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Bargaining with the Devil: Chapter 1: Avoiding Common Traps Company People ResearchCo. Startup You (CEO) Evelyn Kramer (sister in law) Fred Kramer (brother in law) were initial investors Bikuta Corporation Manufacturing company in Japan Mr. Bikuta (founder CEO) The Situation: Joint venture partners ...

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Bargaining with the Devil: Chapter 1: Avoiding Common Traps

Company People

ResearchCo. Startup You (CEO) Evelyn Kramer (sister in law) Fred Kramer (brother in law) *Both were initial investors

Bikuta Corporation Manufacturing company in Japan Mr. Bikuta (founder & CEO)

The Situation:  Joint venture partners  Product: “FreeFlow” (stent)  Bikuta has exclusive rights to manufacture and sell the product everywhere in Asia except China  Bikuta pays you a licensing fee of 15% of sales The Problem:  Bikuta created a product called the “EasyFlow” and started selling it in China o Is not identical to “FreeFlow” but was based off of it  Mr. Bikuta said he did not use ResearchCo.’s intellectual property rights and that EasyFlow would not work in the Chinese market  Mr. Bikuta wants you to go to Japan to negotiate a lower royalty rate on sales of FreeFlow in the rest of Asia o Said that if the licensing fee isn’t lowered, they would sell their ‘own product’ nationwide Fred and Evelyn:  Evelyn: warn, optimistic, calming presence, likes to see the good in people  Fred: adventurous, enthusiastic, likes competition Fred: I knew this was going to happen – they were going to use your knowledge and then push you aside. You: I had dinners and went golfing with them. The joint venture worked for 3 years; the product was of good quality and sales were going up. They paid me on time and we even talked about expanding sales in China. *Fred: They used negotiations as a cover for a sneak attack. Evelyn: People are naturally going to want to make money and you liked Bikuta, saying he was honest, wanting to count every point during golfing. Fred: The Japanese think and act differently. They may give off a “yes” in their actions when they really mean no, and their culture thrives on status and hierarchy.

Opinion: Don’t negotiate, as it would reward bad behavior. Threaten them by saying if they do not stop selling in China, you will terminate the joint venture and sue them. (This is what you want to do as well) You: We probably won’t have any luck suing in China or Japan. Fred: Sue them here in California. Evelyn: You’ll destroy this profitable relationship. Furthermore, Bikuta asked you in the initial license agreement if you wanted to include China and you said no. And haven’t you been talking to a Chinese firm about selling in their market? Bikuta can afford the litigation more than we can. Opinion: Go to Japan and see what Bikuta has to say. There’s nothing to lose. Perhaps a compromise: lower fee but extend to Chinese sales Enemy:  Someone who has wronged us and possesses a serious threat to our well-being; someone we may even see as evil  3 essential elements 1. Intent to inflict harm? Yes. 2. Harm must be serious? Possibly, but not enough to call it evil. 3. Infliction of harm must lack an adequate justification or excuse? Maybe to you, but Bikuta may see it differently  A person is evil if they repeatedly commit evil acts (obey authority or peer pressure)  Fundamental attribution error o Evaluating others: attribute to person’s dispositions or traits o Evaluating ourselves: attribute to the contextual pressures to excuse behavior which we are not proud of 3 challenges to wise decision making: 1. Avoid emotional traps that can lead to hasty and knee-jerk decisions 2. Analyze the costs and benefits of alternative courses of action 3. Address ethical and moral issues that arise when trying to decide whether to negotiate with an enemy 2 ways people make judgments: 1. Intuitive reasoning: automatic, effortless, affective (based on emotions/feelings); link current situation to past experiences and stories o Picks up nonverbal cues, rapid appraisals o Quirky and selective about info it receives o Can lead to false conclusions and poor decision-making o Works the same for all types of threats (so may be good if you’re being chased by an animal, but maybe not for conceptual threats) 2. Analytical reasoning: conscious, deliberative, systematic, logical, “rational” o Disciplined, more systematic o Evaluates information o May not yield a clear answer and could “miss the forest for the trees”  Both often interact with one another

Negative Traps (promoting refusal) Tribalism  Your own side (in group) is familiar and reliable whereas the out-group should be distrusted and disfavored  Shared characteristics Ex) Japanese vs. Americans Demonization  The other side is fundamentally evil Ex) Bikuta’s actions are revealing his underlying character

Positive traps (promoting negotiation) Universalism  People are all the same  Underestimates the importance of differences Ex) All businessmen want to make money Contextual rationalization and forgiveness Ex) Bikuta gave into external pressures and can easily be forgiven

Dehumanization  Enemy is outside the moral order, less than human  Central process in prejudice, racism, and discrimination  Treats the enemy as an “object” Ex) Fred’s description of the Japanese Moralism/self-righteousness  The other side is entirely at fault while you are innocent and worthy Ex) Bikuta broke the rules and should be morally condemned

Rehabilitation and redemption Ex) Give Bikuta a chance to do the right thing

Zero-sum fallacy  One side must win, the other must lose  Anything that benefits the enemy is bad for you Ex) Reducing the licensing fee benefits them and hurts you; divorce cases Fight/flight  Automatic responses to “hot cognition” Ex) Fred wants to fight Call to battle  Political figure, business exec, or family member mobilizing “troops” to fight  Language of war, draws upon demonization, tribalism, dehumanization, and moralism  Leader may say they are doing what

Win-win  It is always possible to expand the pie so both sides are better off Ex) Lowering the licensing fee can help both

Fault on all sides  Burden of responsibility should be shared Ex) You should have been more attentive that Bikuta wanted to enter the Chinese market

Appeasement  Negotiate and make concessions Ex) Evelyn thinks it is better to negotiate with Bikuta than losing a legal battle Call for peace  Almost any conflict can be avoided or ended through sensible peaceseeking initiatives  Universalism, forgiveness, redemption, shared responsibility

is best for the group but is actually trying to satisfy their own interests as well  

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All can distort judgments Even if the enemy isn’t evil, it is easy to fall into the negative traps. Therefore, by perceiving the enemy as evil, you end up believing they are evil. o Applies to international and personal realms too Many of us have a preference for negative or positive traps and serve as common default modes Preference is attributed to personality, past experiences, stories others tell us, and the personal narratives we draw our sense of identity from Fred and Evelyn started with a gut reaction, jumped to a conclusion, and then for analytical reasoning used a lawyer o Intuitive reasoning took over which is why neither could be open to the other’s perspective How to avoid these traps 1. Recognize and acknowledge them 2. Expose yourself to different perspectives

Chapter 2: Bargaining and its Alternatives: Costs, Benefits, and Beyond Conversation with Mr. Spock  Bikuta brings in 40% of revenues and a higher percentage of profits  Has gotten 10 more employees because of it  Your lawyer says that while Bikuta may have used your trade secrets, the problem is the joint venture agreement o Cannot sue in China (they’re already doing business there and your company isn’t known), Japan (little protection of trade secrets, takes a long time for a ruling, is expensive) o Suing in California is possible but they don’t sell products here so your case may be thrown out for lack of jurisdiction Would have a 15-25% chance of winning  If you win, you haven’t even found a partner who would replace them. In the meantime, this would be a long process, it would hurt your place in the market, and the new company may not agree to a 15% royalty rate  Bikuta is kind of reliant on you – there’s no other company  On both sides, the shared interests are growth and profitability o Bikuta is planning on entering another joint venture agreement with another company (whom you know Zimring, someone that is on their board), so they should care about being known as a reliable partner Spock’s opinion: Tell Bikuta that unless you can work out a reasonable fee with China sales, you will sue in California with as much publicity as possible. You could mention that you know

Zimring. You might also want to state that litigation is not an attractive option for either of you. 

If they make a deal, how can you ensure they don’t go against their word? Make sure your lawyer’s contract ensures jurisdiction in CA court, that there are strict representations and warranties, and that the loser of enforcement action pays the winner’s legal fees

5 basic questions for ordinary conflicts: 1. Interests (on both sides) o People often know what they want but not why o May be tangible or intangible o If there are trade-offs between interests, prioritize them 2. Alternatives (on both sides) o If you use coercive force, make sure you can justify your tactics o After you have evaluated all alternatives, identify your BATNA (the best of the list) o Never accept a deal that is not better than your BATNA o Goal is to create your best BATNA and diminish what your opponents think their own BATNA is 3. Potential negotiated outcomes (that could benefit both sides) o Think of a range of deals; evaluate them in light of each party’s interests (benefits/costs); compare with each party’s BATNA o The deal should be better than your BATNA otherwise there’s no reason for them to accept it 4. Costs (tangible and intangible things you will lose, reputation, precedent) o Transaction: time, money, manpower, other resources (may involve disclosure of information in order to reach a deal) o Spillover: negotiating with one party may negatively affect you in future dealings with other parties Ex) Reputation, precedent 5. Implementation (will it likely be carried out) o Relationship between agents and principle (your adversary may not have the authority to enforce it or the stakeholders may not agree) o Time (they might have an incentive to back out later) which is why commercial lawyers often build penalties into their contracts o Formal enforcement may not be realistic, especially internationally, where there is no proper third-party – monitoring, deterrence, and “soft enforcement” is necessary Chapter 3: Recognition, Legitimacy, and Morality  6th question: What issues of recognition and legitimacy are implicated in this decision?  Moving on might be difficult, especially if honor, personal integrity, and identity are involved  Dual processing model

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o Moral judgments are like aesthetic judgments: happen quickly, automatically, and convincingly; immediately know if it is right or wrong o Shows that the intuitive system is more than survival instincts and that moral judgments come from the intuitive side Do not ignore a moral principle that is really important to you (intuition + analysis) Faustian tension between pragmatic and principle is at the heart of the book

Situation:  Anatoli (Natan) Sharansky: taken by the Russian police (KGB) and was charged with treason and passing secrets to the CIA – but really it was just because he was a public spokesman for the Soviet Zionist movement for both American and European media  Wanted him to confess and condemn the refusenik (Soviet Jews not allowed to emigrate to Israel) movement in return for a short prison sentence so he could join his wife – but couldn’t say it was coerced  He refused and insisted on representing himself as his lawyer was from the Communist Party  Sentence: 13 years (3 in prison, rest in a forced labor camp)  In 1986, the Soviets released him in a prisoner exchange with the US (who released a captured Soviet spy)  He was flown to East Berlin and the KGB told him to walk to the car straight and don’t make turns; he defiantly zigzagged – walked across the Glienicke Bridge to his freedom Background:  Was born in a city in Ukraine and was ethnically Jewish but did not observe it because doing so was dangerous  His father called Stalin a “terrible butcher” where he realized he had to keep everything to himself  His family constantly looked for a way to escape; his way of doing this was through his mathematical gifts  He went to school at the Moscow Institute of Physics and Technology where he became interested in human rights and the Soviet Zionist movement (group that sought to pressure the Soviet regime to allow jews to leave the USSR for Israel)  Met his wife and received an exit visa to leave the Soviet Union for Israel. He asked for one, but did not see his wife until 12 years later. Analysis:  Looked like he was analyzing the situation rationally  He found comfort in thinking what the KGB’s next moves were going to be and how he would respond  In answering their questions, he told them what they wanted to hear  Used a hierarchical list/tree of goals and conditions for meeting them (Obstruct, Study, Expose)  His 3 interests: minimize punishment/avoid execution, join his wife, promote the Soviet Zionist movement

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o Spock would say he rejected that negotiation was even possible and did not weigh the pros/cons of all alternatives o According to Sharansky, if he did not cooperate, the only other option was to defy and go to trial where there would be no chance for acquittal) o He preordained his conviction o Penalty would be death or 15 years in prison (bad BATNA) At first he thought that a death sentence was unlikely, but he applied psychological pressures to make himself believe it was possible Initial interrogations: confess and you’ll be released; later: we only want to protect state interests so if you confess, you’ll get a short sentence and maybe even be released after trial o Believed that if he made any concessions, it would become a slippery slope o Said that if all he had to do was confess, he believed they would uphold their deal because they were a “repeat player” o Concluded that agreeing would undermine the movement o How he talked himself into this: “as long as you continue saying no, you’re a free person” o The tree helped to organize his impulses, but he rigged it so he removed that “interest” from the equation so he made the right decision The “negative” traps helped him survive: repressed impulses to empathize, used the zero-sum trap, saw everything as purely competitive His colleague, Mark Morozov, wanted to be released so argued he would be more valuable to the movement not in prison but showed that if you are not firm in your principles, you’ll invent nonsense to justify your behavior

More Analysis:  He was wise because he didn’t simply rely on his moral intuitions (understood the risks), and he bore the costs of resistance  Tensions cannot be resolved, it can only be managed  Outcome: won his freedom and was celebrated as a hero by not bargaining with the devil

Chapter 4: Rudolf Kasztner: Bargaining with the Nazis  Bargained to save Jewish lives  Born in a city that had a significant Jewish community  Learned to speak many languages, Romanian which was important in this case  He liked being center stage and joined a Zionist youth movement, soon becoming the leader  Went to school but his real passions were politics, journalism, and Zionism  Wrote bold political commentary where he was introduced to one of the most wealthiest and respected Jews (Fischer) o Kasztner became his assistant, protégé, and son-in-law  Strength (smarter and better than everyone else); weakness (he let everyone know, had no sensitivity to people, and was unreliable)

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Was called a “fixer”: he helped others solve their problems but wasn’t love by those people Helped Jewish refugees who fled Nazi-occupied Europe and helped them move to Palestine (obtained illegal exit visas and liberally bribed)

Part II:  Kaztner moved to Budapest  His hometown became a part of Hungary again so he was a Hungarian citizen  People started moving to Budapest as the Nazis were treating them poorly  Budapest was the most wealthy, cultured, and assimilated in Europe  Unlike Kaztner, they considered themselves Hungarians first and then Jews second  Created a Relief and Rescue Committee dedicated to hiding and transporting Jews o Made possible by underground contacts who kept them informed about what was happening to Jews elsewhere o Kaztner’s opposite: Joel Brand (able to act as a double agent) Part III:  German troops set up a puppet government in Budapest w/ Adolf Eichmann who was tasked by Hitler to implement the “Final Solution” to Hungary by transporting them to death camps or forced labor camps  Why the Nazis invaded their own ally: feared Hungary would negotiate a separate peace with the Allies and were being too lenient to its own Jews o Efforts were already failing because Soviets were advancing on the eastern front and the Allies had invaded Italy  Nazi officials demanded to meet with the leaders of Budapest o Said that as long as they cooperated and didn’t panic, no Jews would be harmed o The leaders complied to having Jewish Councils be set up, but it was soon discovered that these were only to carry out the Nazis’ orders in order to help make the Holocaust smoother o The Jewish Councils published Eichmann’s orders, delivered Jewish money and valuables to the Germans, and compiled the list of Jews who would be rounded up and deported o Eichmann responded by saying they were wartime necessities and those who cooperated would not be harmed, but this was not true Analysis:  Kasztner believed the Jewish Council’s strategy was wrong. He knew Hungarian Jews were in danger and that Nazi officials could be bribed o $20,000 to stop deporting Slovakian Jews o Nearly $2 million to stop deporting Jews from other countries (although this didn’t work because they lacked funds)  Thought they should have contacted the Nazis directly and negotiate protections for the Jews – he would first have to have permission to speak on behalf of Hungarian Jews  He met with Samuel Stern (president of the Jewish Community and head of the Budapest Jewish Council)

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o Said that Jews were in danger and Nazis could be bribed, so the Zionists (not the Jewish Council) should handle this, but Stern was not convinced He managed to schedule a meeting with 2 SS officers from Eichmann’s Special Action Commando o Him and Brand focused on 2 goals: establish the Relief and Rescue Committee as a credible negotiating partner (by stating they were representing the “World Jewry” as many Nazis thought Jews were rich and controlled the Allies and Soviets – even though this wasn’t true, they used this to their advantage as well as claiming linkage to the Bratislava group); reach a deal that would protect all Jews in Hungary (offered $2 million they didn’t have)

Author’s Notes:  Kasztner believed that negotiating was justified on pragmatic and moral grounds  There was not really conflict between pragmatism and principle because he didn’t even consider not engaging in the negotiation (didn’t even seem that he did a costbenefit analysis)  Spock would recommend to the Relief and Rescue Committee negotiators to focus on implementation and to Kasztner/Brand the risks of bluffing because they had no money, did not have authorization to speak on behalf of any Hungarian Jew  Spock: How confident are you to raise the money? Kasztner: Stern would help raise funds in Hungary and the balance would be paid off over time. In the meantime, Germany may lose the war.  Spock: Why would the Nazis want to agree? There is a large chance they won’t uphold their deal. Does Wisliceny have the authority to make promises on behalf of the Nazis? Kasztner: Some Nazis are willing to break the rules for cash. However, enforcing the deal is r...