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Sunday, January 08, 2012

"The Art of Bargaining"

Can Congress be fixed?:

The Art of Bargaining, So Lost Upon Washington, by Richard Thaler, Commentary, NY Times: Almost everyone agrees about one thing these days: Congress is malfunctioning. To help our representatives escape from their current morass, I suggest that they read “An Essay on Bargaining,” the classic 1956 article by Thomas Schelling, the Nobel laureate economist. ...
The article’s primary theme is that the key to success in many bargaining situations is the ability to commit to a future course of action. ... This ability to commit can help solve games in which the two players must choose between strategies: either they cooperate or they “defect” ... They are much better off if they both cooperate, but there is always a temptation to defect..., scoring a big win at the other player’s expense.
When this game is played repeatedly, a natural — and often successful — strategy is called tit for tat. You begin by cooperating, hoping for the best. If the other side cooperates, too, all is good. But if it defects, you retaliate. And once the retaliating starts, it is hard to stop.
When I asked a former Republican senate staff member to explain why so many qualified Obama administration nominees were being denied confirmation hearings, he told me, “We are tatting.” ...
Clearly, we must find a way to avoid this escalation of retaliation. ...
Professor Schelling teaches that the best “lines in the sand” are for principles, not for arbitrary numbers. One such principle might be the so-called “Buffett rule,” that the rich should not pay a lower proportion of income in taxes than their secretaries. But whatever principles the president chooses, he must make everyone believe that he will keep his word and veto any bill that does not include these features.
I think that he can make such a pledge credible. If he loses the election, why not go out in a blaze of principled glory? And if he wins, he will want to begin his second term on a strong and constructive note.

More on tit-for-tat here. And more on commitment mechanisms here. (Also, I'm not sure the extract conveys the full message of the article, so you may want to read the entire piece. The point I wanted to emphasize is that Obama has avoided drawing "lines in the sand," but they have a role to play in the bargaining process. Core Democratic principles need to be stated, and there should be no doubt that they will be uncompromisingly defended.)

    Posted by on Sunday, January 8, 2012 at 12:34 AM in Economics, Politics | Permalink  Comments (13)

          


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