Phew, that was close. As President Obama winked goodbye to the press corps and returned to his holiday in Hawaii, there was relief as imminent financial disaster – the ‘fiscal cliff’ – was avoided. There was instant celebration in financial markets too. Share prices rose steeply – not that traders ever need too much encouragement to get over-excited.
Obama’s hardball tactics appear to have paid off – for now. But the results of brinkmanship of this kind are impossible to predict. That much is clear from game theory, which is discussed at greater length in this issue
. The tax rises/benefits cuts deadline has merely been put off for another day and Democrats and Republicans will settle down again for new negotiations in a few weeks’ time.
Negotiators have long memories. That’s why ‘smash and grab’ tactics may backfire. There will always be another deal to be done – if people will still do business with you.
Look at the government. In 2000, it ran its 3G mobile spectrum auction, drawing on game theory and the expertise of Professor Ken Binmore of University College London. The auction brought in £22 billion for the Treasury. Now it is getting ready for a 4G auction through which it hopes to raise £3.5 billion – if it’s lucky. The frothy days are not coming back.
People remember, you see. By all means use brinkmanship, and trust to the randomness of unpredictable events. But don’t forget that after that tense, nail-biting stand-off over the pricing of a deal, you may have to sit down again with the same negotiators – and sooner than you might think.
New year's resolutions
By now I trust that all SM readers’ new year’s resolutions have been well and truly broken. What’s that – you still haven’t had a drink yet? Well done. I envy you.
One of the obvious problems with these resolutions is that we just don’t take them seriously. Why should we? We know that another new year will be coming round again soon enough and if we can’t show resolve in 2013 then there is always 2014 to look forward to.
The other point is that it is really hard to
think yourself into a new way of doing things.
You have to start doing them first. But human beings are usually better at incremental
changes rather than big dramatic ones. It
comes more naturally.
By definition, a ‘quit smoking’ resolution, or a ‘don’t drink in the week’ one,
is an enormous leap and, for most people, too much to ask. We need to go bit by bit and improve a little all the time – what the Japanese call kaizen – rather than expect to be able to make massive changes to our lives.
But this won’t stop people trying, which I suppose in a way is heartening too. There will still be all those ‘new year, new you’ articles coming round again. See you down at the gym next January for my one and only annual visit.
☛ Stefan Stern is director of strategy at PR firm Edelman
and visiting professor of management practice at
Cass Business School