# 11

I previously wrote about the difficulty of fair two-party negotiations when there isn't an authority to refer to (like an established market price).

I've designed a tool that tries to sort of solve this problem for practical use cases, which you can test out here, along with an explanation of why I think this is useful here.

It's not perfect; the system is still exploitable with enough effort. But I've tried to leverage human biases and computational limits to make it such that exploiting it is hard and comes with only a low reward, so I expect most people will tend towards not thinking about it too much and just inputting their true prices.

A detailed writeup of how it works is available here. I'd appreciate any suggestions you may have on how I could improve it.

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The fair value input should be "what you expect to pay/get for this if this negotiation falls through", right? To serve as a BATNA.

Hmm, why should it? I'm not seeing the connection.

The parties are trying to divide the gains from trade. To figure those out, we want to compare the world where the trade happens to the world where it doesn't happen.

Sure, but what incentive do they have to input their true BATNA?

Are the probabilities that your tool calculates for whether each party accepts choosable to incentivize this?

I don't see how they would be. If you do see a way, please share!

Yes, that is the crux of the issue. The BATNA is the theoretically correct answer, but hard to discover/elicit accurately.

[-]Valdes10

I am not so sure the incentives are properly aligned here. Let's assume I am the seller. In the extreme case in which I know the highest price accepted by the buyer, I am obviously incentivized to take it as my own limit price.

And I think this generalizes. If:

• there is a universally agreed true fair price FAIR_PRICE, like an official market value
• the buyer is still filling the form honestly
• I know the buyer to have a highest price above FAIR_PRICE + 2 then I can easily get FAIR_PRICE+2

Of course this requires some information on the other negotiator, but I do not see this as unreasonable.

Could you clarify in which situation this is meant to incentivize people to fill the form honestly?

The situation where you don't know the other person's best price. :)

[-]Valdes10

Just in case: I assume that by "best price" you mean "highest price" rather than "estimated fair price".

If so, I only need to have some information on it to be incentivized to lie. In the example above I only use the information that the buyer is willing to pay two units above the fair price. The kind of example I use doesn't work if I have no information at all about the other's best price but that is rare. Realistically, I always have "some" estimation of what the other is willing to pay.

If we take a general Bayesian framework, I have a distribution on the buyer's best and fair price. It seems to me that most/all nontrivial distributions will incentivize me to lie.

Just in case: I assume that by "best price" you mean "highest price" rather than "estimated fair price".

No, I mean the price at which that party is indifferent between making the deal and not making the deal.

If we take a general Bayesian framework, I have a distribution on the buyer's best and fair price. It seems to me that most/all nontrivial distributions will incentivize me to lie.

Yeah, and I'm trying to make that difficult for humans to do.

[-]Valdes10

No, I mean the price at which that party is indifferent between making the deal and not making the deal.

I think that's the same thing? By "highest price" I meant "the highest price the buyer is willing to pay". That's the turning point after which the buyer dislikes the deal and before which the buyer likes the deal.

Yeah, and I'm trying to make that difficult for humans to do.

I understand but I fail to see that this attempt works. It seems to me that in many / most real cases (for which I have a reasonable estimate on the other's best price) it is in my interst to lie if I know that the other is filling the form honestly. If that is correct, then the "honest meta" is unstable.

The highest price the buyer is willing to pay or the lowest price the seller is willing to sell for, yeah.

I agree it's not perfect, and might be slightly game-able. But having used it myself I didn't feel like I had a particularly strong incentive to not input my true price, and I don't have any better ideas.

[-]Dagon1-1

I know of no cases of one-shot negotiations that fit this model. The obvious exploit is to lie and then negotiate “normally” if the tool fails to make a deal in your favor.

I suspect the “fair price reporting” mechanism depends on exactly the same social judgement that would make standard negotiations work.

That said, I appreciate the effort and thought into what elements of dealing are painful, and I hope to be proved wrong.

The obvious exploit is to lie and then negotiate “normally” if the tool fails to make a deal in your favor.

And then the other party refuses to deal with you? Doesn't seem very effective...

I suspect the “fair price reporting” mechanism depends on exactly the same social judgement that would make standard negotiations work.

Correct.

[-]Valdes11

The obvious exploit is to lie and then negotiate “normally” if the tool fails to make a deal in your favor.

The website says:

In order for both participants to have the correct incentives, you must both commit to abide by that result and not try to negotiate further afterwards.

So this strategy fails against people that keep their word.

[-]Dagon2-1

So this strategy fails against people that keep their word.

I guess.  But I don't know of any real-world transactions where it's expected that people keep their word on something like this.  And if there IS that enforcement/trust available, then the MUCH simpler "both write down our best acceptable price, we'll split the difference if a deal is possible" seems to be just as effective.

[-]Valdes21

I guess. But I don't know of any real-world transactions where it's expected that people keep their word on something like this

I think there are two points worth raising here:

1. If someone accepts to precommit to the result of this negotiation and then, when the website outputs a price, refuses to honor it then I probably do not want to trade with them anymore. At the least, I would count it as though they agreed to a price and refused to honor it the next day.
2. You only need to keep a solid precomitment yourself to avoid falling prey to the strategy above.

The obvious issue in my eyes is that few people would agree to use this kind of tool anyway, especially for a nontrivial transaction. But in a society (or simply a subculture) that normalizes them it would probably no longer be true that people don't consider their precommitment to the tool as binding.

No trust in the other party is required to use this tool, that's the whole point.

[-]Dagon2-1

Well, NOW I'm confused.

No trust in the other party is required to use this tool,

It requires trust that they'll honor the results of the tool and boycott any renegotiation or further contact if outside-tool negotiations are attempted.  It's not clear (to me) how much that trust differs from the trust needed to negotiate "normally".

It requires trust that they'll honor the results of the tool

Well sure, just like any sale requires "trust" that the other party won't just take your money and leave. That's what contract law is for, and I'm not sure how I would get around that with only a website, or why it would be worth spending any time on.

or further contact if outside-tool negotiations are attempted.

...No? It takes two people to engage in a negotiation. If Alice doesn't want to sell her item, Bob can't force her to do so.

[-]Dagon40

Thanks for discussing the topic and showing how it could work.  I remain skeptical, but very much look forward to seeing reports of success or real-world transactions that this tool enabled.

I'm going to bow out at this point - feel free to respond or further explain, and I'll gratefully read and learn, but probably won't reply further.