Learn to trade with Logrolling | CSQ
Early in the American frontier, neighbors recognized the value of helping each other move their wood to a river for transport or to a farm for burning or building cabins. The end result was the same as if each person had worked alone, but the sum total of all the effort required was less. In other words, this particular form of social organization has maximized the cooperative surplus generated by the collective efforts of the community and everyone has improved, sharing this surplus.
Pioneer-turned-US Congressman Davy Crockett is credited with being the first person to borrow the term exchange of give and take of the border and use it to describe the process by which legislators help each other by exchanging votes. By pledging to vote on an issue of less concern in exchange for a colleague’s vote on an issue of greater concern, two lawmakers can achieve more total utility than if each voted [their] preference on both counts. The practice continues to be common in politics, whether legislators trade votes on different pieces of legislation or on parts of the same piece of legislation.
In this way, President Ronald Reagan, who wanted to cut Social Security benefits, and Democratic House Speaker Tip O’Neill, who wanted to expand the reach of this program, came to a famous agreement on legislation to to improve the financial stability of the Social Security Trust. Fund in 1983. Reagan secured support from O’Neill to reduce annual increases in the cost of living in return for Reagan agreeing to require government employees to join the system and taxing a portion of the benefits paid to high earners. Reagan signed the resulting bill after it passed both the House Democrat and the Senate Republican.
Three years later, the same two opponents reached an agreement on the Tax Reform Act of 1986. O’Neill agreed to Reagan’s demand that the top marginal tax rate be reduced to 28% in exchange for the President’s agreement to equalize the capital gains tax rate. and earned income so that the investor class does not pay a lower rate than the working class.
You don’t have to look at Capitol Hill to see logrolling in action; it is a fundamental principle of deal design in a wide range of negotiation situations. The opportunity for logrolling almost always presents itself whenever a negotiation includes multiple issues, which is what all complex negotiations do. The parties usually have different preferences, different available resources or talents, or different appetites for risk, all of which suggest the possibility of increasing the cooperative surplus of an agreement by trading concessions on several issues.
In 1977, director and producer George Lucas was looking to launch what he then called his “space opera“, which eventually became known as star wars. His available budget did not match his grand ambitions, which forced him to cast many lesser-known actors in key roles, some of whom, of course, became quite famous. For the role of Obi-Wan Kenobi, however, Lucas didn’t want to compromise: He wanted Oscar-winning actor Sir Alec Guinness for the part. Of course, Guinness preferred a substantial upfront fee, but its comfortable financial situation opened it up to taking risks on the success of a new film concept and an unknown filmmaker. So Guinness agreed to take a lower than normal salary in exchange for 2% of the gross royalties collected by Lucas, creating a bargaining zone and making a deal possible (and ultimately earning Guinness dozens of dollars). million dollars in the long term).
As obvious as the logroll is as a potentially valuable negotiation tactic, and as common as it is in virtually all types of negotiations, several psychological barriers can impede its successful use, leaving negotiators with less win-win deals. parts. Logrolling forces a party to offer a concession that is less important to [them] that of [their] counterpart. Reactive devaluation (Chapter 18), the psychological tendency to want something less if it is available threatens to make negotiators less enamored with concessions once they are offered than if the concessions were analyzed in the abstract. And because negotiators are likely to use the usual deal structure as a benchmark against which they evaluate deal design proposals, loss aversion (Chapter 14) can make the potential sacrifice that is a necessary aspect of logrolling outweigh the compensating benefit.
Another obstacle, called the fixed pie bias by psychologists Max Bazerman and Margaret Neale, leads people to assume, without exploration, that their counterpart will appreciate problems in the same way and to the same extent as they do. In a negotiation simulation I lead in classes and workshops, one negotiator plays the role of a movie studio executive and another the agent of a star actor in a movie contract negotiation. One of the many issues they have to work out is whether the studio or the actor will have control over choosing the director for the film. Negotiators can solve this problem by assigning control to either party or by agreeing to “joint control” (in which case both parties have a veto and must agree on a administrator). The way the simulation is written, the actor is very picky about his directors, and he would much rather have exclusive control of them. The studio would also prefer to have director control, but their preference is low – i.e. they only have a slight preference for sole control over joint control or actor control – because he trusts the star’s judgement.
Quite often, the actor’s agent assumes, wrongly as it turns out, that since his client has a strong preference in choosing the director, the studio must also have a strong preference. When this happens, the parties often agree to the apparent compromise solution of joint control. But the deal can create a more cooperative surplus, and both parties can individually enjoy more utility, if they assign control of the director to the actor, who cares more about the problem, and save that problem in exchange for a concession to another issue or issues where the studio has a stronger preference for a particular outcome.
The antidote to fixed pie bias is to fight the urge to assume that your counterpart values the elements of a deal the way you do. Logrolling opportunities abound. [Well-rounded negotiators] raise for discussion all the potential trades through the questions that even have a slight possibility to increase the total surplus of the cooperative.
Reprinted with permission from Liveright Publishing, an imprint of WW Norton & Company. Extract of The Five-Tool Negotiator: The Complete Guide to Negotiating Successfully. Copyright 2021 Russell Korobkin. All rights reserved.