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Resolving Conflict Over a Beer: Lessons for Israeli, Palestinian and American Negotiators

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As Israelis, Palestinians and Americans stumble into the initial stages of negotiations, here are a couple of lessons culled from game theory and behavioral economics they would be wise to keep in mind.

Lesson 1: Fairness Trumps Rationality.

Two people, strangers, are paired and given the following instruction: Person A, randomly selected, gets $100 and is told that she must split it with person B. She can choose whichever configuration she desires: $99/1, $80/20, $50/50, etc. However, the catch is that person B has to accept person A's offer. If he doesn't then both players lose the money.

Now if people were rational actors, as economist often assume, then any split offered by person A that leaves person B with some money would be welcomed. After all, its money Person B did not have coming into the experiment. However, research shows, that if people believe they have been treated unfairly (i.e. given less than 30 percent of total) they would rather reject the offer and punish person A than return home a little richer.

How does this experiment, known as the Ultimatum Game, relate to the Israeli-Palestinian negotiations? Israel, as a powerful and occupying force, gets to decide how much land it's willing to cede. The Palestinians, on the other hand, should they find the offer unfair, can reject and bring down the negotiations. Of course, unlike the Ultimatum Game, the parties come into the negotiation with a shared history, partake in a decision-making process that is iterated and reciprocal, and have a sense of entitlement to the prize.

The interesting question is whether the Palestinians, who are viewed as the far weaker party, can punish the Israelis the way player B punishes player A in the Ultimatum Game. The answer: You bet. And the reason for this is the fates of both people are positively interdependent -- Israelis and Palestinians are going to swim or sink together.

Take the West Bank: Without a negotiated solution, the occupation will likely continue and Israel will not be able to remain a Jewish and democratic state: Enfranchise the subjects under your control and you will, by virtue of demographics, no longer be a Jewish state. Continue to deprive them of civil and political rights and you are an apartheid entity. As for the Palestinians, without Israeli withdrawal, they will not be able to have an independent country of their own.

Of course Israel can unilaterally disengage, but doing so without an agreement is likely to decrease its security and (as outstanding issues like Jerusalem and the refugees will not be solved) leave the conflict intact. Likewise, the Palestinians can unilaterally declare statehood, but doing so while Israel remains an occupying force is likely to be a meaningless gesture.

If Israel can't offer the Palestinians a fair solution that takes their basic interests and needs into account, then the Palestinians are likely to end negotiations and punish Israel by compelling it to choose between three unattractive and risky options: Enfranchise Palestinians (the non-Jewish, one-state solution), maintain the status quo (the non-democratic, one-state solution), or disengage unilaterally (the insecure, two-state solution).

This insight needs to be especially borne in mind by the US (see lesson below) as it attempts to midwife a viable solution to this conflict. The Palestinians must get a sense that both the process and outcome of the negotiation is fair and just (also true for the Israelis). Rationally, a simulacrum of a state is better than no state at all. However, to a people who are primed for statehood, whose anchor for a fair solution is already a compromise (West Bank, East Jerusalem and Gaza make up 22 percent of Mandate Palestine) and who have an alternative to the negotiated solution, this will not do.

Lesson 2: Incurable Subjectivity Calls For Outside Assistance.

A large group of college students was offered a free sample of two different beers: one Budweiser and the other (also Budweiser) laced with two drops of balsamic vinegar, called "MIT Brew." After the taste test, the students were asked to choose which would they like to drink a large glass of -- on the house. Unaware of its true ingredients, a majority of the students preferred the MIT Brew. However, when another large group of students was told, prior to tasting, that the MIT Brew was spiked with balsamic vinegar they displayed a high preference for the regular Budweiser (other studies used Sam Adams).

This led Dan Ariely, Duke University behavioral economist and one of the designers of this experiment, to conclude that our preconceptions change how we experience and understand the world -- even to the point of altering our physiology.

And it was Ariely himself, an Israeli, who made the link between his imbibing students and political negotiations. In a 2008 interview with Big Think, he said that his experiment made him highly skeptical that Israelis and Palestinians will ever be able to understand one another:

Now if you take this seriously, what does it mean for two parties -- Israeli-Palestinian, whatever it is -- sitting together on a table and trying to negotiate? It means that the reality they're going to negotiate about is going to be colored very differently for each of them. In fact so much that it is going to be impossible to bridge that.

One does not have to agree with Ariely's conclusion that no understanding is possible to recognize that the way Israelis and Palestinians "see" the conflict differs considerably. Just consider how hard it is for Palestinians to recognize Israel as the nation-state of the Jewish people, or how difficult it is for Israelis to recognize that settlements devour the land and future of the Palestinian people.

So what's to be done? Ariely explains that it's not necessary for the parties to understand one another, if a (less biased) third party can be aware of both people's true interest and integrate them into a fair solution.:

My solution is that we can't overcome that. We can't overcome the power of expectations or an experience. But if we recognize and we admit it, we might be willing to accept that a third party should make more decisions. And in fact, instead of arguing about who is right and who is wrong, saying we understand we're biased. Therefore we're going to give it to a third party to make a decision for us.

The Obama administration has made it clear that it will not force a solution on the parties. Indeed, a solution that is not owned by the parties themselves will be very difficult to implement. But as a mediator with a vested interest, dealing with a conflict that may soon turn incorrigible, the US ought to provide its own vision of what the solution would look like and press all the parties -- including the Arab states -- to bring it to fruition.

Of course some of the issues are going to be very difficult to resolve (e.g. refugees, Jerusalem), but with the right mixture of imagination, creativity and tenacity, the U.S. may just be able to come up with proposals that satisfy the basic needs of all involved.