Games theory provides a useful means of relating and distinguishing negotiation, mediation, arbitration and litigation from each other.
The theory divides games into three categories: skill, chance and strategy and identifies them by their dominant characteristics.
In track and field, the skill of the competitors usually determines who will be the winner. Craps and roulette are clearly games of chance. Their outcome depends entirely on fortuitous circumstances beyond the control of the players.
In games of strategy, the best course of action for each player depends on what the other player or players do. The focus is on the interdependence of the players’ decisions and their expectations about each other’s behavior.
Measured by the criteria of games theory, negotiation and mediation are clearly games of strategy while arbitration and litigation are predominantly games of skill. True, negotiation also requires skill and the players in arbitration and litigation are required to make strategic decisions. Chance can also be a factor in most games. But the dominant influence in negotiation with or without mediation is the interaction of the parties based on their expectations of each other’s behavior.
Mediation is also a game of strategy since the moves of the mediator depend on the actions and reactions of the negotiators. The mediator, however, has a different incentive than negotiators whose goal is the best deal they can get for their side. A mediators goal is to get both sides to agree with each other.
In arbitration and litigation, the disputants are called upon to convince the arbitrator, judge or jury to decide in their favor. That challenge requires enormous skill even though the disputants are sometimes called upon to make strategic decisions. On many occasions, chance can influence the outcome.
In games theory, the outcome or pay-off is measured by what is known as the value system of each player. In a zero sum game, there is a clear winner and an equally clear loser. If one side wins, it obviously means that the other side has lost.
In variable sum games, the outcome is separately measured by each side in light of their respective objectives. This can produce two winners, two losers or a winner and a loser.
Negotiation and mediation are variable sum games. A successful negotiation can have two winners: a buyer may be delighted with his acquisition while the seller may be completely satisfied with the price he has been paid. An employer who gains productivity improvements may view himself as a winner. So also may the employees who obtained an increase in pay in exchange. Negotiation as well as mediation can also produce two losers or one winner and one loser.
In the parlance of games theory, the parties, especially in ongoing relationships, can be said to have mixed motives: cooperation in achieving company’s profits and conflict over their distribution.