The Fox Trilogy. Chantell Ilbury
of the game as an ideology to the utter exclusion of all the others. Hedgehogs do!
In the business world, rules constantly clash. For example, one rule says that you ought to maximise profits for shareholders, while another says you should make a permanent contribution towards the communities where you operate. No clearer example of this tussle exists than the drug companies and their quandary over the prices they should charge for HIV/AIDS drugs in developing countries. But banks are next in line. They are coming under increasing pressure to behave like they did in the good old days when the bank manager was a pillar of the community and made credit available to people who would not normally get it. Against this, shareholders are demanding that banks concentrate on their highest value-adding activities such as servicing large corporate clients and high net worth individuals. Somehow a compromise solution has to be found.
Curves of pleasure and pain
In every competitive sport, you have a result involving winners and losers – in other words a “win-lose” outcome. Where the gains exactly match the losses, science calls this a “zero-sum” game. Physical laws like the one relating to the conservation of mass and energy are zero-sum: if mass or energy disappears from one part of the universe, an equivalent amount will reappear, maybe in a different form, somewhere else. Thus mass and energy can be transferred but the total amount in the universe will remain the same.
Life can also have win-lose, zero-sum outcomes. We have already mentioned sport but gambling falls into the same category. Take a poker game between two players: if one player wins a million dollars, the other must have lost it. CEOs often regard business as a zero-sum game. They only feel they’ve won if somebody else is licking his wounds because he’s lost. In some circumstances – like tendering for a large project – they are right. But there are other outcomes, life being more subtle than sport or science.
Imagine an all-out nuclear war between two nations where mutual destruction is not only assured but actually materialises. With devastated cities on both sides of the border, that is definitely a “lose-lose” outcome. You can also have “win-win” situations in human relationships created by love, friendship, parenthood or the pursuit of knowledge. When two people fall in love, you don’t normally call one a winner and the other a loser unless you have a deep disregard for one of them. Good teachers can have synergistic relationships with their classes so that everybody at the conclusion of the term is happy and inspired. Stephen Covey in his book The 7 Habits of Highly Effective People maintains that the only viable outcome in the long run to a negotiation is win-win or else the parties should walk away.
The reason is that a win-lose outcome will fester in the mind of the losing party and gradually erode his enthusiasm for the deal. Since the winning party may well be relying on the continued co-operation of the losing party, he will ultimately lose in the end as well.
This reasoning leads to the enunciation of three of the most important unwritten rules of the game: (1) virtually all decisions about the future involve a judgement of risk versus reward, because life is a risky business, (2) in most situations decision makers must take into account the reasoning and state of mind of other decision makers, and (3) even where there is conflict of interest, the outcome must be beneficial to both parties for the decision to stick. These three rules apply as much to companies as they do to individuals. Game theory, which was originally developed in a book entitled The Theory of Games and Economic Behaviour by John von Neumann and Oskar Morgenstern and published in 1944, expands on these rules. Let us begin with a diagram that we have christened “curves of pleasure and pain”:
The horizontal axis denotes gains and losses. These could take various forms, but for the purposes of this book we’ll denominate them as monetary gains and losses. The vertical axis measures the pleasure or pain of an individual as he makes gains or suffers losses. It is clear that Person A is either very rich or has an inveterate gambling streak. If he wins or loses the same amount, the graph tells you that however much that amount is, the pleasure and the pain are equally balanced against one another. Bunker Hunt, the American billionaire, was once asked how he felt about losing a billion dollars on the silver market. His response: “You win some. You lose some.”
Person B is more like most of us – of modest means and risk-averse. On the one hand, the pain associated with a loss rises exponentially beyond a certain amount of money. On the other hand, the pleasure linked to a monetary gain starts levelling out when the sum becomes ridiculous and individual B doesn’t know what to do with it other than leaving it to the kids who will promptly be spoilt by it. If you can’t conceive of ever having too much money for any addition to become irrelevant, then your curve on the right-hand side of the diagram rises in a straight line!
The left-hand side of the curve is, however, completely different if you’re a person of B’s temperament. Beyond a certain amount, it doesn’t matter what your attitude is: the pain of a loss will eventually outweigh the pleasure of a gain. To illustrate this point, think of a coloured disc where 70 per cent of the area is coloured blue and 30 per cent red. Would you be prepared to spin the disc on the basis that if the pointer was on blue when the disc came to rest, you would win a million dollars? But if it was on red, you’d lose it, in which case your house, your spouse and your car go up in smoke. Supposing 99 per cent of the disc was blue and one per cent red, would you review the situation and risk it? And what if we said you could only lose a hundred thousand dollars on red but still make a million dollars on blue? Mathematics says you’re an idiot if you don’t take any of these bets but then the rules of mathematics do not incorporate human psychology – the rules of real life do. Curve B also explains why most people get more conservative as they get older. They don’t want to lose the assets or reputation they’ve accumulated. Meanwhile, the young have nothing to lose: they can be radical.
Curve B has relevance in quite different contexts. Earlier we referred to the capacity of the human intellect to play tug-of-war with opposing ideas. On the emotional side, we have mixed feelings about people and things. For example, when we help ourselves to a particularly generous portion of chocolate cake, we experience the direct pleasure of consuming something wonderfully rich; but we also feel pangs of guilt about our lack of self-restraint. Hence, we yo-yo up and down the curve with dietary schizophrenia.
Curve B also highlights the danger of narcotics. The addict will seek bigger highs (gains) from harder drugs as he runs into the law of diminishing pleasure on the right of the chart. Sadly too, his increasing dependency on drugs means that he loses control over his life – options and decisions become irrelevant. In addition, the curve explains why relief from physical pain like toothache and psychological pain like anxiety over health can cause such intense pleasure: you’re moving very quickly up the steep side of the curve on the left. It also supports the theory that the most effective way to increase the general happiness of a nation is to target the ultra-poor and improve their quality of life. In essence, you are giving them a leg up the left-hand side of the curve by reducing their daily misery. Jeremy Bentham, the philosopher and social reformer who founded the philosophy of “utilitarianism”, would nod his head in approval. In his major work, Principles of Morals and Legislation published in 1789, he stated that the object of all legislation should be “the greatest happiness for the greatest number”. He was also a fox because he maintained that his principle of “utility” was best served by allowing every man to pursue his own interests unhindered by restrictive legislation.
Given that Curve B represents the psychology of the average person, Covey’s proposition that outcomes to negotiations should be win-win to have any chance of lasting a long time appears valid. For if you negotiate something that is very advantageous to yourself but equally disadvantageous to the other party, he or she is going to feel far sicker about it than you are going to have reason to rejoice. Their motivation to undermine the deal is therefore going to be stronger than your wish to make it stand. You might have good lawyers on your side to draft an unbreakable agreement which can hold up in any court, but what you don’t control is the attitude of the other party during the period that the agreement is implemented. You have to accept that the rules of the game in the mind of the other person may be different to your own and worthy of consideration.