The Predictioneer’s Game: Using the Logic of Brazen Self-Interest to See and Shape the Future

6

ENGINEERING THE FUTURE

DIPLOMATS ARE CONVINCED that a country’s name is an important variable that helps explain behavior. That’s why the Department of State is organized around country desks, just as the intelligence community is organized around geographic regions. Leaders of multinational corporations take much the same view. When they have a problem in Kazakhstan they call their guys in Kazakhstan to find out what to do. That seems eminently reasonable and right. Yet it is only partly right and terribly inadequate for solving most problems, or, as I see it, for engineering the future.

Now don’t get me wrong. Knowing about places, and how different they may be, is important, but, perhaps surprisingly, it is not as important as knowing about people, and how similar they are, wherever they are. I have not arrived at this view lightly nor, I hope, in ignorance. As a matter of fact, the training that led to my Ph.D. molded me into a South Asia specialist. I even studied Urdu for five years, both during my undergraduate and graduate studies, and did field research in India—so I certainly respect and value area expertise. But I don’t think it’s the way government or business should organize itself for problem-solving purposes.

Here, as in so many other ways, I am swimming upstream against a strong current. Mine is a controversial stance in many of the circles in which I travel, and many in those circles see views such as mine as foolish at best and dangerous at worst. Still, I do not shy away from the risk of publishing predictions about things that have not happened—and by and large, those who disagree with me do not do the same.

As valuable as area studies is, it is by itself a poor substitute for the marriage of expertise about places and the expertise of applied game theorists about how people decide. Yet we seem to think that knowing the facts is sufficient. Some even contend that it is ridiculous to rely on something as abstract as mathematics to anticipate what people will do. Speaking of ridiculous things, we surely would think it ridiculous if chemists believed that oxygen and hydrogen combine differently in China than they do in the United States, but for some reason we think it entirely sensible to believe that people make choices based on different principles in Timbuktu than in Tipperary (we might be different from mere particles, but we’re not all that different from one another). Country expertise is no substitute for understanding the principles that govern human decision making, and it should be subordinate to them, working in tandem to provide nuance as we actively seek to engineer a better future.

To explore how this view informs the predictioneering process, in this chapter we’ll turn to a group that lives and feeds on human conflict: lawyers. Lawyers share with diplomats, academics, and business leaders a conviction that country names matter, but—let’s give them some credit—they believe this for better reasons. Different countries have adopted different rules of law. Some assume innocence until guilt is proven, while others assume the opposite; some make the loser pay the costs of litigation, while others do not. But that difference aside, lawyers, like diplomats and statesmen, spend much of their time negotiating the resolution of disputes—and almost none of them ever learn any game theory or study negotiation strategies. Lawyers study law, and diplomats study countries. Both groups may read popular books from which they get some useful insights, but collections of clever anecdotes and off-the-shelf recipes for success are no substitute for the serious study of game theory or for getting the assistance of people with expertise on how decisions are made.

When diplomacy is successful, wars are fought with words, the combatants sitting around a table, drinking Perrier until a resolution is reached and celebrated with fine wine. Lawsuits are wars too. Just as most international disputes are settled long before they get to the battlefield, so are lawsuits played out in meeting rooms, boardrooms, lawyers’ offices, and only rarely courtrooms. Lawyers prepare arguments, investigate precedents, amass documents, and study the other side’s paper trail. In big corporate suits, millions, even tens of millions of dollars are spent on armies of attorneys. I’ve worked on lawsuits involving so many lawyers and so many law firms that it was almost impossible to keep track of them. My consulting company has frequently advised on lawsuits in which the defendant—usually our client is a defendant—holds uncountable meetings with one or two dozen lawyers at each meeting, all senior partners in major law firms, each one billing $400, $500, $600, $700, or more per hour. A typical meeting running just one workday with a dozen lawyers in attendance costs about $57,600—and that doesn’t include the vastly higher costs of preparation for that day’s discussion. Multiply that by dozens of meetings, and then two or three times more to reflect the costs of preparation, and you begin to see how quickly lawsuits become phenomenally expensive. I’ve advised on cases where my client spent tens of millions more on lawyers than they paid in settlement.

Of course, all that lawyer money is not spent without some reason. It’s generally spent for two purposes. First, the money is buying preparation to improve the prospects of victory. That is, of course, the lawyers’ job. Second, the money is spent to signal the other side that they are up against deep pockets that can endure high costs to fight the good fight. The message: “We will keep you embattled in motions, countermotions, and delays until we break the bank. We can spend more than you.” Naturally, the other side is spending tons of money with the same two purposes in mind. The two sides are playing the game called the war of attrition.¹ It’s great for lawyers, and awful for everyone else.

Armies are the diplomat’s analog to the prodigious spending on lawsuits. Having more and bigger guns discourages others from picking fights with the well-armed. Deterrence works much of the time, but sometimes, just as with the deterrent threat of costly litigation, arms fail to protect the peace—and war results. Wars and litigation are inefficient ways to resolve problems. They almost never end in a decisive victory. Instead, they usually end in a negotiated settlement. Both sides find a deal they could, in principle, have arrived at without all the costs that finally brought them to the negotiating table.²

One reason that diplomats and attorneys do not avoid the huge costs of their pre-settlement minuets is that they simply don’t know bargaining theory. They’re reduced to working out the complexities of each situation on their own. Seat-of-the-pants wisdom and experience help, and some lawyers and diplomats are quite good at it, but for most, an awful lot gets overlooked, delaying settlement and rendering the resolution of disputes more costly than it needs to be.

In the dance that precedes negotiations, attorneys and diplomats tend to center their arguments on the merits of the case. Rarely do they really think through the motivations and incentives of their opponents, the people they represent, and themselves. After they form an opinion about the strengths and weaknesses of their case—which is what lawyers are trained to do—they try to impose some reality check on what their clients think, whether the clients are plaintiffs who think themselves terribly harmed or defendants who think themselves exploited. The positions the defendants (or plaintiffs) discuss among themselves in terms of money or other factors in a lawsuit reflect their judgment about the merits of the case. They know this is true for the other side as well. It is no different with international negotiations, whether they concern land for peace, the abandonment of nuclear weapons, or basic principles of governance and human rights.

When my firm advises on a lawsuit, we are always asked how much of the documentation we want to read. Presumably the attorneys hope to give us a reality check, just as they have done for their clients and with themselves. Usually the documentation we are given the opportunity to read is prodigious. There are stacks and stacks of paper. Fortunately, our answer reliably is that we really do not need to read the documents. The merits of the case don’t matter very much once negotiations begin—the merits are inherent in the impasse.

How can this be? Remember the information we seek in expert interviews. None of it is about how meritorious anyone’s position is. It’s all about calculating how much they care about the result and ferreting out how much they care about getting personal credit. Business managers often care a lot about the result; lawyers often care a lot about credit that results in getting more business and building their reputations for the next suit.

In the last chapter I introduced one issue that was part of a more complex web of problems confronting a large firm embroiled in litigation with the U.S. Department of Justice. Here was the table I used to reference the scale of outcomes:

Scale Position

Meaning

100

Multiple felony charges including several specific, severe felonies

90

Several specific, severe felony counts but no lesser felonies

80

One count of the severe felony plus several lesser felonies

75

One count of the severe felony but no other felonies

60

Multiple felony counts but none of the severe felonies

40

Multiple misdemeanor counts plus one lesser felony

25

Multiple misdemeanor counts and no felonies

0

One misdemeanor count

Now I’d like to follow the process through in this example to enable you to see how an outcome can be engineered.

The second appendix contains the information on the plea issue as obtained from the defendant’s experts, including in-house lawyers, outside lawyers, and corporate executives. Naturally, it is masked to protect anonymity. As is evident from a glance at the appendix, just on this one issue—and there were many others in this litigation—the list of interested parties was extensive. Not only did the defendant have a long list of attorneys and corporate executives with an interest in trying to shape the charges brought against the firm, so too did the community that had been affected by the firm’s actions, as well as various segments of the federal government. Far from being unusual, this is typical of a large, potentially costly, and even devastating litigation.

The long list of involved parties means the game was much more complicated than anyone could possibly keep straight in their head. Up to now you may have looked at examples and thought “I can work this out in my head,” but no one can work through this complicated a problem without the help of a computer. That is exactly where the added value comes in from having a trustworthy algorithm.

We’ve all heard stories about evil corporations defrauding people, flouting safety, addicting people to their products, avoiding taxes, polluting the environment, running sweatshops, and God knows what else. That’s what this looked like to me at first blush. The company in question, my client, was accused of having done really terrible things that prompted not only civil action but criminal complaints as well. They were accused pretty much of having destroyed a local community for profit. And yet they seemed like such nice, friendly, soft-spoken, genuinely good people. They had pictures of their children and grandchildren in their wallets. They drove modest cars, ate in normal restaurants, and watched the usual run-of-the-mill TV sitcoms and reality shows. Could the situation really have been as awful as it was portrayed? Could the cast of characters hiring my consulting firm really be the soulless monsters described in the media?

As is almost always the case, reality was a lot more nuanced and complicated than the charges suggested, and the people involved were not the satanic ogres portrayed in the local press. Terrible things had happened, but it was far from obvious that the company was responsible, culpable, or negligent or that it harbored the slightest bit of intent to do any harm, for profit or for any other reason. In fact, as dramatic as the news stories were about the case, reality was much different, and it seems—as we will see—that the U.S. attorney, if not his or her office, understood that.

Mind you, I am not trying to justify some of the awful things that happened. My partner and I strongly urged our client to take steps outside the litigation to help the community involved, just out of a sense of concern for the people’s well-being. They welcomed our advice and acted on it. They wanted to do something for the people who were harmed and had already been contemplating some such action, even though their attorneys urged them not to, fearing this would be interpreted as an admission of guilt. Our advice just served to tip the balance in favor of their doing what was right over what was expedient. That decision, however, was related to humane behavior, not to justice.

Justice requires that we distinguish between bad outcomes and bad intentions or willful ignorance. I don’t believe it’s fair to blame people when things turn out badly unless there is proof (and not just innuendo) that they intentionally chose actions or inaction when a reasonable person could foresee the bad consequences of their decision. It is best to judge people based on what they reasonably could know and expect before they did things, not based on what we know later, after the situation has played itself out. But of course I am no lawyer, so my view of justice may be way off compared to how the American judicial system thinks about things. After all, it is not a lawyer’s job to get at the truth, it is a lawyer’s job to make the best case possible for the client. That, I suppose, is my job too when I’m wearing my consultant’s hat instead of my professor’s hat.

Anyway, the unfolding drama required a big stage. It involved at least a metaphorical cast of thousands. Still, the final decision process revolved around a few star performers, many of whom were most reluctant to see their names in bright lights. The lead players who longed for anonymity included the board of directors of my client’s firm, some of whom were pretty actively engaged in discussions over how to handle the issues; the president and the CEO of the relevant unit of the corporation; and the senior in-house attorney. The senior outside attorneys were also crucial players in the unfolding drama.

On the other side, the U.S. attorney, his/her staff, some of the line attorneys in the Department of Justice and in ABC (a government agency whose name is masked to ensure anonymity for the client), the head of the relevant local government, and plaintiff’s counsel didn’t mind seeing their names in lights at all; in fact, a few of them relished the thought. They were star players as well.

Getting the lead actors to agree on a settlement was the task at hand. Otherwise, the cases were going to go to trial. Probably the corporation and its representatives would have come out pretty well in terms of a judgment, but not before they had been dragged through the mud day in and day out during the trial. That was the scenario expected by the client. It wasn’t a pretty picture. They had been working on the drama’s script for several years with no sense of progress but with deep concerns that catastrophe lay just around the corner.

Keenly aware of the aura of doom and gloom that pervaded all discussions, my partner and I set out to define the issues and to turn the model loose in order to get a first impression of the lay of the land. We were curious about whether the situation was as hopeless as the client thought. The model’s initial estimate of what would happen—our weighted mean and median are the same in this case—equals 60 on the outcome scale. Sixty is equivalent to pleading guilty to multiple felony counts not including any of the severe felonies. This initial prediction was viewed as good news by the defendant, a ray of sunshine in their overcast view of the situation.

The firm’s most senior executives—not just bit players in the company—were looking at having to plead guilty to at least one count of a severe felony as well as several lesser felonies. So the initial estimate revealed the possibility of a better-than-expected outcome for the client. That was the good news. But every silver lining needs a cloud, and this was no exception. The simulation of the negotiating game that followed from that initial estimate bore out the defendant’s gloomy expectation. The initial estimate was more optimistic than the model’s conclusion after it had simulated the consequences of the predicted interactions among the players. Remember that the changes from initial positions predicted in the game led also to a more accurate prediction about the expected final decision. In other words, the motivations and power of the plaintiffs and their cause suggested that my client would lose ground as negotiations wore on. The aura of doom and gloom was quick to return.

As figure 6.1 shows, my model predicted the negotiations would follow a complex path, first looking very encouraging and then turning sour. This figure illustrates what I meant earlier about this game being like multidimensional chess. If all that the players cared about was getting the result they advocated, this would be no harder than a round-robin chess tournament. But egos enter into negotiations and so enter into the negotiating game. Some players will take big risks to try to win big. Others are more concerned about not losing than they are about winning. That means figuring out which players are choosing their moves to get the plea they favor, which are picking moves that will get them the most credit for finding a settlement (or blocking one), and which are ambivalent about these competing desires. Chess isn’t this messy. Imagine trying to win at chess when the rules for winning change with each opponent, as they do in the negotiating game!

FIG. 6.1. The Unengineered Plea Path

According to the model, the give-and-take in settlement discussions would persist through eight meetings between the defendant’s representatives and the U.S. attorney or his/her representatives. At the end of the eight exchanges of views and arguments, the game indicates that the cost of continued negotiations was no longer going to be worth the small changes in the expected agreement. That agreement was just about at 80 on the plea scale—that is, one count of the severe felony plus several lesser felonies.

The result anticipated by most of my client’s lawyers and expected by the board, and the plea predicted by the end of the game, were the same. If my model couldn’t improve on this, then my consulting partner and I would have nothing to offer the firm that hired us. We would be just another expense.

However, the game uncovered something not anticipated by most of the attorneys (one senior outside attorney had the ultimate result dead right from the outset, although he/she did not quite see why it would arise or how to get there). The model’s simulation indicated that early discussions with the U.S. Attorney’s Office and others would suggest that a powerful coalition of interests was going to form around a lesser set of charges—almost like a gambit in chess, designed to suck the client and the U.S. attorney into a move that would be used against them later. The figure, which displays the predicted upshot of discussions at each stage in the negotiations, anticipates that the second and third presentation of arguments by the defendant’s side were likely to soften the U.S. attorney enough so that he/she would contemplate agreeing to 50, a better mix of multiple misdemeanor and felony counts not including a severe felony. This was, in fact, the position believed to be held by the U.S. attorney at the outset of negotiations, according to our interviews with the client’s representatives and attorneys. However, the initial analysis also showed that with subsequent rounds of discussion, the U.S. attorney could be and would be persuaded to take a tougher, not a softer, stance.

Why the move to a tougher stance after showing openness to a more moderate settlement? The model indicated that the hard-line attorneys in ABC and in the office of the U.S. attorney were going to execute a gambit. The ABC attorneys and the Department of Justice lawyers apparently were out to make names for themselves as tough guys who could bring evil corporations to their knees. The analysis suggested that they thought this was the perfect case to do it. Their gambit aimed to set up the U.S. attorney so that he/she would reveal softness early in settlement discussions. Then later they would pounce on this softness in order to embarrass the U.S. attorney politically, compelling him/her to take a tougher stance when it counted, in the end, lest he/she be tarred publicly with the ignominious tag of being soft on business malfeasance. That would not have played out well in the affected community or in the Department of Justice. To be sure, these lawyers were really rolling the dice, taking a big risk if their gambit failed. But they had every reason to think it would succeed—and probably it would have, had my client not been using a tool like the negotiating game.

Even though (according to the model) the U.S. attorney was willing to go for a mix of misdemeanors and lesser felonies, the logic showed that the hard-liner gambit would work. He/she would abandon a moderate stance, choosing instead to go for severe felonies. This was the U.S. attorney’s way of solving the tough choice between pursuing the outcome he/she thought was right and following the gambit’s path, thereby avoiding careerist costs and keeping the support of others in the Department of Justice and in the affected community. Seeing that the U.S. attorney had significant political exposure and careerist ego involvement in the case, it became apparent that we could find ways to gratify his/her ego and bollix the hard-liners’ gambit.

The simulations uncovered several interesting patterns that opened the opportunity to engineer the outcome. First, as noted, the U.S. attorney took a tough stance according to the simulations because of pressure from attorneys at ABC and within the Department of Justice and in response to arguments from several stakeholders in the affected community. They were strongly committed to their point of view, and the U.S. attorney cared about being perceived by them as interested in helping them get justice as they saw it. This was particularly interesting because the U.S. attorney’s own view of what could be supported as punishment through the judicial process was considerably less. The U.S. attorney’s view involved none of the severe felonies and showed openness to at least some misdemeanors. The U.S. attorney, facing hard-line pressure, was willing to trade off some sense of legal correctness for political correctness and its attendant personal credit.

To engineer a better result, I simulated what might happen if the defendants altered their bargaining position from that of being prepared to accept numerous misdemeanors and maybe one lesser felony, a posture predicted to end in their caving in to one or more severe felonies. I looked at what would happen if they offered more concessions up front and also if they offered less. I also looked at how they could maneuver to get some important hard-liners to make arguments that would make those hardliners look foolishly extreme to the U.S. attorney, turning the gambit on its head. In examining alternative strategies I took advantage of another insight gained from the base analysis: the U.S. attorney tilted more toward eagerness to make a deal than to sticking to a particular position. Also, it was evident that the defendant’s strategy had to create leverage against the pressure exerted by the hard-liners who wanted a plea involving severe felonies.

It turned out that the best strategy for the defendant involved two shifts from the approach they had planned as reflected in the data they gave me about themselves. First, the one outside counsel who favored pleading guilty to one lesser felony and numerous misdemeanors needed to convey unity with the rest of the defendant’s team in endorsing a plea to misdemeanors only. Although this one attorney had the right settlement in mind—that was the ultimate agreement on this aspect of the case—he/she could not so much as hint at this flexibility during the initial meetings with the U.S. attorney, and he/she did not.

This attorney acted out the scripted part perfectly. Jack Nicholson, great as his performance was in A Few Good Men, paled in comparison to the performance of the attorney who had to fake a commitment to a position he/she did not really believe in. Since he/she led negotiations on this issue, his/her ability to be convincing was critical, and convincing he/she was.

Of course, getting an attorney or anyone else to act contrary to their beliefs is no small order. It takes great faith that the model’s logic should be allowed to trump personal intuition. As an old client used to say when introducing me to his colleagues, “Check your intuition at the door.” The greatest value of a model is when it provides an insight that is contrary to the decision makers’ expectations—when it correctly urges them to check their intuition at the door. It takes a courageous person to defy one’s own beliefs and follow the lead derived from a computer model, since after all we never know what is or is not correct until after the fact. All we know is the model’s track record for accuracy (but then everyone thinks his problem is unique) and whether the logic for the proposed action is persuasive. Fortunately, in this case the outside attorney being asked to change his/her approach had worked with my firm before on other cases. In fact, this attorney is the very person who persuaded the client to use my company’s services. He/she had seen the model, as he/she put it, “work its magic” before, so this attorney had no problem agreeing to act out the part as written by the model.

The second maneuver that was required was considerably more challenging to “sell” to the defendant. The company’s directors were naturally very concerned about this matter and were eager to find a solution. The simulations—remember, all of this analysis is happening before discussions with the U.S. attorney have begun—showed that the directors were so fearful of how the case was likely to unfold that they would cave in to the mounting pressure from the opposition hard-liners by agreeing to numerous felony counts including one count of the severe felony—that is, the hard-liners’ chess gambit was going to work. To produce no severe felonies, getting instead multiple misdemeanors and one lesser felony as the plea, it was necessary to control the reaction of the board when the U.S. attorney pressed hard for an outcome the board was prepared to live with. The strategy for them was simple to articulate but hard to do: they had to take the position that they would not negotiate or authorize any discussion of felonies at all, risking the ire of the U.S. attorney and a breakdown in discussions.

They would have to repeat this message convincingly through months of negotiations between the U.S. attorney and their attorneys. Their attorneys would have to keep going to meetings with the U.S. attorney in which they repeated the message that they were unable to persuade the board to show some flexibility, followed by a plea that the U.S. attorney must give them the ammunition to convince their board that the matter could be settled. That ammunition was for the U.S. attorney to stand up to the hard-liner government attorneys, shooting down their arguments in front of the defendant’s attorneys when they all sat in meetings together. That was the way for the U.S. attorney to flip the hard-liners’ gambit on its head. To achieve this end, the board had to go along with the idea of their lawyers insisting on going to meetings with the hard-liners in attendance rather than trying to have private meetings with the U.S. attorney as they actually preferred.

Just imagine the board’s reaction. Their first thought was “Who is this guy with the chutzpah [not a word they would have used] to tell us what to do when our entire business is on the line?” Indeed, when I proposed the optimal monetary offer to settle the case, an offer way below what they thought should be put on the table, they thought I was nuts. When I suggested that their attorneys should meet with the hard-liners as well as the U.S. attorney, they thought I was beyond nuts.

The model found that the optimal offer and settlement price was about a third of what the board thought they should make as their opening offer, and it found that this offer was best made in the presence of both the U.S. attorney and the hard-liners. The board members were sure the U.S. attorney would just get up and walk out if they did what the model was recommending. Fortunately, some of the other people involved in the case had worked with me, my partner, and the model before. They thought that the board should listen, and that they would listen if they just had an opportunity to confront the arguments head-on. With that in mind, the lead in-house attorney set out to arrange a meeting for me with a very senior executive from the firm. That senior representative would put the board’s case before me and see if I could make convincing arguments based on the model’s results—that is, could I persuade this executive that the strategy developed through the game was not nuts?

Mind you, I have faced this sort of situation many times. Anyone who works on behalf of my firm on a project is instructed never—let me repeat that word, never—to argue for or against an approach to a problem except based on results that can be pointed to directly in the model’s output. We have no place for personal opinion. We are not experts on the substance of the problems we analyze, and generally we know little even about the industry involved, so there is no reason for anyone to take our personal opinions seriously. It is the very fact that we can show that the positions, tactics, and strategies we recommend come out of the model’s logic and the client’s data and not out of our heads that sells the client on the independence and the credibility of the view we express. They can argue with the model’s logic—that’s a conversation we love to have—and sometimes they do, but they always know that they will have to disagree with the logic or with the data inputs derived from our expert interviews (usually with their own experts), and not with us. Logic and evidence, not anyone’s personal opinion, are the focus of our presentations, briefings, and discussions and are, in the end, the basis on which people should decide whether to try an approach contrary to their initial intuition.

No one should blindly follow a model. It is, after all, just a bundle of equations. But neither should people dismiss a model’s results out of hand just because its implications and their personal opinions differ. To repeat myself, the model’s greatest value is that it provides clients with a different way of thinking about their problems. That is an important part of the power that game theory, strategic thinking, brings to the table. Fortunately, as it turns out, clients generally find that the logic makes sense to them, and the data, after all, are theirs and can be adjusted and rerun to see how robust the findings are. So in the end, when they listen to us it is because they are sold on the integrity of the process.

Of course, not all clients “check their intuition at the door.” When they don’t follow the model’s advice, the model’s prediction for what is likely to follow in that case tends also to be accurate. They end up with an outcome that is typically a lot less favorable. In the case at hand, the board’s senior management representative was sold on the model-based advice after examining me and the results for about eight grueling hours. The board agreed to go ahead with the approach we recommended.

To communicate the message credibly, the firm’s general counsel agreed to meet with the U.S. attorney, and requested, even insisted, that the hardliners be present. Naturally, this insistence came as a surprise to the U.S. attorney. It was an even bigger surprise and a deep disappointment to the hard-liners. According to the model, they were eager to be backstabbers behind the scenes, sheltered from the light of day. They wanted to take a shot at influencing, maybe even cajoling or coercing, the U.S. attorney after he/she met privately with the firm’s general counsel. They tried to get out of attending a meeting with the general counsel, claiming scheduling conflicts. The firm’s general counsel deflated that maneuver by stipulating that he/she would meet whenever it was convenient for them. Their hopes for executing their gambit were crushed. By our surprise move, they lost that opportunity.

The general counsel conveyed the board’s (sincerely held) conviction that they had done nothing that warranted criminal charges beyond misdemeanors. The general counsel went on to argue that the firm’s agreeing to what the U.S. attorney was demanding was tantamount to giving up the affected, important part of their business. The message was that the board would not even contemplate any sort of deal that involved pleading guilty to felonies.

Of course, we knew that if push came to shove, the firm would have caved in and accepted one or more counts of the serious felony even if doing so would destroy an important part of their operations. They would have done so to bring the process to a speedy end so that they could get on with the rest of their business. They believed that even if they prevailed in court—recognizing that this is always uncertain even in the best of circumstances—the political, social, and economic costs of a prolonged trial would be unbearable. It was better to settle on a plea agreement and suffer the consequences. Remember Arthur Andersen (not the firm involved in this case). The company fought the charges against it resulting from its audits of Enron and was found guilty in court, only to have that judgment overturned by the Supreme Court after it was essentially no longer in business. Sometimes it is worse to win in court than to accept a plea agreement even when you are innocent. The judicial process may eventually come to the right answer, but too often the right answer only comes after unendurable costs have been borne by the defendant.

The model’s maneuvers, in this as in many other situations, are designed to prevent push from coming to shove. The approach recommended through the model’s logic is indeed the very kind of bluffing we were talking about in our exploration of fundamental game theory back in Game Theory 101 and 102. We knew the board would plead to more than misdemeanors if left to its own devices, but the U.S. attorney did not and could not know that.

After months of discussion, as anticipated, the U.S. attorney responded to the pressure from the board of directors and chose sides in the ongoing war. Instead of capitulating to the hard-liners within the government, the U.S. attorney berated them in the meeting we had insisted they attend. The U.S. attorney seized the chance to reinforce his/her own initial view of what constituted a just agreement. The hard-liners were made to look mean-spirited and unrealistic, even foolish in their demands. The case was settled by the defendant’s pleading guilty to several misdemeanors and one lesser felony. This was the outcome they desired and felt was just. They believed it was out of reach, and it would have been had they gone in asking for this agreement. Going in with the final result would have left them feeling compelled to make more concessions. As it was, they got an outcome vastly better than the defendant’s management or attorneys (save one) thought possible.

This case typifies the engineering process. The board of directors, the U.S. attorney, the Department of Justice hard-liners—they are, obviously, all different people, with different upbringings, personal experiences, and beliefs about the world. But they all make choices across the same dimensions of human behavior—there are, after all, only so many options to choose from. They can look for compromises; they can try to coerce people into capitulating to them; they can surrender to their adversaries; they can lock themselves into a war against their opponents; and they can bluff doing some of the above. That’s about the full array of choices of action for any problem. The key to this case was isolating the U.S. attorney; he/she was the principal driver of the outcome. What he/she thought was “right”—whether it was or was not in any absolute sense—and what he/she wanted in ego satisfaction: these were the two essentials behind engineering the settlement. The real question of this case was how those two interests could be aligned most favorably for my client.

If I were to have brought the area-specialist mentality to this engagement, then perhaps I would have read through the thousands of pages of background produced by the armies of lawyers, perhaps I would have delved into volumes of case law, and perhaps I would have ultimately produced a brilliant argument as to why my clients deserved only misdemeanors and a minor felony. (Of course, this is not what my client hired me for, and is in fact exactly what the lawyers would have produced if the matter had landed in court.) But then, in that clash over the merits, however brilliant an argument I could have produced, despite all of my efforts, it probably wouldn’t have meant a darn thing. Because, of course, the talented government attorneys on the other side could have produced just as sparkling a case for severe felonies—and that leaves so very much to chance. No, the path to favorable resolution was in doing the work to produce an accurate understanding of the lay of the land, and then finding ways to work with it, not against it, through sequences of interaction.

The process of predictioneering does not rely on the recounting of grievances (which all too often only hardens positions). If people are congregated around an impasse, well, it’s indeed unfortunate that there’s a conflict, but the very act of congregating around it suggests that the parties are in search of some dynamic that will yield an outcome—whatever it may be—to break the stasis. Predictioneering provides a complex network of decision-making channels, valves that open and close as actions are taken or passed upon. If I offer options A, B, and C, then doors D, E, and F open, and so on exponentially (again, hence the need for the trusty computer!). Suddenly, as this network routes decisions, grounds shift, positions change, and in this case a U.S. attorney is led to a place where he/she feels both validated in his/her own views and accomplished in forcing a little heavier penalty on my client than it was apparently (but not actually) initially willing to endure.

This process involves exploiting or altering people’s perceptions of a situation by looking within the model’s round-by-round output to work out who is responsible for shifts in positions and how to counter those shifts if they have bad consequences for the client. The process is no different whether the problem is resolving Iran’s nuclear program, figuring out what al-Qaeda is likely to do, or facilitating the merger of companies. Every one of these situations involves humans who are not all that different from one another, regardless of where they go to sleep at night.

So in the next chapter I’ll look at a few current problems such as those listed above to see how we might engineer beneficial outcomes. The examples will help illustrate the potential costs of failing to see or to address what may be around the corner.