This is the next installment in my too-many-part series, Everything You Know About Dispute Resolution is Wrong.
Today’s episode was prompted by Michael’s post about an article in the Chronicle of Higher Education in which the author describes her strategy of improving her BATNA to escape a crappy job as a non-tenure-track instructor. Michael suggested that we might use that article as the basis of an exam question asking students to analyze the article.
As a public service, I provide herewith the correct answer.
This is important because I think that most colleagues in our DR community would get the question wrong if they took the exam. I feel fairly confident about this claim because I have reviewed major negotiation texts and they generally get this wrong, IMHO.
All the negotiation texts I reviewed refer to BATNAs for developing negotiation strategy without mentioning the more useful concept of MLATNAs. Hopefully, you are at least aware of the latter – the most likely alternative to a negotiated agreement (not just the best alternative). Although the texts generally discuss analyzing probabilities of possible alternatives, they often refer to the alternatives as BATNAs.
Consider a plaintiff who could win a $1 million verdict at trial if everything broke her way. This truly is her BATNA. If she did a decision analysis to reflect the risks of various elements of her case, she might produce an expected value – or MLATNA – of $100,000.
If the defendant offered to pay $500,000, should she reject it because it is less than her BATNA? She would be stark raving mad to do so.
The problem is that many people refer to $100,000 as the plaintiff’s BATNA. That is like saying, “This piece of fruit is an apple, but I will call it an orange.”
Note that making adjustments for risk tolerance (e.g., the plaintiff would accept less than $100,000 because she is afraid of losing at trial) is not the same thing as revising one’s estimate of the MLATNA based on new assessments of the likely trial outcome.
Part of the confusion arises when analyzing situations where there is little or no uncertainty. For example, in the article Michael referred to, the author arranged other employment so that she could be confident about her BATNA when she told the employer to take the job and shove it (or some reasonable facsimile thereof). In that case, her BATNA was essentially the same as her MLATNA.
In many cases, especially those in litigation, there is a lot of uncertainty, in which case there is a huuuuuge difference between the BATNA and MLATNA. This is important because many of our students – and us too, Pogo – are sloppy thinkers so that when we say BATNA, we think “best” alternative to a negotiated agreement without much thought.
So I regret to inform you that if your answer reflected this confusion of terminology, you would receive a failing grade on my exam. (Also, you lose points if you refer to MLATNA as Mylanta.)
Economists would call this the expected value of the case. If you have a 50% probability of winning $1 million, then it is logical to settle for $500,000. John is right that different parties might have different risk tolerances, and also $250,000 might be more valuable to an injured plaintiff who has nothing than to a corporation who can afford to lose the case and whose rational strategy might be to hold out for more (and perhaps more than $500,000) if the case is in some way precedent setting.
You prove my point, Andrea and David.
Since the plaintiff might get a verdict of $1 million given the facts in this case, it is absolutely impossible for $100,000 to be her “best” alternative to a negotiated agreement as you suggest. There is no possible way that $1 million = $100,000.
No one can predict the outcome of a trial with certainty. By varying the assumptions in decision analysis, one can anticipate a range of possible outcomes. If done realistically, once can make decent estimates of the best, most likely, and worst alternatives to a negotiated agreement.
I think that the fact that even a sharp cookie like you, Andrea, would say that $100,000 is the “B”ATNA is a reflection of the widespread confusion in our field about this. This is one of many seductive concepts in our field that is hard to resist and easy to confuse.
I also have a different understanding of reservation point (aka “bottom line”), which I believe is the lowest offer that a plaintiff would accept or the highest offer that a defendant would make. Not everyone uses decision analysis to set their bottom line in litigation, but those who do so adjust the result of the analysis – i.e., their prediction about the most probable outcome in court – by other factors such as risk preference, extra litigation costs, valuation of avoided emotional stress, saved time, desire for cooperation or revenge, etc.
In practice, most lawyers probably don’t do formal decision analyses or use the BATNA / MLATNA terminology. When they decide on their bottom lines, I believe that they generally start with their best guess of the likely court decision (i.e., the MLATNA), not what would happen if all uncertainties would be resolved in their favor (i.e., the BATNA). They are more likely to use their estimated BATNAs to develop their first offers than their last offers.
In my view, this is not primarily a pedagogical issue about the most effective way to convey these principles to students. It is a basic linguistic and logical issue for everyone as to whether “best” could mean something less than the best. That said, for students (and others) who think that “best” means “best,” I think that it is confusing to suggest otherwise.
I think that this exchange shows that for many people in our field “BATNA” has taken on a meaning independent of the literal language, while others interpret it literally.
Although I understand that importance of distinguishing between the best possible outcome and the most likely outcome, I do not know if MLATNA is the best term to distinguish the two. First, especially in the context of litigation, MLATNA and BATNA would be the exact same, going to court. From a grammatical standpoint, MLATNA and BATNA are both verbs that are meant to represent potentially advantageous actions a party can take in lieu of reaching a negotiated agreement. Although estimated values can be attached to these outcomes, I think it is important to understand that a party’s BATNA represents more than just a monetary value. However, under your interpretation BATNA would only represent the optimal value of the potential lawsuit functionally changing the acronym from a verb to a noun.
Additionally, I think your interpretation of MLATNA merely represents the correct way to calculate a party’s BATNA. For instance, in your example, it is incorrect to say that the plaintiff’s BATNA is truly $1 million merely because that is the highest possible amount they could receive from a jury verdict. In reality, the true value of a party’s BATNA has to take into account additional expenses incurred during the process, such as attorney and court fees, as well as the likelihood of succeeding in each stage of litigation process. Thus, in my mind, your definition of MLATNA is not trying to supplement BATNA but rather replace it. Although, under your interpretation, a party’s BATNA and MLATNA can have different values in some contexts, I think most students would find using two terms unnecessarily confusing.
so…IMHO, MY students would not get this wrong. 🙂
And here is why. In class (and in our textbook), I spend a lot of time distinguishing between BATNA and reservation point. Your BATNA is your action and the reservation point is the monetary valuation of that action. In John’s example, the BATNA is going to trial and your reservation point would be assessed, in this case, by a decision tree that values your BATNA at $100,000. To me, that is cleaner to teach than the difference between BATNAs, MLATNA, WATNA and other stuff. (Years ago, I tried to teach the concept BOBO–best of bad options–and that never caught on so I gave up on more than one acronym at a time.)
In the example in the Chronicle, the adjunct professor’s BATNA was taking another job. Her story is how she continued to improve that BATNA so that, finally, the value of that BATNA (the reservation price) exceeded her lousy pay at her current job. The real lesson in the Chronicle article is not know your BATNA; the real lesson is that your BATNA can be improved over time and, particularly for “powerless” negotiators, that effort is worth it.