Great duo of articles on the negotiating strategy playing about vis-a-vis Congress and the Obama administration. Citing a helpful summary of Thomas Schelling’s classic on bargaining, Richard H. Thaler writes:
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. In this analysis, the Senate “won” the payroll tax cut showdown late last year by passing a bill and then going home for the holidays. This was a highly credible “take it or leave it” offer.
This ability to commit can help solve games in which the two players must choose between strategies: either they cooperate or they “defect,” as a decision not to cooperate is called in the literature. They are much better off if they both cooperate, but there is always a temptation to defect when the other player cooperates, 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.