1. personal escalation dilemmas: involves only one person and the dilemma concerns whether to continue with what appears to be a losing course of action or to cut one’s losses. Example: investing money in a car that is already deteriorating.2. interpersonal escalation dilemmas: involves two or more people, often in a competitive relationship such as negotiation. Example: Union Strikes, wars.Generally speaking: People fall into escalation traps because initially the situation does not appear to be a losing enterprise. Example: Egyptian Revolution Jan 25, 2011 in Mubarak’s Perspective in the first days of its start.
    47. 47. Escalation of Commitment Commit to End to Current satisfying Continue Course result ReexamineNegative Course ofOutcome Action to Occurs Continue Withdraw DisContinue and check BATNAs
    48. 48. Avoid the escalation of commitment in negotiation• set limits: a negotiator should have a clearly defined BATNA. Not to accept an offer worse than his/her BATNA.• avoid decision myopia: a negotiator should get several perspectives on the situation. honest and critical assessment.• recognize sunk costs: recognize “money” commitment previously spent that cannot be recovered.• diversify responsibility and authority: in some cases, it is necessary to remove or replace the original negotiators from deliberations precisely because they are biased.• Redefine the situation : helps not to look to the situation as “the same old problem” but a new one, thus helping to change the decision criteria.
    49. 49. 4 main questions in this presentation1. Discuss 2 of the 5 factors of Tit for Tat strategy’s effectiveness.2. Discuss 2 differences between social and Prisoner’s Dilemma.3. How to encourage cooperation in social Dilemma? Discuss 2 of the 5 principles.4. Discuss 2 solutions of how to avoid escalation of commitment.
    50. 50. Thank You!