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Eureka: The tatonnement puzzle
by Jay Gutman
2017-11-16 12:00:42
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The tâtonnement puzzle has it that contracts are constantly renegotiated until an optimal agreement is reached. The idea is we sign a first contract, cancel the contract if conditions are not optimal and renegotiate the contract until conditions become optimal. In my attempt to solve this puzzle, I will argue that, to me, this view of contracts is optimistic at best.

tato01_400The first assumption of this puzzle is that when party A signs a contract with party B both parties know exactly what they are getting into. That would mean people who get married always know their rights, people who sign a work contract always know their rights and what kind of job they are getting into, people who sign a business contract know what they are getting into. That's a pretty big assumption, and a false one.

The second assumption is the notion that contracts are negotiable and renegotiable. Unfortunately, more often than not, people walk out of contracts. I don't have the statistics, but I would guestimate that an overwhelming majority of contracts ends in one party or another walking out of the contract, and in a minority of cases contracts are renegotiated. Of course, in the United States and the “big six” (USA, Canada, Ireland, the UK, Australia and New Zealand) the tendency for contracts is that they can be, under certain conditions, renegotiated. But try renegotiating your contract with a French party, a German party, a Russian party, or heavens forbid an East Asian party. Your only option is usually to walk out of the contract.

The third assumption is that when contracts are negotiated or renegotiated the goal in sight is equilibrium and win-win agreements. I've worked for companies, lots of companies. When drafting contracts, they go to Google, Baidoo or Naver or Yahoo, find a random contract that has been drafted, and in some cases, don't even change the details that need to be changed. In most countries contracts are not clear written agreements, they are ambiguous verbal agreements. In some countries attention to detail is something businesses and individuals can find irritating at best.

Now that we have all these assumptions contradicted, are contracts drafted with “selfish” intentions where one party tries to get the best deal for itself, or in conditions where both parties seek optimality? Let me tell you a story. I remember a couple of “friends” (let's call them that) of mine were single, no man in sight, no marriage in sight. At that time I was dating a person with a good job, we were engaged, and then we broke up. Two weeks after my break up both friends announced their engagements and got married the following month. Poor husbands, who got used just so they could piss me off. So here the marriage contract was not meant to be an optimum agreement between the two couples, but merely a prop to piss some random guy off.

As I said I worked at a lot of companies. Some companies try to sign as many deals as they can. Some companies actually have worker contracts where if you don't sign, say, ten deals in the next year, you're fired. With those kind of workers how can anything be optimized? In some other cases contracts say one thing and the deal is a completely different thing. Like in the movie Green Card where the marriage contract says one thing but the arrangement is merely one for social purposes and the other for administrative purposes.

So how do you optimize contracts? The assumption would be that contracts are carefully drafted and carefully negotiated. This is rarely the case. Most times contracts are carelessly drafted and hastily negotiated, and walking out of contracts, not renegotiating, is the norm. Let me finish with this story. At several jobs I had, I'm a versitile guy who can get lots of stuff done, I felt nothing was happening on the job. No praise, little responsibility, lots of irritation and criticism. So when I threatened to walk out of the contract so the contract could be renegotiated (in most countries you can not renegotiate a contract and in some cases get death threats if you suggest to) I was told that I could go. Fine, good luck finding a good replacement then. So the tâtonnement puzzle is unfortunately one designed in the ivory tower where scholars assumed contracts are always carefully negotiated and renegotiated. Though sometimes the case, that more of an exception than a rule.

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