Here's a cautionary tale about a friendly bet going wrong and how to avoid the same mistake in your own bets.

When I was in Brazil with a friend, I had a grand time teaching him to say peanut butter in Portuguese (manteiga de amendoim). He struggled to remember it and butchered the pronunciation and so it turned the whole situation into a great inside joke.

Fast forward a year later,we're staying with each other again and I bet him that he wouldn't be able to remember how to say it by midnight at 20:1 odds. The bet was on.

As we went about our day, every now and then we'd think of it, he’d struggle, but say it was starting to come back to him.

Around midnight I called him into my room and asked him for his final answer.

"Pasta de amendoim." he said.

This kicked off a heated debate about who was right. We each were shocked at some of the other's arguments. They seemed so obviously wrong. We're great friends so even though feelings were heightened, we could still laugh about it.

I held that it wasn't the right answer because I was looking for "peanut butter" while he said "peanut paste". Peanut Paste is what is written on some peanut butter jars but I argued that that clearly wasn't the intent of the bet because there was no inside joke to that effect. Why would I make a bet about random words distinct from the ones I was attempting to teach him day in, day out. He argued that the exact phrasing of the bet was "How do you say peanut butter in Portuguese?" (which is true) and that a third-party would surely rule in his favor. I said that if the third-party had more than just a dictionary, if they had the entire context of our Brazil trip, they would rule in my favor. He still disagreed because he said the context didn't matter because of the way I worded the bet.

I left the situation feeling bad about all the potential bets we might not make if this became the most salient betting experience we had.

Weeks later we revisited it and we finally saw what each other meant. What we disagreed on was norms of arbitration. We both understood that when we shook hands on the bet, a ritual was complete and there was a magical "bet". However, he saw the words as the bet in and of themselves, conferring all the liabilities to the participants that a legal contract would in a court of law. That's understandable. I imagined that this would be arbitrated by a warmer, more human method of intuiting what the intent of the bet was in both of our minds. After all, we were in an Uber joking around when we made it. Terms vs spirits.

This kind of misunderstanding is not unsurprising in this context. In our communications with people, we switch between terms and spirits quite easily.

Work colleague asking for deadlines? Terms.

Our mother asking us to do something? Spirit.

Enforcing a negotiated contract? Terms.

Coming to the terms of that contract in the first place? Terms or Spirit. (If you've read [Getting to Yes]( or have been in many negotiations you'll be familiar with the idea that often negotiations break down not for reasons the party gives for the terms being unacceptable, but because the relationship between the parties has soured. If the relationship is fine, term rejection can be taken at face value. If there's dissatisfaction with the relationship, it's implied by one party's unwillingness to accept terms. The spirit of the explanation of why the terms were inadequate needs to be recovered to salvage the negotiation.)

However, when creating a bet between friends, the situation is ripe for a mismatch in arbitration expectations. On one hand it's very contract-like. There are defined penalties and rewards for certain outcomes. On the other hand, an expectation of Impressive Rules Lawyering would surely make these bets happen less often and could actually necessitate third-party arbitration. For all its amazing wonders, the very "termist" legal system we currently have is clunky… 

Perhaps when you're about to make a bet with someone you can make sure you're on the same page with regards to arbitration norms beforehand and save yourself some headaches.

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