The deal is central to many human endeavors, from countries making trade deals, international agencies brokering agreements between nations, OPEC countries coming to an understanding to price-fix in order to have an optimal price of oil in international markets and entering into a relationship. Tycoons agreeing to build railroads across America to transport oil or entrepreneurs finalizing a financing contract with investors. Even something as simple as you going to the grocery store and exchanging money for groceries.
In many ways the deal is just as central to economic growth as entrepreneurship, and just as central to politics as nations or legislation. The foundation format for a deal, is that you have multiple parties that have something that the other parties want, and every party have their view of what such a deal should look like. To continue on the grocery store example, the grocer wants the price for the items you want, to yield the highest possible margin for him, you want the item to cost as little as possible for you. In his view the optimal deal is one wherein you pay the maximum amount over what he paid for the products. In your view, you don’t care if he makes a profit.
So, you come to a compromise where you are both OK with making the deal, but neither of you are maximally happy with the deal. Another example is where the OPEC states and Russia, meet to discuss the state of the oil price, the obvious solution to the low price is to limit supply. However, Russia and OPEC, in an ideal world want the other party to shut down their production, while they maintain theirs. So far, no compromise has been reached. Continue reading