Schelling, Game Theory and Vietnam: The perils of a punitive negotiation strategy

Posted on November 26, 2010

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“This dark side of Tom Schelling is also the dark side of social science – the brash assumption that neat theories not only reflect the real world, but can change it as well, and in ways that can be precisely measured.  And it’s a legacy that can be detected all too clearly in the U.S.’s current imbroglio in Iraq.”

from the article “Hardly Nobel; There’s a very good reason why Thomas Schelling won the prize for economics and not for peace” by Fred Kaplan, Ottawa Citizen October 13th, 2005

For many, the name of Thomas Schelling is unlikely to stir up any meaningful recollections beyond perhaps transient historical references in relation to his contributions to our understanding of the nature of conflict and cooperation through the application of game-theory principles – something for which he was awarded  a Nobel Peace Prize in 2005.

An international trade negotiator in the 1940s, Schelling’s 1960 book The Strategy of Conflict, espoused his belief that the principles of bargaining could also be applied to the practice of war.  Specifically, that war was “essentially a violent form of bargaining.”

It is an interesting concept in that the underlying theme is based on an adversarial mindset that seeks to influence an opponent’s behavior through a graduated series of punitive measures that are designed to achieve a specific and desired outcome.  According to Schelling there were “enlightening similarities” between maneuvering in a limited war situation and navigating your way through a traffic jam or, deterring the Russians from Cold War misbehavior and keeping your children on the straight and narrow.

The inherent flaw with Schelling’s approach as it turns out is that it could not be translated into real-world results as demonstrated by the disastrous outcome of the graduated bombing campaign against the North Vietnamese in 1965 as it failed to “alter the behavior of the North Vietnamese or Viet Cong in the slightest.”

In fact, and almost 3 weeks to the day after the commencement of what was called Operation Rolling Thunder, the dismal results of the Schelling strategy was revealed in a memo from assistant secretary of defense John McNaughton to then Secretary of Defense Robert McNamara stressing that “The situation in Vietnam is bad and deteriorating,” and that the focus should now shift to one in which we “avoid a humiliating U.S. defeat.”

It is worth noting that Tom Schelling wrote very little about his theories within the the context of war following the abject failure of the Operation Rolling Thunder campaign, prompting many to conclude that while he was confident in the theory behind his concepts, he was in reality stumped when “confronted with a real-life war.”

There is of course no shortage of reference materials and studies relating to the use of game theory in the procurement process, such as the 1993 book “A Theory of Incentives in Procurement and Regulation” by Jean-Jacques Laffont and Jean Tirole, or the IEEE Computer Society referenced “The Application of Game Theory in Enterprise’ Transaction of Purchasing.”

The issue I have with the game theory approach in procurement is not in its interactive premise but in its broad and erroneous application as a means of providing one transactional partner with an advantage over another.  In essence a win-lose scenario where a buyer’s gain comes at the expense of the supplier or, vice versa as demonstrated by the University of North Carolina’s untenable situation in terms of negotiating a coal transportation rate or Abbott Laboratories’ vulnerability to a price hike as a result of their dependence on a single supplier.

With the ever increasing problem of supply base erosion brought about by policies and practices that create an atmosphere of vendor cynicism, negotiating should not be based on the capitalization of vulnerabilities but instead on the collaborative integration of mutual strengths.  In short, leveraging strengths versus taking advantages of weaknesses in key areas such as risk sharing will attract and retain top caliber suppliers.

After all, when you have successfully “beat up” a supplier to negotiate terms that are heavily skewed in your favor, for all intents and purposes all that is left at the end of the day is . . . a beaten supplier.  Now you may not agree but, I hardly think that this approach will attract good suppliers nor positively influence the behavior of existing ones.

What are your thoughts?

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Posted in: Commentary