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CRITICAL MOMENTS

Brinksmanship

Learning Objectives Est. time: 35 min.

  • Understanding the nature of brinksmanship in dispute resolution and deal-making
  • Utilizing action-forcing tactics
  • Assessing the risk of going over the brink

Overview

Two dynamite trucks are speeding towards each other on a narrow road. Both drivers know there will be a fatal collision if neither swerves. Yet the two drivers still barrel ahead, each counting on the other to do the rational thing — get out of the way and prevent disaster.

The story is one of ultimate brinksmanship, where each party demonstrates their willingness of suffer great loss in order to force the other to capitulate. Such a stance sometimes leads to victory. Other times, everyone suffers.

Book cover image of Thomas Schelling's The Strategy of Conflict
Thomas Schelling's The Strategy of Conflict

Thomas Schelling's classic book The Strategy of Conflict, first published in 1960, uses examples like this to explain the dynamics of more complex real world stand-offs. Schelling was a foreign policy analyst/adviser who wrote during the height of the Cold War. Years later he was awarded the Nobel Prize in Economics for this and other work.

Schelling illuminated the paradoxical nature of bargaining power in such situations. For example:

When Schelling wrote The Strategy of Conflict, the United States and the Soviet Union had been engaged in an arms race for more than a decade. Unilateral disarmament was not in either side's interest. A willingness to resort to nuclear warfare was a dark shadow cast over every confrontation between east and west. Somehow the policy of "mutually assured destruction" (MAD, for short) kept the world from going over the brink. But, for both sides, there was always the risk of a miscalculation of the other party’s motives and resolve.

When the conflict in Korea stalled, some American hawks urged using the atomic bomb to break the deadlock. More prudent voices warned about escalation and prevailed. In 1961, the Soviets and East Germans walled off the western sectors of Berlin, gambling (correctly, as it turned out) that the United States and NATO would not respond militarily.

Then, in October of 1962, the Soviets gambled again by installing nuclear armed ballistic missiles in Cuba, once more counting on forbearance on the part of the United States. This time the outcome was anything but certain.

Meeting of the Executive Committee of the National Security Council. October, 29 1962
Meeting of the Executive Committee of the National Security Council. October 29, 1962.

In this module we will explore brinksmanship in four different settings. We will start with the Cuban Missile Crisis and then turn to a dispute between neighbors in a New York City apartment building. Next, we will look at exploding offers,and finally, a lawsuit in which a federal trial judge aggressively attempts to force litigants to settle their differences through mediation rather than risk an adverse decision. Each of these examples offers practical lessons for everyday negotiation.

The Cuban Missile Crisis

The Cuba Missile Crisis is an archetypical example of brinksmanship. It has been studied in depth by scholars of diplomacy and negotiation. New insights continue to emerge as archived material has become available. The case illuminates aspects of far more commonplace (and less harrowing) conflicts today. We will examine five such points here.

  1. Limiting your options is sometimes more effective than keeping them open.
  2. It is prudent to preserve some room to maneuver.
  3. Play both sides of the table.
  4. Use intermediaries to break stalemates.
  5. Build on common ground.
  6. Don't overlook the aftermath and analysis.

Escalation Traps

The Board of a co-op apartment building in New York City enacted a rule requiring everyone to install and pay for child safety bars in their windows. One particular owner refused to pay, insisting that the Board pick up the cost, which in this case was $902. The Board, made up of neighbors in the building, felt compelled to uphold its legal authority and retained a lawyer (for $315) to write a letter demanding payment. The Board hoped the owner would relent, but he was adamant, so it filed a suit. The owner retained his own attorney, and the parties headed to court.

Click the button below to learn more about how this scenario unfolded and to share your own perspective. Then, continue reading the analysis below.

Analysis


Take a look at your initial responses in the open tab. If you predicted that this minor squabble would escalate into such a costly dispute, congratulations on your foresight. But the parties themselves surely didn't anticipate this outcome. Nobody planned on investing so much time, money, and emotion in a lose-lose proposition, yet that was the result. From the start, each side assumed that the other would come to its senses and abandon the fight. Instead, they both dug themselves in deeper and kept on shoveling.

The first set of questions after this mini-case was introduced get at the importance of foresight. Decision expert Gary Klein stresses the importance of conducting what he calls a premortem before undertaking any important action. Instead of asking if anything might go wrong, imagine instead that you are underway and something has gone wrong: what is it? Klein's research shows that phrasing the question this way sharpens people's foresight. They recognize more things that could go amiss and realize that they are more likely than anticipated.

When the Board was considering a lawsuit, if just one member had posed Klein's question—"imagine something goes wrong here"—it's likely that someone would have said, "Well, the owner might be just as obstinate as we are." If so, others might have asked how far the group was prepared to go. Someone else might have chimed in by asking, "Should we think about mediation instead of a lawsuit?" The whole dispute might have been nipped in the bud. At the very least, as events unfolded, the Board would have been quicker to realize where litigation was taking them.

The second set of questions, following Part Two, has to do with perspective. While the stakes in this situation were trivial compared to the Cuban Missile Crisis, taking the point of view of the other side is important whatever the context. Kennedy understood that clearly in 1962. The neighbors in this dispute apparently did not.

Book cover image of William Ury's Getting Past No
William Ury's Getting Past No

William Ury, author of Getting Past No,coined the term "going to the balcony" to describe the value of psychological distance. (The concept is described in the Interpersonal Dynamics module of the Openings unit.) Negotiators must be center-stage, of course, and intimately engaged with their counterparts, yet they must also have the perspective of someone sitting way back in the audience watching the drama unfold. Maintaining that stance requires emotional balance, which can be especially hard when people firmly believe that they are right and others are clearly wrong.

The questions following Part Three raise the issue of power. In this instance each side felt that they had the law on their side, but that pendulum swung back and forth, depending on which court was hearing the case. As was explained in the introductory section and in the analysis of the Cuban Missile crisis, power is also established through a party's ability to commit to a course of action, heedless of cost. It is easy to fall into the trap, however, that we are being virtuous when we are resolute. But when we face someone else doing the same thing, we tend to view them as acting irrationally. Then there is the sunk cost trap. In this case, as each side poured more and more money into the dispute, their need to justify past behavior grew more powerful.

Finally, the questions following Part Five raise the issue of process. This dispute may have been harder to resolve because it was between an individual and a larger group. Social psychologists have found that hard-liners often have disproportionate influence within teams. More moderate voices are vulnerable to being charged with disloyalty or weakness. An us/them outlook can develop. The condo owner, in turn, may have felt he was being ganged up on and that he had to defend himself.

The dispute wore on for years, but finally reached a settlement. In an interview with a Wall Street Journal reporter, the owner said afterwards, "I'm a man converted. Anything you can possibly do to avoid a lawsuit, do it."

It's not clear whether any outsiders tried to break deadlock informally. Somebody might have quietly suggested to the owner that he save face by "donating" $902 for some other common use, without backing down on the legal principle. Or perhaps another resident, caught in the crossfire, could have made the case go away by anonymously sending the board $902 in cash to cover the cost of the window bars—a bargain compared to the mushrooming legal costs.

In hindsight other people affected by the dispute may regret not intervening. But the co-op board's lawyer wasn't chastened. He told the Journal, "I think the expenditures here were appropriate and were pretty much kept to a minimum." He claimed that his clients "had an idea of what was going on" throughout the case. "There were no surprises." The lawyer's attitude betrays a fatalistic commitment to a strategy even when there's mounting evidence that it's not working.

Exploding Offers

Quiz: Imagine that you've decided it's time to shift jobs. You have a good resume and strong recommendations, so you are justifiably confident that you can soon find something better than your current position. In fact, you've just received an attractive offer from a well-regarded company. The work itself is more interesting, the pay will be better, and your chances for further advancement will be improved, as well.

That's the good news. The drawback is that it is that is an exploding offer. The hiring manager said, "You must give us a yes or no by 5pm tomorrow. And that deadline isn't negotiable."

Before hearing this you were already leaning towards accepting, though expected to have more time to think it over. And you would have liked to explore other possibilities. (You already have interviews with two other firms scheduled for early next week.) It's possible that you might get an even better offer elsewhere, though you figure that the chances of that happening are about one in four.

Click the button below to learn more about how this scenario unfolded and to share your own perspective. Then continue reading the analysis below.

Analysis


Choosing to make an exploding offer is a critical moment in negotiations. So is deciding how to respond to one. As we'll shortly see, they arise in a variety of settings. The motivation for imposing a short deadline for acceptance is clear: A hiring manager needs to fill positions in their company and doesn't want a prospect to use the offer as a bargaining chip with other firms. Someone putting in a formal offer on a new house doesn't want to lose out on other properties while the seller waits to see if someone else will show up willing to pay more.

An exploding offer is an action-forcing event. The recipient of an exploding offer—a job hunter or home buyer—has to decide whether the deal now in hand is better on balance than chasing after a potentially better one. But it is not without cost. It can cause recipients to reject deals which, after some further investigation and reflection, they ultimately might happily accept. When that happens, the outcome is lose-lose for both sides.

Volatile markets create conditions where parties making offers feel that they have no choice but to set quick limits on when they will expire. For example, law students compete for prestigious clerkships with judges. These positions give them a window seat to see how the judicial system works and to jumpstart their professional careers.

Judges, in turn, compete with their own colleagues to hire the very best students. The candidate pool shrinks as other judges secure commitments, so there is an incentive to make offers earlier and earlier. Attempts have been made at establishing a common offer date, but judges jump the gun. By doing so, they subvert the norm.

Offers in this marketplace sometimes explode in mere hours. One law student recalls that after taking a short flight, he turned his phone back on and found three voicemail messages from a judge that he had just spoken to. First, to make the offer. Second, to tell him that he should respond soon. Third, to rescind the offer. It was a 35-minute flight.

Exploding offers can backfire, of course. There's a story that a major car manufacturer invited eight MBA students, all from top-ranked schools, to a final round of interviews on site. At the end of an intense day, the eight were brought together and told that the company was happy with everyone. There were two open positions, it was said, and those would go to the first two people to accept. But the ploy boomeranged. No one accepted the offer. The candidates resented being forced to make a hasty decision and treated as if they were identical spare parts.

Exploding offers are features of other kinds of transactions, large and small. Some venture capital firms put a short fuse on their offers to invest in startups, especially in early stages of development. They understandably don't want their offers to be used as endorsements to lure other investors at better terms. But quick decisions can lead to mismatches between funders and founders. Some VCs (like Y Combinator, which helped launch Reddit and Airbnb) recognize that risk and are willing to give offers a reasonable amount time to breathe.

Sometimes we may encounter exploding offers but don't recognize them as such. Online sales of commonplace items (clothing or office supplies, for example) sometimes have "buy-now" buttons that give you a deeper discount when you first visit the site. You'll be quoted a higher price if you come back later, after scouting other sellers. (A cookie tells the site that you've looked at the item earlier.) Retailers can track the effectiveness of such offers to calculate how generous they should be, where they should be placed, and if they generate enough added sales to justify the discount.

Third Party Intervention

Disputants who are close to the brink may seek help from an outsider. Litigants may turn to an impartial arbitrator, especially if they prefer airing their differences in private rather than having their case tried in open court. Or they may retain a mediator—again, provided they can agree on a trusted neutral party. A mediator cannot impose an outcome on the parties, however; they can only help them manage the process.

Mediation styles vary markedly. Some mediators will privately caucus with each party to elicit their true interests and perhaps to offer an independent evaluation of their position. Other mediators believe it is important that the whole process is transparent. Many business contracts include provisions that require parties to utilize some form of alternative dispute resolution before resorting to litigation. If such requirements are not in place, parties in bitter conflict can have difficulty agreeing on what sort of process they should pursue.

When litigants don't take such steps themselves, some judges will coax or even coerce them into settlement, believing that it is for their own good. Federal Judge Loretta A. Preska says that when courts "have to make a ruling, often it's with a meat cleaver." By contrast, the parties themselves may be able to "craft a settlement with a scalpel, a much more nuanced settlement that will make everybody happy." Her colleague Judge Richard Berman is known as a settlement judge. He says of himself, "I pursue settlement options early and often; I try to rule on motions quickly; and I try not to waste any time at trial."

His proactive approach was evident in his handling of the lawsuit brought by professional football quarterback Tom Brady against the National Football League the summer of 2015. Earlier that year the NFL had suspended and fined the starting quarterback for allegedly using under-inflated footballs. Brady and the players' union challenged the league's evidence and its authority to impose those sanctions.

A photo of Tom Brady exiting the courthouse
New England Patriots quarterback Tom Brady exits the Manhattan Federal Courthouse in New York, August 31, 2015. REUTERS/Brendan McDermid

Judge Berman put the case on a fast-track schedule and publicly recommended both parties settle rather than take the risk of an adverse decision. Many observers initially felt that the NFL was in the stronger position legally, in light of the collective bargaining agreement with the players' union, as it includes a provision granting league officials broad discretion in disciplinary cases. But as the trial unfolded, Berman's questioning of NFL representatives was particularly pointed. Some reporters interpreted that as evidence that the judge was sympathetic to Brady's position. Others speculated that Berman was trying to induce the league to compromise.

Up to that point, the NFL was reportedly unwilling to lessen Brady's punishment. By contrast, news leaks indicated that Brady might be open to making some concessions. If the story was valid, it might have been a tentative olive branch to the league. Or perhaps the gesture on Brady's part was meant to look more reasonable in Judge Berman's eyes. (For a fuller assessment of the negotiations as they were taking place in the shadow of the lawsuit click here.

It turned out to be a temporary victory for Brady and his team, however. The NFL appealed Judge Berman’s decision to a federal appellate court. While that case was pending, there were no rumors about behind-the-scenes settlement talks. The higher court ruled in favor of the league, so the quarterback was barred from playing the first four games of the 2016 season. This may be an example of a situation where both sides were willing to go to the brink—and beyond—rather than assent to a compromise.

Summary

Brinksmanship is more common in disputes (lawsuits, work stoppages, and international conflict, for example) than in transactional negotiations because it requires both the capacity to impose a cost on other parties and a declared willingness to absorb costs oneself. In pure deal-making, assent is won by offering others something superior to what they would otherwise obtain (another deal with another party). In brinksmanship, it's a matter of threatening to make the counterpart worse off unless they agree.

Likewise, while much of negotiation is about expanding options, brinksmanship is about burning bridges with the intent of limiting the other party's choices. Such acts can be provocative. People don't like coercion, especially if it leaves them in a position of having to choose the least onerous option from a set of possibilities, none of which are attractive.

A contest of wills can erupt where whatever issues were originally in dispute are overshadowed by the perceived need to win—or at the very least to cause the counterpart to suffer even greater pay. Harvard Business School professor Deepak Malhotra and others have written about how winning sometimes becomes everything in auctions, acquisitions, and of course lawsuits. Emotions can overwhelm reason. It is seldom in your interest to provoke counterparts to have that reaction.

If you are interested in reading more on this topic, be sure to look at the Ultimatums module in this unit on Critical Moments.

Resources

Associated Press, Brady-Goodell Case Gets a Judge Who Is Capable of Resolving It Quickly, New York Times, August 9, 2015.

Graham Allison, Essence of Decision, (second edition with Philip Zelikow), Person, 1999.

Amir Efrati, "Judges Behaving Badly: The Clerkship Edition,"¯ Wall Street Journal Law Blog.

Bruce Henderson, "Brinksmanship in Business,"¯ Harvard Business Review, March 1967.

Gary Klein, Intuition at Work, Doubleday, 2002.

Wade Lambert, "Ever Hear the One About the Lawyers and the Window Bars,"¯ Wall Street Journal, March 23, 1994, p. 1.

Deepak Malhotra, Gillian Ku, and J. Keith Murnighan, "When Winning is Everything," Harvard Business Review, May 2008.

Thomas Schelling, The Strategy of Conflict, Oxford University Press, 1960.

William Ury, Getting Past No, Bantam, 1993

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