The long road to nowhere

Published on Thursday, 23 February 2012 10:01
Written by Dr Swee-Hoon Chuah

The idea of the “chicken” game is perhaps most popularly embodied in the automotive duels commonly found in a certain genre of American film. Picture James Dean and his rival accelerating towards the cliff edge in Rebel Without a Cause.The concept, though, goes way beyond cinematic fender-bending, encompassing anything from quotidian face-offs to Cold War nuclear deadlock

This is why experimental economists have long used “chicken” as a crucial element of game theory’s attempts to explore strategic behaviour in real-life situations. Of these, industrial negotiations and relations are especially relevant in the present climate.

Previous studies employing “chicken” have suffered from an enduring shortcoming – specifically, its inability to capture what has gone on before. Recent research by Nottingham University Business School sought to address this concern, developing an “escalation” game to investigate what happens when the risk level and the difference in outcomes between a “player” who relents and one who does not are gradually increased.
The findings’ implications for cases of prolonged, escalating bargaining – of which the continuing government-versus-unions stalemate over public sector pension reforms is an obvious example – are clear. They are also pessimistic.

The study, carried out by the School’s International Centre for Behavioural Business Research, took place in a computer lab and involved hundreds of volunteers. These were placed in pairs and asked to play either the “chicken” game or the “escalation” game, with the winners paid small cash amounts reflecting their performance. Subjects had to choose one of just two options – A to back down or B to carry on – with the pay-off gap between winner and loser growing as the “escalation” variant progressed.

In the single-round “chicken” game 37% of players chose B and “crashed” – compared to 79% in the final stage of the four-round “escalation” game. This means that, despite identical ultimate pay-offs in each scenario, players who went all the way in a drawn-out stand-off were more than twice as likely to crash. We argue that a key element in these results is that prolonged negotiations may trigger psychological phenomena such as “frog-boiling”.

The frog-boiling anecdote claims that a frog placed in cold water that is then slowly heated would fail to appreciate the danger and so be gradually boiled alive. By contrast, the story goes, it would instantly jump to safety if placed in water already sufficiently hot to harm it.
We can compare this scenario to the plight of decision-makers who incrementally adjust to a series of small changes that would prompt a significant reaction if revealed en bloc. Just as the players who repeatedly chose B in our “escalation” game may have become accustomed to the higher level of risk inherent in successive stages, so those embroiled in seemingly interminable negotiations may not realise how serious the situation is becoming and the potentially disastrous consequences for all concerned.

The fundamental inference is that the human psychological factors associated with lengthy bargaining can be conducive to collective catastrophe. The longer brinkmanship goes on, the greater the chance of a denouement that is ruinous for all sides.Above all, this reinforces the need for new contributors when negotiations offer no apparent prospect of a breakthrough. In such situations deadlock can frequently be traced to the individuals at the heart of the discussions and their nascent conviction that people will think less of them if they back down. A third party has nothing to prove, nothing to justify, and can see beyond the shared refusal to waver.

As the winter of discontent gives way to the threat of a spring of discontent, the basic lesson is that someone has to step back – or at least step aside. All things considered, there is no shame in that if the alternative invites mutual destruction.

 

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